1. The main reason(s) why governments sometimes chose to devalue th...

  1. Home
  2. Homework Library
  3. Business
  4. Finance
  5. 1. The main reason(s) why governments sometimes chose to devalue th...

QuestionQuestion

Transcribed TextTranscribed Text

1. The main reason(s) why governments sometimes chose to devalue their currencies is (are): a. devaluation allows the government to fight domestic unemployment by stimulating export sector. b. devaluation improves the current account balance. c. devaluation preserves foreign reserves held by the central bank. d. All of the above. 2. When the exchange rate E¥/$ was 100, a U.S. firm imports one Toyota automobile at ¥1,000,000 and agrees to make payments 60 days from the day of contract signing. On day 45, the exchange rate value changes to E¥/$ = 80, what would happen to the U.S. import value from this exchange rate change? a. If the contract is written in dollar, the import value decreases. b. If the contract is written in dollar, the import value increases. c. If the contract is written in yen, the import value decreases. d. If the contract is written in yen, the import value increases. 3. According to the absorption approach, if the domestic income is greater than the domestic absorption, then: a. A country is experiencing trade surplus. b. A country is experiencing trade deficit. c. A country is experiencing balanced trade. d. A country is always at its full-employment level of production. 4. Suppose the dollar is devalued. If an import contract is written in a foreign currency, then the value of U.S. imports: a. Decrease b. Increase c. Stay the same d. Not possible to answer with the given information 5. Suppose the dollar is devalued. If an export contract is written in a foreign currency, then the value of U.S. exports: a. Decrease b. Increase c. Stay the same d. Not possible to answer with the given information 6. If the domestic currency is devalued and both export and import contracts are written in the domestic currency, then the trade balance will: a. Increase b. Decrease c. Stay the same d. Uncertain 1 7. Assume that a country is at full employment and wants to improve its trade deficit by devaluing its currency. Using the absorption approach which of the following methods will improve the trade deficit? I. II. III. a. b. c. d. Decrease government spending Decrease consumption taxes Decrease income taxes I only II only II and III I, II, and III 8. Assume that foreign demand for U.S. exports is perfectly inelastic. If the dollar is devalued then the total export value (in dollars) will: a. Increase b. Decrease c. Stay the same d. Uncertain 9. Assume that the supply of U.S. exports is perfectly inelastic. If the dollar is devalued then the total export value (in dollars) will: a. Increase b. Decrease c. Stay the same d. Uncertain 10. If, other things being equal, a country with a flexible exchange rate decreases its money supply, this will lead to _____ in the value of the country's currency, which will tend to _____ national income. a. a depreciation; increase b. a depreciation; decrease c. an appreciation; increase d. an appreciation; decrease 11. A a. IS curve b. LM curve c. BP curve d. None of the above change in the riskiness of country’s assets shifts the: 12. A a. IS curve change in fiscal policy shifts the: b. LM curve c. BP curve d. None of the above 2 13. If the capital is perfectly immobile (due to restrictions), then the BP curve is: a. Horizontal b. Vertical c. Downward-sloping d. Upward-sloping 14. Suppose the central bank increases the money supply. Then: a. The IS curve shifts right b. The IS curve shifts left c. The LM curve shifts right d. The LM curve shifts left 15. Suppose that the government runs a budget surplus. Then: a. The IS curve shifts right b. The IS curve shifts left c. The LM curve shifts right d. The LM curve shifts left 16. Assume perfect capital mobility and floating exchange rates. Then, if the central bank increases money supply, the domestic currency will _______ and cause the IS curve to ________. a. Appreciate, shift to the right b. Appreciate, shift to the left c. Depreciate, shift to the right d. Depreciate, shift to the left 17. A foreign exchange intervention with an offsetting open market operation that leaves the monetary base unchanged is called a. an unsterilized foreign exchange intervention. b. a sterilized foreign exchange intervention. c. a balance-of-payment exchange rate rule. d. monetary neutrality. 18. Suppose that the Fed increases the U.S. money supply and the Bretton Woods system of fixed exchange rates is still in place. Then to maintain the fixed exchange rate, foreign central banks intervene by: a. Raising the interest rate on dollars. b. Buying dollars and selling its currency. c. Raising the interest rate on its currency. d. Selling dollars and buying its currency. 