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Exploring Macroeconomics 5th Edition Robert L. Sexton - Solutions
Which of the following would supply dollars to the foreign exchange market?a. the sale of a U.S. automobile to a Mexican consumerb. spending by British tourists in the United Statesc. the purchase of Canadian oil by a U.S. consumerd. the sale of a U.S. corporation to a Saudi Arabian investor
If consumers in Europe and Asia develop strong preferences for U.S. goods, the U.S. current account willa. not be affected, because purchases of U.S. goods by foreigners are recorded in the capital account.b. not be affected, because purchases of U.S. goods based on mere preferences are recorded
What is the difference between the balance of merchandise trade and the balance of payments?a. Only the value of goods imported and exported is included in the balance of merchandise trade, while the balance of payments includes the value of all payments to and from foreigners.b. The value of goods
Which of the following would be recorded as a credit in the U.S. balance-of-payments accounts?a. the purchase of a German business by a U.S. investorb. the import of Honda trucks by a U.S. automobile distributorc. European travel expenditures of an American college studentd. the purchase of a U.S.
If currency speculators believe that the United States is going to experience more rapid inflation than Japan in the future, they believe that the value of the dollar will soon be falling, which will increase the demand for the yen, and so the yen will appreciate relative to the dollar. True or
If Europe experienced a higher inflation rate than the United States, the supply of euros would tend to increase and the demand for euros would tend to decrease, leading to a new, lower exchange rate for euros. True or False.
If interest rates in the United States were to increase relative to European interest rates, the result would be a new, lower exchange rate for euros, other things being equal. True or False.
A decrease in U.S. tariffs on European goods would tend to have the same effect on the exchange rate for euros as an increase in U.S. incomes. True or False.
If European incomes rose, European tariffs on U.S. goods increased, or European tastes for U.S. goods increased, the exchange rate for euros would tend to increase. True or False.
An increase in incomes in the United States would increase the amount of European imports purchased by Americans, which would increase the demand for euros, resulting in a higher exchange rate for euros. True or False.
A decrease in tastes for European goods in the United States would decrease the demand for euros, hence decreasing the equilibrium price (exchange value) of euros. True or False.
Any change in the demand for foreign goods will shift the demand curve for foreign currency in the opposite direction. True or False.
Any force that shifts either the demand for or supply of a currency will shift the equilibrium in the foreign exchange market, leading to a new exchange rate. True or False.
If the dollar price of euros is lower than the equilibrium price, a surplus of euros will result, and competition among euro sellers will push the price of euros down toward equilibrium. True or False.
As the value of the euro increases relative to the dollar, American products become relatively more inexpensive to European buyers and increase the quantity of dollars they will demand. Europeans will, therefore, increase the quantity of euros supplied to the United States by buying more U.S.
As the price of the euro falls relative to the dollar, European products become relatively more inexpensive to U.S. consumers, who therefore buy more European goods. True or False.
The supply of foreign currency is provided by foreigners who want to buy the exports of a particular nation. True or False.
The more foreign goods that are demanded, the more of that foreign currency will be needed to pay for those goods, which will tend to push down the exchange value of that currency relative to other currencies. True or False.
The exchange rate can be expressed either as the number of units of currency A per unit of currency B or as its reciprocal, the number of units of currency B per unit of currency A. True or False.
U.S. consumers must first exchange U.S. dollars for a foreign seller’s currency in order to pay for imported goods. True or False.
If Europe experienced a higher inflation rate than the United States, European products would become ___________ expensive to U.S. consumers, thereby ___________ the quantity of European goods demanded by Americans, and thus ___________ the demand for euros.
If interest rates in the United States were to increase relative to European interest rates, other things being equal, the rate of return on U.S. investments would ___________ relative to that on European investments, thereby ___________ Europeans’ demand for U.S.investments.
If European incomes ___________, European tariffs on U.S. goods ___________, or European tastes for U.S.goods ___________, Europeans would demand more U.S. goods, leading them to increase their supply of euros to obtain the added dollars necessary to make those purchases.
A decrease in incomes in the United States would ___________ the amount of European imports purchased by Americans, which would ___________ the demand for euros, resulting in a(n) ___________ exchange rate for euros.
An increase in tastes for European goods in the United States would ___________ the demand for euros, thereby ___________ the equilibrium price (exchange value)of euros.
If the dollar price of euros is higher than the equilibrium price, an excess quantity of euros will be ___________ at that price, and competition among euro ___________ will push the price of euros ___________ toward equilibrium.
As the price, or value, of the euro increases relative to the dollar, American products become relatively ___________ expensive to European buyers, which will ___________ the quantity of dollars they will demand.
The supply of and demand for a foreign currency determine the equilibrium ___________ of that currency.
The more foreigners demand U.S. products, the ___________ of their currencies they will supply in exchange for U.S. dollars.
A change in the euro-dollar exchange rate from $1 per euro to $2 per euro would ___________ the U.S. price of German goods, thereby ___________ the number of German goods that would be demanded in the United States.
The price of a unit of one foreign currency in terms of another is called the ___________.
