Economics MCQs

Page No. 195

Economic theory predicts that a currency depreciation will least lead to an improvement in the home country’s trade balance when ?


ahome demand for imports is inelastic and foreign export demand is inelastic

✓


bhome demand for imports is elastic and foreign export demand is inelastic

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chome demand for imports is inelastic and foreign export demand is elastic

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d home demand for imports is elastic and foreign export demand is elastic

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View Answer home demand for imports is inelastic and foreign export demand is inelastic

Suppose that U.S dollar depreciates 70 percent against the yen yet Japanese export prices to Americans did not decrease by the full extent of the dollar depreciation. This is best explained by ?


apartial currency pass through

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bcomplete currency pass through

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cpartial J curve effect

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d complete J curve effect

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View Answer partial currency pass through

Assume that a Big Mac hamburger cost $3 in the United States 2 pesos in Mexico The implied purchasing power parity exchange rate between the peso and the dollar is ?


a 0.67 pesos = $1

✓


b0.8 pesos = $1

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c1.25 pesos = $1

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d 1.67 pesos = $1

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View Answer 0.67 pesos = $1

Due to Japan’s high saving rate, suppose that the Japanese invest abroad. This investment may result in a/an _______ of the Japanese yen and therefore a for Japan?


aappreciation; trade surplus

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bappreciation; trade deficit

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cdepreciation; trade surplus

✓


ddepreciation; trade deficit

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View Answer depreciation; trade surplus

Assume identical interest rates on comparable securities in the United States and foreign countries. Suppose investors anticipate that in the future the U.S dollar will depreciate against foreign currencies. investment funds would tend to ?


a flow from the United States to foreign countries

✓


b flow from foreign countries to the United States

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c remain totally in foreign countries

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d remain totally in the United States

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View Answer flow from the United States to foreign countries

Starting from a position where the nation’s money demand equals the money supply and its balance of payments is in equilibrium its balance of payments would move into a surplus position if there occurred in the nation a (an) ?


adecrease in the money supply

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bincrease in the money supply

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c decrease in the money demand

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dNone of the above

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View Answer decrease in the money supply

Which example of market expectations causes the dollar to appreciate against the yen– expectations that the U.S economy will have ?


a faster economic growth than Japan

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b higher future interest rates than Japan

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c more rapid money supply growth than japan

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d higher inflation rates than japan

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View Answer higher future interest rates than Japan

Given a system of floating exchange rates falling income in the United States would trigger a (an) ?


a increase in the demand for imports and an increase in the demand for foreign currency

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bincrease in the demand for imports and a decrease in the demand for foreign currency

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cdecrease in the demand for imports and an increase in the demand for foreign currency

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ddecrease in the demand for imports and a decrease in the demand for foreign currency

✓


View Answer decrease in the demand for imports and a decrease in the demand for foreign currency

For the United States suppose the annual interest rate on government securities equals 12 percent while the annual inflation rate equals 8 percent For Japan the annual interest rate on government securities equals 10 percent while the annual inflation rate equals 5 percent the above variables would cause investment funds to flow from ?


aThe United States to Japan causing the dollar to depreciate

✓


bThe United States to Japan causing the dollar to appreciate

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cThe Japan to United States, causing the dollar to depreciate

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d The Japan to United States, causing the dollar to appreciate

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View Answer The United States to Japan causing the dollar to depreciate

If Japan runs current account deficit and exchange rates are floating?


aJapanese exports become more expensive to foreign buyers

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bJapanese exports become less expensive for foreign buyers

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c Japanese imports become less expensive for German buyers

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d Japanese imports become more prestigious to German buyers

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View Answer Japanese exports become less expensive for foreign buyers

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