International Economics

Question 1

A primary goal of international commodity agreements has been the

a.
nationalization of corporations operating in member nations.

b.
maximization of members’ revenues via export taxes.

c.
moderation of commodity price fluctuations when markets are unstable.

d.
adoption of tariff protection against industrialized nation sellers.

Answer 1

c.

International Commodity Agreements (ICAs)
- Attempt to stabilize revenues of primary producers
- Agreements between leading producing and consuming nations of commodities; such agreements seek to:

• stabilize prices
• assure adequate supplies to consumers
• promote economic development of producers

Question 2

What methods exist to stabilize Primary-Product Prices?

Answer 2

International Commodity Agreements (ICAs)

Production and Export Controls

Buffer Stocks

Multilateral Contracts

Question 3

Which method has NOT generally been used by the international commodity agreements to stabilize commodity prices?

a.
export restrictions applied to international sales of commodities

b.
measures to nationalize foreign-owned production operations

c.
buffer stock arrangements among producing nations

d.
production quotas applied to the level of commodity output

Answer 3

b. measures to nationalize foreign-owned production operations

Question 4

What are developed countries characterized by?

Answer 4

relatively high levels of gross domestic product per capita
longer life expectancies
higher levels of adult literacy

Question 5

One factor that has prevented the formation of cartels for producers of commodities is that

a.
the production of most commodities is capital intensive.

b.
commodity produces have dominated world markets.

c.
substitute products exist for many commodities.

d.
the demand for commodities tends to be price inelastic.

Answer 5

c.
substitute products exist for many commodities.

Question 6

If the supply schedule for tin is relatively inelastic to price changes, a decrease in the demand schedule for tin will cause a

a.
increase in price and a decrease in sales revenue.

b.
decrease in price and a decrease in sales revenue.

c.
decrease in price and an increase in sales revenue.

d.
increase in price and an increase in sales revenue.

Answer 6

b.
decrease in price and a decrease in sales revenue.

Question 7

Once a cartel establishes its profit-maximizing price,

a.
entry into the industry of new competitors will not affect cartel’s profits.

b.
output changes by cartel members have no effect on the market price.

c.
each cartel member is tempted to cheat on the cartel price in order to add to its profit.

d.
all cartel members have a strong incentive to adhere to the agreed-upon price.

Answer 7

c.
each cartel member is tempted to cheat on the cartel price in order to add to its profit.

Question 8

Figure
Consider the global market for tin represented by Figure above. Initially equilibrium is at point A with a market price of $3.50 per pound and 50,000 pounds. In order to keep tin price relatively stable, an International Tin Agreement has set a price floor of $3.27 and a ceiling of $4.02. As the demand for tin increases to D1, how will the buffer-stock manager need to respond?

a.
sell 20,000 pounds of tin

b.
buy 10,000 pounds of tin

c.
sell 10,000 pounds of tin

d.
buy 20,000 pounds of tin

Answer 8

a.
sell 20,000 pounds of tin

Question 9

Import substitution is an example of

a.
export led growth.

b.
an outward-oriented growth strategy.

c.
the principle of absolute advantage.

d.
an inward-oriented growth strategy.

Answer 9

d.
an inward-oriented growth strategy.

Question 10

Outward-oriented growth strategies emphasize

a.
the principle of strategic trade policy.

b.
the allocation of resources according to the principle of comparative advantage.

c.
the principle of industrial policy.

d.
the allocation of resources according to the principle of absolute advantage.

Answer 10

b.
the allocation of resources according to the principle of comparative advantage.

Question 11

Developing countries have often argued that their terms of trade have worsened because

a.
their import prices have declined relative to their export prices.

b.
their import prices and export prices have increased.

c.
their import prices and export prices have decreased.

d.
their import prices have risen relative to their export prices.

Answer 11

d.
their import prices have risen relative to their export prices.

Question 12

Efforts to stabilize export prices and revenues include all of the following EXCEPT

a.
multilateral contracts.

b.
production and export controls.

c.
buffer stocks.

d.
limited market access.

Answer 12

d.
limited market access.

Question 13

What is the Flying Geese Pattern of Growth?

Answer 13

Nations gradually move up in technological development by following pattern of nations ahead of them in development process.

e.g. textile –> steel –> electronics –> high-tech

Question 14

The European Union is primarily intended to permit

a.
countries to adopt scientific tariffs on imports.

b.
free movement of resources and products among member nations.

c.
an agricultural commodity cartel within the group.

d.
the adoption of export tariffs for revenue purposes.

