ECON 214 quiz 13 solutions complete answers

ECON 214 quiz 13 solutions complete answers 

 

The euro is an unusual currency because:

           

If a currency becomes ____________ valuable in world markets, then its price rises, and this increase is called ____________.

           

 If a currency becomes ___________ valuable in world markets, then its price falls, and this decrease is called ____________.

           

Currency ___________ occurs when a currency increases in value relative to other currencies.

           

Currency ___________ occurs when a currency decreases in value relative to other currencies.

           

 If the U.S. dollar ____________, it becomes _____________ valuable in world markets.

           

If the U.S. dollar ____________, it becomes ___________ valuable in world markets.

           

The following table shows the number of various foreign currencies required to buy a U.S. dollar on April 12, 2008, and April 12, 2013. Use this table to answer the next three questions: 

 

Between April 12, 2008, and April 12, 2013, the U.S. dollar appreciated against the:

           

On April 12, 2008, a haircut in Japan cost 2,000 yen. Using the exchange rates in the above table, that haircut cost approximately ____________ U.S. dollars or ____________ Australian dollars.

           

Between April 12, 2008, and April 12, 2013, the price of a U.S. postage stamp increased from $0.41 to $0.46. The price of a U.S. postage stamp has increased approximately ____________ in terms of Japanese yen and _____________ in terms of British pounds.

           

The following table shows the number of U.S. dollars required to buy one euro between September 3, 2012, and April 1, 2013. Use this table to answer the next three questions:

 

Between November 1, 2012, and January 1, 2013, the U.S. dollar ____________ against the euro and the euro ___________ against the U.S. dollar.

           

Between February 1, 2013, and April 1, 2013, the U.S. dollar ___________ against the euro, and the euro ____________ against the U.S. dollar.

           

Between September 3, 2012, and February 1, 2013, the U.S. dollar __________ against the euro, and the euro ____________ against the U.S. dollar.

           

The following table shows the number of euros required to buy one U.S. Dollar between September 3, 2012, and April 1, 2013. Use this table to answer the next two questions: 

 

Between November 1, 2012, and January 1, 2013, the U.S. dollar ___________ against the euro, and the euro ___________ against the U.S. dollar.

           

Between February 1, 2013, and April 1, 2013, the U.S. dollar ___________ against the euro, and the euro _________ against the U.S. dollar.

           

The following table shows the number of U.S. dollars required to buy one British pound between September 3, 2012, and April 1, 2013. Use this table to answer the next five questions:

 

Between February 1, 2013, and March 1, 2013, the U.S. dollar ____________ against the British pound, and the British pound ____________ against the U.S. dollar.

           

Between January 1, 2013, and March 1, 2013, the U.S. dollar ___________ against the British pound, and the British pound ___________ against the U.S. dollar.

           

Between October 1, 2012, and November 1, 2012, the U.S. dollar __________ against the British pound, and the British pound ___________ against the U.S. dollar.

           

On March 1, 2013, the price of a surfboard was 1,200 U.S. dollars in La Jolla, California. Based on the exchange rates quoted in the table, a surfboard was approximately __________ British pounds.

           

 On November 1, 2012, the price of a skateboard at JJ’s Beach Shop was 120 U.S. dollars in La Jolla, California. On April 1, 2013, the price of a skateboard was 130 U.S. dollars. Using the exchange rates in the table, between November 1, 2012, and April 1, 2013, the price of a skateboard at JJ’s Beach Shop increased by approximately ___________ in terms of U.S. dollars and ____________ in terms of British pounds. (Round the British pound price two decimal points and the percentage changes to the first decimal point.)

           

The following table shows the number of British pounds required to buy one U.S. dollar between September 3, 2012, and April 1, 2013. Use this table to answer the next two questions:

 

Between February 1, 2013, and March 1, 2013, the U.S. dollar __________ against the British pound, and the British pound __________ against the U.S. dollar.

           

Between January 1, 2013, and March 1, 2013, the U.S. dollar __________ against the British pound, and the British pound _____________ against the U.S. dollar.

