1. Which of the following would cause the U.S. dollar (USD) to depreciate as compared to the euro?

a. Interest rates in the United States decrease.

b. Interest rates in the European Union decrease.

c. Price levels in the European Union increase.

d. Price levels in the United States decrease.

e. GDP in the European Union increases.

2. Assume the U.S. dollar and the Canadian dollar are traded in flexible currency markets. Which of the following would cause the U.S. dollar to depreciate relative to the Canadian dollar?

a. Higher price level in Canada relative to the United States.

b. Higher interest rates in the United States relative to Canada.

c. Lower interest rates in the United States relative to Canada.

d. Decreasing GDP in the United States than in Canada.

e. Increasing GDP in Canada relative to the United States.

3. Suppose Europeans began purchasing real assets in the United States. How would this impact the foreign exchange market for the euro and the U.S. dollar price of the euro?

Supply of euro / U.S. dollar Price of euro

a. Increase / Increase

b. Increase / Decrease

c. Decrease / Increase

d. Decrease / Decrease

e. Decrease / Not Change

If a supply shock dramatically increases the prices of domestic goods in China, the American dollar will _____ and the Chinese yuan will ____.

a. depreciate, depreciate

b. depreciate, appreciate

c. appreciate, depreciate

d. appreciate, appreciate

e. unknown, depreciate