Answer 14

b.
free movement of resources and products among member nations.

Question 15

Customs union theory reasons that the formation of a customs union will decrease members’ real welfare when the

a.
trade consumption effect exceeds the trade production effect.

b.
trade production effect exceeds the trade consumption effect.

c.
trade creation effect exceeds the trade diversion effect.

d.
trade diversion effect exceeds the trade creation effect.

Answer 15

d.
trade diversion effect exceeds the trade creation effect.

Question 16

What are Regional trading arrangements?

Answer 16

Member nations agree to impose lower barriers to trade within group than with nonmember nations

Question 17

What are the types of regional trading arrangements?

Answer 17

Free trade area
–> All tariffs & nontariffs removed among members

Customs union
–> All tariff & nontariff barriers removed among members
–> Each member nation imposes identical trade restrictions against nonparticipants
Example: Benelux

Common market
–> Permits free movement of goods and factors of production among members, and applies common external trade restrictions against nonmembers
Example: EU

Economic union
–> National, social, taxation, & fiscal policies harmonized & administered by supranational institution

Monetary union
–> Unification of national monetary policies and use of common currency administered by supranational monetary authority Example: United States

Question 18

The European Union has achieved all of the following EXCEPT

a.
established a common system of agricultural price supports.

b.
adopted a common fiscal policy for member nations.

c.
disbanded all tariffs among its member countries.

d.
levied common tariffs on products imported from nonmembers.

Answer 18

b.
adopted a common fiscal policy for member nations.

Only 19/28 countries introduced the EURO as their currency.

Question 19

Trade creation effect and trade diversion effect

Answer 19

Welfare-increasing (area a+b)
- Domestic production of one member in union replaced by another member’s lower-cost imports
- Production and consumption effects

Welfare-decreasing (area c):

• Imports from low-cost supplier outside union replaced by higher-cost supplier within union

Question 20

Agricultural Policy, Variable Levies

Why does the import levy tend to be more restrictive than a fixed tariff?

Answer 20

It discourages foreign producers from absorbing part of the tariff and cutting prices to maintain export sales. Cutting prices only triggers higher variable levies. For the same reason, variable levies discourage foreign producers from subsidizing their exports in order to penetrate

Question 21

Agricultural Policy, Export Subsidies

Answer 21

• Ensure that any surplus agricultural output will be sold overseas
• EU farmers – incentive to increase production
• Reduce domestic supply
• Eliminate need for government to purchase the excess

Question 22

Advantages & disadvantages of a common currency

Answer 22

Advantages:

Improves economic efficiency
Lowers transaction costs of exchanging currency
Eliminates exchange-rate risk
Increased competition
Broadening/deepening of Euro financial markets

Disadvantages:

EU countries cannot use monetary policy and exchange rate to adjust to economic disturbances
Must keep budget deficits in control

Question 23

Problems & challenges of a common currency

Answer 23

Problems:

Some countries did not meet economic entry criteria
Integration of differing economies without adjustment
Difficulties in reducing budget deficits

Challenges:
Ability of European Central Bank to focus on price stability over long term
Operation of monetary policy
Difficulty in reducing budget deficits and debts
Need for structural reform

Question 24

When the United States, Canada, and Mexico form a free trade area, and Mexico begins importing a product from Canada rather than from the lowest-cost world producer

a.
trade creation occurs.

b.
world welfare falls to zero.

c.
world welfare rises.

d.
trade diversion occurs.

Answer 24

d.
trade diversion occurs.

Question 25

When the formation of a free trade area results in the reduction of trade with nonmember nations in favor of member countries, _____________ occurs.

a.
trade devaluation

b.
trade creation

c.
trade diversion

d.
trade revaluation

Answer 25

c.
trade diversion

Question 26

Suppose that steel from Japan faces a 20 percent tariff in France and a 25 percent tariff in Italy, while France and Italy maintain free trade between each other. France and Italy are therefore part of a (an)

a.
economic union.

b.
customs union.

c.
free trade area.

d.
common market.

Answer 26

c.
free trade area.

Question 27

Suppose that Mexico and Canada form a free trade area, and Canada begins importing steel from Mexico rather than from Germany. There occurs

a.
trade destruction.

b.
trade diversion.

c.
trade exhaustion.

d.
trade creation.

Answer 27

b.
trade diversion.