           

The following table shows the number of U.S. dollars required to buy one British pound and the number of U.S. dollars required to buy one euro between September 3, 2012, and April 1, 2013:

 

Between January 1, 2013, and February 1, 2013, the U.S. dollar _____________ against the British pound, and the U.S. dollar ___________ against the euro.

           

The following table shows the number of British pounds required to buy one U.S. dollar and the number of euros required to buy one U.S. dollar between September 3, 2012, and April 1, 2013: 

 

Between December 3, 2012, and January 1, 2013, the U.S. dollar ____________ against the British pound, and the U.S. dollar __________ against the euro.

           

The following table shows the number of U.S. dollars required to buy one Mexican peso and the number of U.S. dollars required to buy one Australian dollar between January 1, 2013, and April 1, 2013:

 

Between March 1, 2013, and April 1, 2013, the U.S. dollar ____________ against the Mexican peso, and the U.S. dollar ____________ against the Australian dollar.

              

The claim that the quantity of euros demanded by U.S. consumers will fall when the price of euros in terms of U.S. dollars rises is best referred to as:

           

Which statement best describes the law of demand as it relates to currency markets?

           

When the price of an Australian dollar in terms of a U.S. dollar increases, U.S. consumers demand more Australian dollars because Australian goods become less expensive to American consumers.

 

The following table shows the number of U.S. dollars required to buy one Mexican peso and the number of U.S. dollars required to buy one Japanese yen between January 1, 2013, and April 1, 2013. Use this table to answer the next seven questions:

 

Between January 1, 2013, and February 1, 2013:

           

On April 1, 2013, the price of a 16-ounce can of mixed nuts was 135 Mexican pesos at a supermarket in Juarez, Mexico. Based on the exchange rates quoted in the table, the price of the 16-ounce can of mixed nuts was approximately ____________ U.S. dollars.

           

On March 1, 2013, the price of a jar of pickles was 135 Mexican pesos at a supermarket in Juarez, Mexico. Based on the exchange rates quoted in the table, the price of the jar of pickles was approximately _____________ U.S. dollars.

           

On April 1, 2013, Carlos paid 800,000 Japanese yen for a solid gold iPhone case in Fukushima, Japan. Because he only had Mexican pesos, he needed to exchange his pesos at a nearby bank in order to get the 800,000 yen he used to pay for the iPhone case. The bank is able to buy and sell U.S. dollars, Mexican pesos, and Japanese yen at the exchange rates shown in the table. Approximately how much did the iPhone case cost Carlos in terms of Mexican pesos?

           

 On February 1, 2013, Samantha bought a yoga mat for 250 Mexican pesos in Playa del Carmen, Mexico. Because she only had Japanese yen, she needed to exchange her Japanese yen at a nearby money-exchange kiosk in order to get the 250 Mexican pesos she used for the purchase. The kiosk is able to buy and sell U.S. dollars, Mexican pesos, and Japanese yen at the exchange rates shown in the table. Approximately how much did the yoga mat cost Samantha in terms of Japanese yen?

           

On March 1, 2013, Brandy paid 400 Mexican pesos for a manicure in Playa del Carmen, Mexico. Because she only had Japanese yen, she needed to exchange her Japanese yen at a nearby money-exchange kiosk in order to get the 400 Mexican pesos she used to pay the manicurist. The kiosk is able to buy and sell U.S. dollars, Mexican pesos, and Japanese yen at the exchange rates shown in the table. Approximately how much did the manicure cost Brandy in terms of Japanese yen?

           

According to the law of ____________, the quantity of yen demanded by U.S. consumers will ___________ when the price of yen in terms of U.S. dollars falls.

           

When demand for Canada’s exports rises:

           

When demand for Canada’s exports falls:

           

If interest rates rise in the United States relative to the rest of the world, the demand for U.S. dollars will ___________ because there is greater demand for assets with _____________ returns.

           

 If interest rates fall in the United States relative to the rest of the world, the demand for U.S. dollars will ____________ because there is lesser demand for assets with ___________ returns.

           

If interest rates in Canada increase relative to the rest of the world, it means that (1) Canadian bonds will provide a ____________ return than previously and (2) ___________ for these bonds will _____________.