Nations import and export ___________, such as tourism, as well as ___________ (goods).
Because the United States gains claims over foreign buyers by obtaining foreign currency in exchange for the dollars needed to buy U.S. exports, all exports of U.S. goods abroad are considered a(n) ___________ or ___________ item in the U.S. balance of payments.
A current account is a record of a country’s current ___________ and ___________ of goods and services.
Do flexible exchange rates cause higher rates of inflation? Why or why not?
What is the uncertainty argument against flexible exchange rates? What evidence do proponents of flexible exchange rates cite in response?
Were exchange rates under the Bretton Woods system really stable? How could you argue that exchange rates were more uncertain under the fixed-rate system than with floating exchange rates?
Why is the system of flexible exchange rates sometimes called a dirty float system?
When the U.S. dollar starts to exchange for fewer Japanese yen, other things equal, what happens to U.S. and Japanese imports and exports as a result?
What are the arguments for and against flexible exchange rates?
What are the major arguments against flexible rates?
What major problems exist in a fixedrate system?
How are exchange rate changes different under a flexible-rate system than in a fixed system?
Why does an increase in interest rates in Germany relative to U.S. interest rates increase the demand for euros but decrease their supply?
What would happen to the exchange value of euros in terms of U.S. dollars if incomes rose in both Europe and the United States?
Why do changes in U.S. tastes, income levels, or tariffs change the demand for euros, while similar changes in Europe change the supply of euros?
How would increased U.S. tariffs on imported European goods affect the exchange value of euros in terms of dollars?
Why does the demand for foreign currencies shift in the same direction as domestic income? What happens to the exchange value of those foreign currencies in terms of U.S. dollars?
Why will the exchange rates of foreign currencies relative to U.S. dollars decline when U.S. domestic tastes change, reducing the demand for foreign-produced goods?
How will each of the following events affect the foreign exchange market?a. American travel to Europe increases.b. Japanese investors purchase U.S. stock.c. U.S. real interest rates abruptly increase relative to world interest rates.d. Other countries become less politically and economically stable
What factors cause the supply curve for a currency to shift?
What factors cause the demand curve for a currency to shift?
Who brings exchange rates down when they are above their equilibrium value? Who brings exchange rates up when they are below their equilibrium value?
As euros get cheaper relative to U.S. dollars, why does the quantity of euros demanded by Americans increase? Why doesn’t the demand for euros increase as a result?
How does an increase in domestic demand for foreign goods and services increase the demand for those foreign currencies?
When a U.S. dollar buys relatively fewer yen, why does the cost of U.S. exports fall in Japan?
When a U.S. dollar buys relatively more British pounds, why does the cost of imports from England fall in the United States?
What is an exchange rate?
Why is a strong dollar (i.e., exchange rate for foreign currencies is low) a mixed blessing?
How do exchange rates affect the demand for foreign goods?
How are exchange rates determined?
What are exchange rates?
A Nigerian family visiting Chicago enjoys a Chicago Cubs baseball game at Wrigley Field. How would this expense be recorded in the balance-of-payments accounts? Why?
With no errors or omissions in the recorded balance-of-payments accounts, what should the statistical discrepancy equal?
What would have to be true for the United States to have a balance-of-trade surplus and a current account deficit?
What would have to be true for the United States to have a balance-of-trade deficit and a balance-of-payments surplus?
How is it that our imports provide foreigners with the means to buy U.S. exports?
Why must British purchasers of U.S. goods and services first exchange pounds for dollars?
What is the balance of payments?
Go through your local newspaper and locate four news items regarding the global economy. Identify the significance of each of these news items to the U.S. economy and whether they are likely to affect international trade.
Would you be in favor of freer trade or against it in the following circumstances?a. The move to freer trade is in another country and you are an exporter to that country.b. The move to freer trade is in your country and you compete with imports from other countries.c. The move to freer trade is in
Why does rent seeking imply that the traditional measure of deadweight loss from tariffs and quotas will likely understate the true deadweight loss to society?
If imposing tariffs and quotas harms consumers, why don’t consumers vigorously oppose the implementation of these protectionist policies?
Explain why imposing a tariff causes a net welfare loss to the domestic economy.
Using the accompanying graphs, illustrate the effects of opening up the domestic market to international trade on the domestic price, the domestic quantity purchased, the domestic quantity produced, imports or exports, consumer surplus, producer surplus, and the total welfare gain from trade. World
Use the accompanying graphs to illustrate the effects of imposing a tariff on imports on the domestic price, the domestic quantity purchased, the domestic quantity produced, the level of imports, consumer surplus, producer surplus, the tariff revenue generated, and the total welfare effect from the
To protect its domestic apple industry, Botswana has for many years prevented international trade in apples. The following graph represents the Botswana domestic market for apples. PBT is the current price, and PAT is the world price.a. If the government allows world trade in apples, what will
Assume that Freeland could produce 8 units of X and no Y, 16 units of Y and no X, or any linear combination in between, and Braveburg could produce 32 units of X and no Y, 48 units of Y and no X, or any linear combination in between.a. What is the opportunity cost of producing X in Freeland? In
If country A is the lowest opportunity cost producer of X and country B is the lowest opportunity cost producer of Y, what happens to their absolute and comparative advantages if country A suddenly becomes three times more productive at producing both X and Y than it was before?