Question 27

Suppose that Mexico and Canada form a free trade area, and Canada begins importing steel from Mexico rather than from Germany. There occurs

a.
trade destruction.

b.
trade diversion.

c.
trade exhaustion.

d.
trade creation.

Answer 27

b.
trade diversion.

Question 28

Suppose that the United Kingdom and Italy abolish all tariffs on each other’s goods and all restrictions on movements of factors of production between them. They also implement a common protectionist policy toward other countries. This is an example of a (an)

a.
common market.

b.
economic union.

c.
custom union.

d.
free trade area.

Answer 28

a.
common market.

Question 29

If the United States and Canada abolish all tariffs on each other’s goods and implement a common tariff on goods imported from other countries, there occurs a (an)

a.
common market.

b.
free trade area.

c.
customs union.

d.
economic union.

Answer 29

c.
customs union.

Question 30

Suppose that Canada has domestic firms that could supply its entire market for radios at a price of $50, while U.S. firms could supply radios at $40 and Mexico at $30. Suppose that Canada initially has a 50 percent tariff on imports of radios and then forms a free trade area with Mexico. As a result, Canada realizes

a.
trade diversion, no trade creation, and potential overall welfare losses.

b.
trade creation, no trade diversion, and overall welfare gains.

c.
trade creation, no trade diversion, and overall welfare losses.

d.
trade diversion, trade creation, and potential overall welfare gains.

Answer 30

b.
trade creation, no trade diversion, and overall welfare gains.

Question 31

Multinational Enterprise
What are types of integration?

Answer 31

vertical integration:
Parent MNE establishes foreign subsidiaries to produce intermediate goods or inputs that go into the production of a finished good

forward: integration of downstream subsidiary (e.g. retailer)
backward: integration of upstream subsidiary (e.g. supplier and producer)

Question 32

Which type of multinational diversification occurs when the parent firm establishes foreign subsidiaries to produce intermediate goods going into the production of finished goods?

a.
forward horizontal integration

b.
backward vertical integration

c.
backward horizontal integration

d.
forward vertical integration

Answer 32

b.
backward vertical integration

Question 33

Suppose that an American automobile manufacturer establishes foreign subsidiaries to market the automobiles. This practice is referred to as

a.
forward vertical integration.

b.
forward conglomerate integration.

c.
backward conglomerate integration.

d.
backward vertical integration.

Answer 33

a.
forward vertical integration.

Question 34

Motives for Foreign Direct Investment

Answer 34

Motivated by higher rates of return on investment

Demand Factors:

New markets and sources of demand
Tap foreign markets that cannot be maintained adequately by export products (licensing rights)
Parent company ⎯ productive capacity already sufficient to meet domestic demand
Market competition
Direct exporting

Cost Factors:

Reductions in production costs
Acquisition of essential raw materials
Lower labor costs
Decreased transportation costs
Government policies
Economies of scale
- Direct exporting – foreign demand is small
- Licensing agreement/FDI – demand is large

Question 35

Which of the following is an example of a cost motive for the formation of multinational enterprises?

a.
to utilize less productive foreign labor

b.
to pay higher corporate taxes

c.
to have production farther from markets for the finished good

d.
avoiding tariffs by obtaining foreign manufacturing facilities

Answer 35

d.
avoiding tariffs by obtaining foreign manufacturing facilities

–> cost factor

Question 36

Suppose that a steel company locates a production facility near a source of iron. This is an example of

a.
a government policy motive for foreign direct investment.

b.
a raw material motive for foreign direct investment.

c.
a demand factor motive for foreign direct investment.

d.
a cost factor motive for foreign direct investment.

Answer 36

d.
a cost factor motive for foreign direct investment.

Question 37

Suppose that Samsung’s production costs are the same in both China and India. Also suppose that Samsung can produce cellphones in China for an average cost of $10 per phone for 300 million phones, $12 per phone for 200 million phones, and $15 per phone for 100 million phones. If customers in India demand 100 million phones and customers in China demand 200 million phones, Samsung’s lowest cost option is to

a.
produce 150 million phones in India for Indian demand and 50 million to export to China and produce 150 million phones in China for Chinese demand.

b.
produce phones only in India and export phones to China.

c.
produce 100 million phones in India for Indian demand and produce 200 million phones in China for Chinese demand.

d.
produce phones only in China and export phones to India.

Answer 37

d.
produce phones only in China and export phones to India.

