If the euro price per dollar falls, what impact will this change have on the European demand for U.S. goods and the cost of U.S. goods to Europeans?

European demand for U.S. goods	Cost of U.S. goods to Europeans
Increases	Increases

European demand for U.S. goods	Cost of U.S. goods to Europeans
Decreases	Increases

European demand for U.S. goods	Cost of U.S. goods to Europeans
Decreases	Decreases

European demand for U.S. goods	Cost of U.S. goods to Europeans
Decreases	Remains unaffected

European demand for U.S. goods	Cost of U.S. goods to Europeans
Increases	Decreases

Question 2(Multiple Choice Worth 3 points)

(06.01 LC) Factor income sent from country X and received by residents of country Z will be recorded in Country X's

financial account national savings gross domestic product capital inflows current account

Question 3(Multiple Choice Worth 3 points)

(06.04 HC) Use the graph to answer the question that follows. Assume that a decrease in the real interest rate in the United States decreases the amount of foreign investment into the country. If the initial exchange rate is 0.84 euro per dollar, then

there will be rightward shift in demand for U.S. dollars from D to D2, and the new point of equilibrium will be at B there will be rightward shift in demand for U.S. dollars from D to D2, and the new point of equilibrium will be at A there will be leftward shift in demand for U.S. dollars from D2 to D, and the new point of equilibrium will be at A there will be leftward shift in demand for U.S. dollars from D to D1, and the new point of equilibrium will be at C there will be leftward shift in demand for U.S. dollars from D2 to D1, and the new point of equilibrium will be at C

Question 4(Multiple Choice Worth 3 points)

(06.06 HC) Use the graph to answer the question that follows. If the graph above represents the loanable funds market (of dollars) in the United States, what will be the impact in the foreign exchange market from the shift in the supply of loanable funds?

The dollar will appreciate as financial capital flows from the United States increase. The dollar will appreciate as financial capital flows to the United States increase. The dollar will depreciate as financial capital flows from the United States increase. The dollar will depreciate as financial capital flows to the United States increase. The dollar will depreciate as exports decrease.

Question 5(Multiple Choice Worth 3 points)

(06.05 MC) Assume that country A and B are trading partners. If A's currency appreciates in comparison to B's currency. Which of the following will be true in this scenario?

Net exports of country A will decrease, and net exports of country B will increase. Net exports of country A will decrease, and net exports of country B will also decrease. Net exports of country A will remain unaffected, and net exports of country B will increase. Net exports of country A will increase, and net exports of country B will remain unaffected. Net exports of country A will increase, and net exports of country B will also increase.

Question 6(Multiple Choice Worth 3 points)

(06.03 MC) Which of the following affects the supply of the U.S. dollar in the foreign exchange market?

1. Exports from the United States increase due to depreciation of the U.S. dollar
2. U.S. citizens invest in foreign firms and assets
3. Demand for imports from abroad by U.S. citizens

I only II only III only II & III I & II

Question 7(Multiple Choice Worth 3 points)

(06.01 LC) Which of the following statements regarding the balance of payments accounting system for a country is accurate with market determined exchange rates?

The current account will always be balanced. The capital and financial accounts will always be balanced. Net unilateral transfers are excluded from the current account. Money that flows into a country is a debit and out of a country is a credit. The sum of the current accounts and the capital and financial accounts should be zero.

Question 8(Multiple Choice Worth 3 points)

(06.05 MC) Which of the following will be true if the currency of a country depreciates?

Net exports will remain unaffected, and aggregate demand will decrease. Net exports will increase, and aggregate demand will remain unaffected. Net exports will increase, and aggregate demand will increase. Net exports will decrease, and aggregate demand will increase. Net exports will decrease, and aggregate demand will decrease.

Question 9(Multiple Choice Worth 3 points)

(06.04 MC) Assume the United States government significantly increases deficit spending relative to other countries. Which of the following would happen to the U.S. dollar in the foreign exchange markets because of the change in the interest rate, ceteris paribus?

The U.S. dollar will appreciate. The U.S. dollar will depreciate. There will be a decrease in demand for the U.S. dollar on foreign exchange markets. There will be a decrease in the supply of U.S. dollars on foreign exchange markets. The U.S. dollar will be devalued.

Question 10(Multiple Choice Worth 3 points)

(06.04 MC) If the government of a country decides to implement an expansionary monetary policy, how will it affect the price level and the value of the country's currency in foreign exchange markets?

An increase in the money supply does not affect the price level and depreciates the currency. A decrease in the money supply increases the price level and appreciates the currency. An increase in the money supply increases the price level and depreciates the currency. A decrease in the money supply decreases the price level and depreciates the currency. An increase in the money supply increases the price level and appreciates the currency.

Question 11(Multiple Choice Worth 3 points)

(06.02 MC) In Switzerland, the price of a domestically produced wristwatch is 100 Swiss francs. If an American tourist can purchase the same watch in Switzerland for $120, what must be the exchange rate between the two countries?

$0.20 per Swiss franc $0.83 per Swiss franc $1.20 per Swiss franc $5 per Swiss franc $6 per Swiss franc

Question 12(Multiple Choice Worth 3 points)

(06.03 MC) Assume the equilibrium exchange rate for one peso is 0.5 U.S. dollar. If it is exchanged for 2 U.S. dollars instead, then which of the following is true about the foreign exchange market for pesos?

The supply of dollars will be greater than the demand for pesos. The supply of pesos will be greater than the demand for pesos. The supply of pesos will be less than the demand for pesos. The supply of pesos will be equal to the demand for pesos. The supply of dollars will be equal to the demand for dollars.

Question 13(Multiple Choice Worth 3 points)

(06.06 MC) In order to encourage foreign financial investment into the country, the country's central bank can

increase the interest rate by decreasing the money supply, which will increase capital inflows increase the interest rate by increasing the money supply, which will increase capital outflows increase the interest rate by decreasing the money supply, which will decrease capital inflows decrease the interest rate by increasing the money supply, which will increase capital outflows decrease the interest rate by decreasing the money supply, which will decrease capital inflows

Question 14(Multiple Choice Worth 3 points)

(06.03 MC) Use the graph to answer the question that follows. From the above graph, if one Chinese yuan is sold at 0.2 U.S. dollars in the foreign exchange market, then which of the following would be true?

There will be a surplus of 100 yuan. There will be a shortage of 200 yuan. There will be a surplus of 150 U.S. dollars. There will be a shortage of 100 yuan. There will be a surplus of 100 U.S. dollars.

Question 15(Multiple Choice Worth 3 points)

(06.03 LC) When the exchange rate between two currencies freely floats, the

governments will deflate their currency to increase exports balance of payments will always favor current accounts exchange rate equalizes the quantity demanded and quantity supplied of each currency demand curves for the currencies will slope upward sum of the current account and the capital and financial account will be one

Question 16(Multiple Choice Worth 3 points)

(06.01 MC) Use the data table to answer the question that follows.

Exports	$300 billion
Imports	$200 billion
Net income from foreign markets	$200 billion
Net unilateral transfers	$20 billion

Based on the data above, which of the following describes this nation's balance of payments?

The current account is in surplus, and the capital and financial account must be in surplus. The current account is in surplus, and the capital and financial account must be in deficit. The current account is in deficit, and the capital and financial account must be in surplus. The current account is in deficit, and the capital and financial account must be in deficit. The current account is in surplus, and the capital and financial account will be indeterminate.