1. In a flexible-exchange-rate system, an increase in foreign income will

• reduce demand for the domestic currency, creating an appreciation of the domestic currency.
• increase demand for the domestic currency, creating a depreciation of the domestic currency.
• increase demand for the domestic currency, creating an appreciation of the domestic currency.
• reduce demand for the domestic currency, creating a depreciation of the domestic currency.

2. In a flexible-exchange-rate system, an increase in the foreign real interest rate will

reduce supply of the domestic currency, creating a depreciation of the domestic currency. increase supply of the domestic currency, creating a depreciation of the domestic currency. increase supply of the domestic currency, creating an appreciation of the domestic currency. reduce supply of the domestic currency, creating an appreciation of the domestic currency.

3. For each of the following changes, represent the change by an appropriate shift of the supply and/or demand curves for the U.S Dollar currency. State whether the currency appreciates or depreciates as a result of the change.

a) A new model of Jeep, made in America, is successful in sales to Germany

b)Japan reduces its interest rate compared to the U.S., causing investors to sell Japanese bonds and buy U.S. bonds.

c) Germans, unhappy with monetary unification, transfer their bank balances to the U.K.

4. When the value of the British pound changes from $1.25 to $1.50, then (a) the pound has appreciated and the dollar has appreciated. (b) the pound has depreciated and the dollar has appreciated. (c) the pound has appreciated and the dollar has depreciated. (d) the pound has depreciated and the dollar has depreciated.

• the pound has appreciated and the dollar has appreciated.
• the pound has depreciated and the dollar has appreciated.
• the pound has appreciated and the dollar has depreciated.
• the pound has depreciated and the dollar has depreciated.

5. If the dollar depreciates relative to the Swiss franc

• Swiss chocolate will become cheaper in the United States.
• American computers will become more expensive in Switzerland.
• Swiss chocolate will become more expensive in the United States.
• Swiss computers will become cheaper in the United States.

6. If the U.Simposes a quota on imports of Japanese cars due to claims of "unfair" trade practices, and Japanese demand for American exports increases at the same time, the long-run result will be

• (a) an appreciation of the yen relative to the dollar.
• (b) a depreciation of the yen relative to the dollar.
• (c) a depreciation of the dollar relative to the yen.
• (c) a depreciation of the dollar relative to the yen.
• (d) uncertain, as it is not clear whether the yen should appreciate or depreciate.

7. Higher tariffs and quotas cause a country's currency to _____ in the _____ run.

• depreciate; short
• appreciate; short
• depreciate; long
• appreciate; long

8. When a country's currency appreciates (rises in value relative to other currencies), the country's goods abroad become___________________? expensive and foreign goods in that country become_____________________? expensive (holding domestic prices constant in the two countries).