           

 If interest rates in Australia decrease relative to the rest of the world, it means that (1) Australian bonds will provide a ___________ return than previously and (2) ___________ for these bonds will _____________.

           

In the foreign currency market, the supply of a foreign currency is assumed to be _____________ because the central bank determines the supply of money.

           

The following two figures depict the demand and supply of U.S. dollars and the demand and supply of British pounds in the foreign currency exchange market. Use these figures to answer the next two questions:

 

An appreciation of the ___________ is shown in _____________.

           

An increase in U.S. consumer demand for British goods is consistent with:

           

The following figure depicts the demand for Chinese yuan in the foreign currency exchange market. Use this figure to answer the next two questions:

 

 If the interest rates in China rise relative to interest rates in the United States, the demand curve in the figure above:

           

If the interest rates in China fall relative to interest rates in the United States and, at the same time, U.S. consumer demand for Chinese goods decreases, the demand curve in the figure above:

           

The following figure depicts the demand for U.S. dollars in the foreign currency exchange market. Use this figure to answer the next two questions:

 

If interest rates in Mexico rise relative to interest rates in the United States, the demand curve in the figure above:

           

If interest rates in the United States rise relative to interest rates in Mexico and, at the same time, Mexican consumer demand for U.S. goods decreases, the demand curve in the figure above:

           

The arrows in Figures A–D represent possible movements of the exchange rate (euros per U.S. dollar) and the quantity of U.S. dollars buyers are willing and able to buy. Use these figures to answer the next two questions:

 

A deprecation of the euro against the U.S. dollar is represented by Figure ___________, and a depreciation of the U.S. dollar against the euro is represented by Figure _____________.

 

An appreciation of the euro against the U.S. dollar is represented by Figure ______________, and a depreciation of the U.S. dollar against the euro is represented by Figure ______________.

           

 The figure below depicts the supply of U.S. dollars in the foreign currency exchange market.

 

 A shift from D1 to D3 in the above figure could have been caused by:

           

The following two figures depict the demand and supply of U.S. dollars and the demand and supply of British pounds in the foreign currency exchange market. Use these figures to answer the next two questions:

 

Assume that the same event caused demand for U.S. dollars to decrease and demand for British pounds to increase and that both of these graphs describe that event. Approximately what is Y1?

           

Assume that the same event caused demand for U.S. dollars to decrease and demand for British pounds to increase and that both of these graphs describe that event. Approximately what is Y2?

           

______________ occurs when a national government or central bank intentionally adjusts its money supply to affect the exchange rate of its currency.

           

A national government or central bank can ______________ its currency in foreign currency exchange markets by printing more of it.

           

The following figure depicts the supply of U.S. dollars in the foreign currency exchange market. Use this figure to answer the next two questions:

 

The U.S. central bank has the power to increase or decrease the supply of U.S. dollars. If the U.S. central bank increases the supply of U.S. dollars, the supply curve in the above figure will ____________; if the U.S. central bank decreases the supply of U.S. dollars, the supply curve in the above figure will ____________.

           

 If the U.S. central bank decreases the supply of U.S. dollars, the supply curve in the above figure will ____________; if the Indian central bank increases the supply of rupees, the supply curve in the above figure will __________.

           

Figure A below depicts the demand and supply of Japanese yen in the foreign currency exchange market. Figure B below depicts the aggregate supply–aggregate demand model for the Japanese economy. Use these figures to answer the next two questions:

 

Assume the Japanese economy is illustrated at the intersection of AD1 and SRAS1. If the Bank of Japan (the Japanese central bank) increased the supply of yen from five trillion to six trillion, the Japanese price level would ____________ in the short run and increase from 115 to 120 in the long run.

           

Which of the following is the most accurate description of the phenomenon shown in Figure B?

           

The figure below depicts the three possible aggregate demand curves.

 

If the Bank of Canada (the Canadian central bank) ____________, the Canadian dollar will depreciate and the aggregate demand curve will shift from AD2 to ____________.