–> ignoring transportation costs

Question 38

Suppose that a local firm in a foreign market is incapable of adapting its operations to a multinational enterprise’s production process. In this case______________ is not the lowest-cost method of supplying goods abroad

a.
backward integration

b.
foreign direct investment

c.
licensing

d.
direct exporting

Answer 38

c.
licensing

Question 39

Suppose that regardless of the amount of production, a subsidiary’s per unit costs are always less than a local firm’s. If there are significant tariffs, in this case ________________is likely to be the lowest-cost method of supplying goods abroad.

a.
licensing

b.
vertical integration

c.
subsidiary production

d.
direct exporting

Answer 39

c.
subsidiary production

Question 40

All of the following are potential advantages of an international joint venture EXCEPT

a.
operating at diseconomy-of-scale output levels

b.
establishing work rules promoting higher labor productivity.

c.
sharing research and development costs among corporations.

d.
forestalling protectionism against imports.

Answer 40

a.
operating at diseconomy-of-scale output levels

b, c, and d are clear advantages

Question 41

Which business device involves the creation of a new business by two or more companies, often for a limited period of time?

a.
international joint venture

b.
vertical merger

c.
horizontal merger

d.
multinational enterprise

Answer 41

a.
international joint venture

Question 42

Who tends to benefit from increased immigration?

a.
owners of capital in the home country

b.
neither owners of capital nor labor in the home country

c.
both owners of capital and labor in the home country

d.
labor in the home country

Answer 42

a.
owners of capital in the home country

Question 43

Justifications for international joint ventures

Answer 43

• Some functions too costly for one company to absorb by itself
• Some governments place restrictions on foreign ownership of local businesses
• To prevent excessive political influence
• To minimize dividend transfers abroad
• Forestalling protectionism against imports

Question 44

Welfare effects of joint ventures

Advantages/Disadvantages

Answer 44

Advantages:
- Productivity and welfare gains
- Increased productive capacity and additional competition
- Entrance into new markets that neither parent could have entered individually
- Cost reductions that would have been unavailable if each parent performed same function separately

Disadvantages:
- Cumbersome (sperrig) organization
- Divided control
- Different objectives, corporate cultures, and ways of doing things
- Deadlocks in decision making
- Negotiations involve hierarchical command
- Can lead to welfare losses (market-power effect)

Question 45

Name two effects that are part of technology transfer

Answer 45

Demonstration effect:
As a firm shows how its products operate, this sends important information to other firms that such products exist and are usable.

Competition effect:
When a foreign firm manufactures a superior product that is popular among consumers, other firms are threatened. To survive, they must innovate and improve the quality of their products.

Question 46

Multinational Enterprises as a Source of Conflict

Answer 46

Employment

Technology Transfer

National Sovereignty

Balance of payments

Transfer Pricing

Question 47

Name the different fields and effects

Answer 47

a+b: total labor income USA
c: share of the nation ’ s income accruing to owners of capital (USA)
f+g: labor income Mexico
H+i+j: incomes of capital owners

Labor mobility: equalize wage rates in U.S. and Mexico –> 3 workers move –> wage = 6 in both countries
d+e: increase in labor supply leads to an expansion of output (USA)
i+g: loss of output

D+e > i+g –> net gain in world output as a result of labor migration

Question 48

What is the issue with immigration?

Answer 48

Domestic labor groups prefer restrictions on immigration

Domestic manufacturers favor unrestricted immigration as source of cheap labor

Developing nations fear brain drain

Guest workers –> temporary migration, as workers are needed

Illegal migration

==>Immigrants make net-positive contribution
- Diversify economy
- Contribute to economic growth
- Lower prices for consumers

Question 49

Whether to produce domestically or abroad?

Answer 49

Question 50

Welfare effects of an international joint venture

Answer 50

Pre joint venture:
CS: a+b+c
PS: 0

After joint venture: Monopole –> MC = MR
CS: c
PS: a + d
DWL: b

JV is desirable if d > b and welfare gain is due to increased productivity

Question 51

On the balance-of-payments statements, merchandise imports are classified in the

a.
current account.

b.
capital account.

c.
official settlements account.

d.
unilateral transfer account.

Answer 51

a.
current account.