NAFTA (North American Free Trade Agreement) is an agreement among the United States, Canada, and Mexico to reduce trade barriers and promote the free flow of goods and services across borders. Many U.S. labor groups were opposed to NAFTA.Can you explain why? Can you predict how NAFTA might alter
Evaluate the following statement: “The United States has an absolute advantage in growing wheat. Therefore, it must have a comparative advantage in growing wheat.”
Evaluate the following statement: “Small developing economies must first become self-sufficient before benefiting from international trade.”
Suppose the United States can produce cars at an opportunity cost of two computers for each car it produces. Suppose Mexico can produce cars at an opportunity cost of eight computers for each car it produces. Indicate how both countries can gain from free trade.
The following table represents the production possibilities in two countries:Which country has a comparative advantage at producing Good X? How can you tell?Which country has a comparative advantage at producing Good Y? Country A Country B Good X Good Y Good X Good Y 0 32 0 24 4 24 4 18 8 16 8 12
Bud and Larry have been shipwrecked on a deserted island. Their economic activity consists of either gathering berries or fishing. We know that Bud can catch four fish in one hour or harvest two buckets of berries. In the same time Larry can catch two fish or harvest two buckets of berries.a. Fill
Relative to a no-international-trade initial situation, if the United States exported wine, the U.S. domestic price of winea. would rise, but domestic output would fall.b. would fall, but domestic output would rise.c. would rise, and domestic output would rise.d. would fall, and domestic output
Relative to a no-international-trade initial situation, if the United States imported wine, the U.S. domestic price of winea. would rise, but domestic output would fall.b. would fall, but domestic output would rise.c. would rise, and domestic output would rise.d. would fall, and domestic output
According to international trade theory, a country shoulda. import goods in which it has an absolute advantage.b. export goods in which it has an absolute advantage.c. import goods in which it has a comparative disadvantage.d. import goods in which it has an absolute disadvantage.e. import goods
If the United States could produce 0.5 ton of potatoes or 1 ton of wheat per worker per year, while Ireland could produce 3 tons of potatoes or 2 tons of wheat per worker per year, the country with the comparative advantage in producing wheat is ___________ and the country with the absolute
A crucial difference between the impacts of import quotas and of tariffs is thata. import quotas generate revenue to the domestic government, but tariffs do not.b. import quotas generate no revenue to the domestic government, but tariffs do.c. tariffs increase the prices paid by domestic consumers,
An import quota does which of the following?a. decreases the price of the imported goods to consumersb. increases the price of the domestic goods to consumersc. redistributes income away from domestic producers of those products toward domestic producers of exportsd. a and ce. b and c
A new U.S. import quota on imported steel would be likely toa. raise the cost of production for steel-using American firms.b. generate tax revenue to the government.c. decrease U.S. production of steel.d. increase the production of steel-using American firms.e. do all of the above.
Introducing a tariff on vitamin E woulda. reduce imports of vitamin E.b. increase U.S. consumption of domestically produced vitamin E.c. decrease total U.S. consumption of vitamin E.d. do all of the above.e. do none of the above.
Protectionist legislation is often passed becausea. employers in the affected industry lobby more effectively than the workers in that industry.b. both employers and workers in the affected industry lobby for protectionist policies.c. trade restrictions often benefit domestic consumers in the long
The infant-industry argument for protectionism claims that an industry must be protected in the early stages of its development so thata. firms will be protected from subsidized foreign competition.b. domestic producers can attain the economies of scale to allow them to compete in world markets.c.
If Japan does not have a comparative advantage in producing rice, the consequences of adopting a policy of reducing or eliminating imports of rice into Japan would include the following:a. Japan will be able to consume a combination of rice and other goods beyond their domestic production
After the United States introduces a tariff in the market for steel, the price of steel in the United States willa. decrease.b. increase.c. remain the same.d. change in an indeterminate manner.
Which of the following exchange rates between apples and oranges would allow both Alpha and Omega to gain by specialization and exchange?a. 1 ton of apples for 3 tons of orangesb. 3 tons of apples for 3 tons of orangesc. 2 tons of apples for 3 tons of orangesd. 1 ton of oranges for 0.2 ton of
Which of the following statements is true?a. Alpha should export to Omega, but Omega should not export to Alpha.b. Because Alpha has an absolute advantage in both goods, no mutual gains from trade are possible.c. If Alpha specializes in growing apples and Omega specializes in growing oranges, they
The opportunity costs of producing 1 ton of apples for Alpha and Omega, respectively, area. 0.25 ton of oranges and 0.5 ton of oranges.b. 9 tons of oranges and 4 tons of oranges.c. 2 tons of oranges and 4 tons of oranges.d. 4 tons of oranges and 2 tons of oranges.e. 0.5 ton of oranges and 0.25 ton
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