           

In the short run, ____________ would increase domestic aggregate demand in the context of the aggregate supply–aggregate demand model.

           

If the Bank of Japan (the Japanese central bank) were to take steps to devalue the yen in foreign currency markets, ____________, which would cause Japanese real gross domestic product (GDP) to increase in the short run.

           

If the Bank of Japan (the Japanese central bank) were to take steps to devalue the yen in foreign currency markets, the Japanese ____________ curve would shift rightward in the short run and the Japanese __________ curve would shift leftward in the long run.

           

If the Central Reserve Bank of Peru (the Pervian central bank) were to take steps to devalue the sol (the Peruvian currency) in foreign currency markets, the Peruvian aggregate demand curve would ____________ in the short run and the Peruvian short-run aggregate supply curve would ____________ in the long run.

           

The national government or central bank of country X might take steps to purposefully depreciate their currency because:

           

_____________ exchange rates are exchange rates that are fixed at a certain level through the actions of a government.

           

Pegged exchange rates can also be referred to as ____________ exchange rates.

           

Floating exchange rates can also be referred to as ___________ exchange rates.

           

_____________ exchange rates are exchange rates that are determined by the market forces of supply and demand for currency.

           

Suppose market forces outside of the control of the Chinese government are causing the price of Chinese yuan in terms of Japanese yen to rise. In order to maintain the current value of the yuan, the Chinese government must:

           

In order to maintain a pegged exchange rate in China:

           

The following graph depicts the market for potatoes in West Virginia. Assume there are similar markets for potatoes in all other U.S. states and that the potatoes sold in all states are identical. Further, assume potato sellers incur zero costs to transport potatoes between any U.S. state and that there are no other barriers to trade. Use this graph to answer the next two questions:

 

 According to the law of ___________, after accounting for transportation costs and trade barriers, identical goods in different locations must sell for the same price.

           

Suppose the equilibrium price of a pound of potatoes in all U.S. states is initially $1.20. Further, suppose there is an increase in potato demand in all U.S. states except West Virginia. This increase in demand causes potato prices in all U.S. states, except West Virginia, to increase. If the law of one price holds, potato sellers will eventually adjust the relative quantity of potatoes they sell in all U.S. states, including West Virginia. After this adjustment:

           

The following two graphs depict the equilibrium price of a pound of grapes in California and West Virginia, respectively. Assume the type and quality of the grapes being sold in the two states are identical. Further, assume grape sellers incur zero costs to transport grapes between the two states and there are no other barriers to trade. Use these graphs to answer the next three questions:

 

According to the law of one price, the price of grapes will:

           

Which of the following pairs of prices is consistent with the law of one price?

           

According to the law of one price, the supply curve in the California grape market will ______________, and the supply curve in the West Virginia grape market will _____________.

           

The following two graphs depict the equilibrium price of a pound of flax seed in Kentucky and West Virginia, respectively. Assume the type and quality of the flax seed being sold in the two states are identical. Further, assume flax seed sellers incur zero costs to transport flax seed between the two states and that there are no other barriers to trade. Use these graphs to answer the next two questions:

 

Suppose the price of a pound of flax seed is currently $1.20 in both Kentucky and West Virginia. Further, suppose there is a decrease in demand for flax seed in Kentucky, but not in West Virginia. Before flax seed sellers are able to adjust the relative quantity of flax seed supplied in the two states, the decrease in demand causes the equilibrium price of a pound of flax seed in Kentucky to change by $0.20. The law of one price suggests that the price of a pound of flax seed will be _____________ in West Virginia after sellers adjust the relative quantity of flax seed supplied in the two states.

           

Suppose the price of a pound of flax seed in West Virginia is currently $1.00. The law of one price suggests that because the price of a pound of flax seed is $1.20 in Kentucky, the price of a pound of flax seed will be ___________ in West Virginia after sellers adjust their supply in both markets.

           

According to the theory of purchasing power parity, why should identical goods have the same price in different locations?

           

If the theory of purchasing power parity holds, then how much does an Egyptian tapestry cost in the United States if the same tapestry sells for 15,000 Egyptian pounds in Egypt and the exchange rate is $0.14 per Egyptian pound?

