Chapter 11&12 Open-Economy Macroeconomics

Question 1

When the Exchange Rate increases [E(fc/dc) ^] —> Domestic Currency ______

Answer 1

appreciates.. more foreign currency is needed to exchange one unit of domestic currency

Question 2

When the Exchange Rate decreases [E(fc/dc) ^] —> Domestic Currency ______

Answer 2

depreciates… fewer foreign currency is needed to exchange one unit of domestic currency

Question 3

Where does the Demand for domestic currency (D(dc)) come from?

Answer 3

the demand for domestic currency comes from EXPORTS of goods, services, and assets

Question 4

Where does the supply of domestic currency (S(dc)) come from?

Answer 4

the supply of domestic currency comes from imports of goods, services, and assets

Question 5

When will the demand for currency curve shift to the right?

Answer 5

For any factor that causes EXPORTS to INCREASE (other than exchange rate)

Question 6

When will the supply of currency curve shift to the right?

Answer 6

For any factor that causes IMPORTS to INCREASE (other than exchange rate)

Question 7

Devaluation

Answer 7

a decrease in the official value of a currency

Question 8

Revaluation

Answer 8

an increase in the official value of a currency