19. If a. the Marshall-Lerner condition is met and trade balance improves. b. the Marshall-Lerner condition is met and trade balance decreases. c. the Marshall-Lerner condition is not met and trade balance improves. d. the Marshall-Lerner condition is not met and trade balance decreases. the sum of elasticities of demands for both imports and exports is less than 1, then: 3 20. Action by a central bank to offset the effect of a foreign exchange intervention, on the domestic money supply, by using the open-market operations is known as: a. Monetary protectionism b. Sterilized intervention c. Currency creation d. Injecting money supply 21. Under a floating exchange rate regime with a high degree of capital mobility, in the short run an expansionary fiscal policy will most likely create pressure on: a. the domestic currency to appreciate. b. the domestic currency to depreciate. c. monetary authorities to revalue the domestic currency. d. monetary authorities to devalue the domestic currency. 22. Under a floating exchange rate regime with a high degree of capital mobility, international crowding out of expansionary fiscal policy occurs when: a. the foreign money supply increases. b. foreign interest rates increase. c. the country’s currency appreciates. d. domestic interest rates increase. 23. Under a floating exchange rate regime with a high degree of capital mobility, a change in the exchange rate value of domestic currency following contractionary fiscal policy is most likely to: a. improve the current account. b. decrease the country’s holdings of official reserve assets. c. cause a surplus in the financial account. d. induce inflow of foreign capital. 24. Under a floating exchange rate regime, with a contraction in the money supply, which of the following is likely to happen in the short-run? a. Increase in the country’s holdings of official international reserves b. Deficit in the financial account c. Inflow of foreign capital d. Rise in the domestic price level 25. Following an expansion of the money supply, a government committed to maintaining a fixed exchange rate must: a. accept a surplus in its current account. b. not use sterilized intervention. c. increase its level of government expenditure and autonomous investments. d. intervene in the foreign exchange market to sell foreign currency and buy domestic currency. 4 The figure below shows an IS-LM-BP model for an economy with fixed exchange rates. Initially the economy is at point A, a triple intersection. Here, the BP curve is steeper than the LM curve. Interest rate (i) i1 i0 BP LM B A 0 Y0 Y1 IS1 IS0 Domestic product (Y) 26. Refer to above figure. Assume that the economy was initially at point A. Which of the following could have moved the economy to point B? a. Expansionary monetary policy with sterilization b. Expansionary monetary policy without sterilization c. Expansionary fiscal policy with sterilization d. Contractionary fiscal policy without sterilization 27. Refer to above figure. At point B, the economy is experiencing: a. a deficit in the overall balance of payments. b. a surplus in the overall balance of payments. c. an overall balance of payments that is in equilibrium. d. an expanding money supply. 28. Refer to above figure. In order to maintain the fixed exchange rate, at point B monetary authorities must: a. buy domestic government bonds. b. sell domestic currency. c. buy domestic currency. d. sell domestic government bonds. 29. If is ________ and total spending on the good will ________. a. elastic; increase b. inelastic; increase c. elastic; decrease d. me and so inelastic; decrease the price of a good rises by 10% and the quantity purchased falls by 5%, then demand for the good 5 30. If the price of a good rises by 10% and the quantity purchased falls by 15%, then demand for the good is ________ and total spending on the good will ________. a. elastic; increase b. inelastic; increase c. elastic; decrease d. me and so inelastic; decrease 6

Solution PreviewSolution Preview

These solutions may offer step-by-step problem-solving explanations or good writing examples that include modern styles of formatting and construction of bibliographies out of text citations and references. Students may use these solutions for personal skill-building and practice. Unethical use is strictly forbidden.

1. b. devaluation improves the current account balance.
2. b. If the contract is written in dollar, the import value increases.
c. If the contract is written in yen, the import value decreases.
3. a. A country is experiencing trade surplus.
4. b. Increase
5. b. Increase...

By purchasing this solution you'll be able to access the following files:
Solution.docx.

$40.00
for this solution

or FREE if you
register a new account!

PayPal, G Pay, ApplePay, Amazon Pay, and all major credit cards accepted.

Find A Tutor

View available Finance Tutors

Get College Homework Help.

Are you sure you don't want to upload any files?

Fast tutor response requires as much info as possible.

Decision:
Upload a file
Continue without uploading

SUBMIT YOUR HOMEWORK
We couldn't find that subject.
Please select the best match from the list below.

We'll send you an email right away. If it's not in your inbox, check your spam folder.

  • 1
  • 2
  • 3
Live Chats