           

Assuming the theory of purchasing power parity holds, if the exchange rate between the United States and Europe is $1.33 per euro, then how much does a €35 bottle of French champagne cost in U.S. dollars?

           

Assuming the theory of purchasing power parity holds, if the exchange rate between the United States and Japan is $0.011 per yen (¥), then how much does a $400 Microsoft Xbox cost in Japanese yen?

           

Assuming the theory of purchasing power parity holds, what is the exchange rate between the United States and Mexico if the price of an identical Under Armour shirt costs $25 in the United States and 350 pesos in Mexico (rounded to the nearest penny)?

           

Assuming the theory of purchasing power parity holds, what is the exchange rate between the United States and Mexico if the price of an Under Armour shirt costs $25 in the United States and 350 pesos in Mexico? (The shirts are identical in each country.)

           

Suppose that a Sony Playstation (manufactured in Japan) sells for a lower price in China than in the United States. What is the most likely reason for the difference in prices in the two locations?

           

Which of the following goods/services is considered non-tradable?

 

If the theory of purchasing power parity holds, then how much does an oil change for a Toyota Prius cost in Japan if the same oil change for the same Toyota Prius costs $29.95 in the United States and the exchange rate is $0.011 per Japanese yen?

           

Suppose that sugar produced in Cuba sells for a lower price in Mexico than it does in the United States. What is the most likely reason for the difference in prices in the two locations?

           

Suppose an earthquake occurs in Dhaka, Bangladesh, and inflicts massive damages on the city. You raise money to send to aid the victims of the tragedy. How would this transaction be recorded?

           

Which of the following would be entered into the U.S. capital account?

           

Which of the following would be entered into the U.S. current account?

           

What is the key identity of the balance of payments?

           

Suppose a Chinese citizen buys a box of Nestlé Kit Kat candy bars from America and Nestlé decides to hold on to the Chinese currency. How will this transaction enter into the U.S. balance of payments?

           

Suppose a Chinese citizen buys a box of Nestlé Kit Kat candy bars from America and Nestlé uses the currency to purchase Chinese-manufactured televisions. How will this transaction enter into the U.S. balance of payments?

           

Suppose a Chinese citizen buys a box of Nestlé Kit Kat candy bars from America and Nestlé uses the currency to buy Chinese-produced machinery. How will this transaction enter into the U.S. balance of payments?

           

Suppose an American citizen purchases a TV from Sony (a Japanese company). Sony then uses the dollars to purchases U.S. Treasury bonds. How will this transaction enter into the U.S. balance of payments?

           

Suppose an American citizen purchases a TV from Sony (a Japanese company). Sony then uses the dollars to purchases U.S. Treasury bonds. How will this transaction enter into the Japanese balance of payments?

           

Suppose an American citizen purchases a TV from Sony (a Japanese company). Sony then uses the dollars to purchases U.S. Treasury bonds. How will this transaction impact the U.S. trade deficit?

           

Suppose a Portuguese citizen travels to Tanzania to go on a safari and uses euros for the transaction. Tanzania then uses the euros to purchase wine from Portugal. How will this transaction affect Portugal’s trade deficit?

           

An increase in imports, ceteris paribus, indicates:

           

Suppose the United States experiences a significant recession. What would you expect to happen to the balance of payments for the United States in this situation?

           

Assume that a country currently has a trade deficit. If that country experiences a recession, what would we expect to happen to the trade deficit?

           

Assume that a country currently has a trade surplus. If that country experiences an expansion in economic activity, what would we expect to happen to the trade surplus?

           

Suppose the United States experiences an increase in its trade deficit. Which of the following is a possible explanation for this growing trade deficit? There has been:

           

If the United States experiences lower personal savings rates, then it must be the case that:

           

Suppose the United States experiences a decrease in its trade deficit. Which of the following is a possible explanation for this declining trade deficit? There has been:

           

Suppose the U.S. government cuts back on government spending and increases taxes in an effort to reduce the budget deficit. What would be the effect of these changes on the U.S. balance of payments?