Question 52

Which of the following would call for an inflow of payments to the United States?

a.
gold flowing out of the United States

b.
American imports of German steel

c.
American firms selling insurance to British shipping companies

d.
American unilateral transfers to less-developed countries

Answer 52

c.
American firms selling insurance to British shipping companies

Question 53

A debit in the U.S. current account would be represented by

a.
earnings on U.S. investments abroad flowing into the United States.

b.
gifts that Americans make to the poor in Africa.

c.
Chinese investors purchasing the securities of the U.S. government.

d.
exports of Boeing jetliners to South Korea.

Answer 53

b.
gifts that Americans make to the poor in Africa.

Question 54

Concerning the U.S. balance-of-payments statement, the sum of debits and credits on all transactions will always

a.
be unequal.

b.
be equal.

c.
show a deficit.

d.
show a surplus.

Answer 54

b.
be equal.

Question 55

Mary Smith, a resident of Denver, Colorado, purchases a Swiss watch in Chicago. On the U.S. balance-of-payments statement, this transaction appears on the

a.
official reserve asset account.

b.
net borrowing and lending account.

c.
services account.

d.
current account.

Answer 55

d.
current account.

Question 56

If the United States has a negative balance on its current account, it

a.
is a net borrower from the rest of the world.

b.
realizes a negative balance on its capital and financial account.

c.
runs a surplus in the budget of the federal government.

d.
is a net lender to the rest of the world.

Answer 56

a.
is a net borrower from the rest of the world.

Question 57

If the U.S. current account balance is negative

a.
the United States lends to other countries who purchase goods and services from the United States.

b.
the United States borrows from other countries to pay for the goods and services that the United States buys from them.

c.
the U.S. balance of international indebtedness shows that the United States is a net exporting nation.

d.
the U.S. balance of international indebtedness shows that the United States is a net credit nation.

Answer 57

b

the United States borrows from other countries to pay for the goods and services that the United States buys from them.

Question 58

An appreciation in the value of the U.S. dollar against the British pound would tend to

a.
discourage the British from buying American goods.

b.
discourage Americans from buying British goods.

c.
discourage U.S. tourists from traveling to Britain.

d.
increase the number of dollars that could be bought with a pound.

Answer 58

a.
discourage the British from buying American goods.

Question 59

An appreciation in the value of the U.S. dollar against the British pound would tend to

a.
foreign tourists travel in the U.S. at a higher cost.

b.
U.S. inflation increases.

c.
U.S. firms become more competitive in the international market.

d.
U.S. consumers face higher prices on foreign goods.

Answer 59

a.
foreign tourists travel in the U.S. at a higher cost.

Question 60

When the real exchange rate of the Japanese yen depreciates,

a.
the yen will trade for more units of a foreign currency.

b.
the yen will trade for fewer units of a foreign currency.

c.
the yen’s nominal exchange rate must also depreciate.

d.
the yen’s nominal exchange rate must remain constant.

Answer 60

b.
the yen will trade for fewer units of a foreign currency.

Question 61

What is the Balance-of-Payments?

Answer 61

• It is a record of the economic transactions between the residents of one country and the rest of the world.
• Records are kept annually and quarterly
• An international transaction is an exchange of goods, services, or assets between residents of one country and those of another

Question 62

What is double entry accounting?

Answer 62

Arranging international transactions into a balance-of-payments account requires that each transaction be entered as a credit or a debit

Examples of credits:
- Income received from investments abroad
- Gifts received from foreign residents
- Aid received from foreign governments
- Investments in the U.S. by overseas residents

Examples of Debits:
- Merchandise imports
- Transportation and travel expenditures
- Income paid on the investments of foreigners
- Gifts to foreign residents
- Overseas investment by U.S. residents

Question 63

The structure of the capital account

Answer 63

Question 64

Foreign exchange market

Answer 64

Organizational setting in which individuals, businesses, governments, and banks buy and sell foreign currencies and other debt instruments

Largest and most liquid market in the world

Dominated by four currencies –> U.S. dollar, Euro, Japanese yen, British pound

Question 65

Name the types of foreign exchange transactions?

Answer 65

spot transaction:
- outright purchase or sale of currency now, as in “on the spot”
- Simplest way to meet currency requirements
- Greatest risk of exchange rate fluctuations
- Payments actually made two days later

spot market:
- Foreign exchange bought and sold for delivery immediately

Forward transactions
- Receiving or paying an amount of foreign currency on a specific date in the future, months to years from now
- Fixed exchange rate
- Protects against unfavorable movements in the exchange rate, but will not allow gains to be made should the exchange rate move in your favor

Forward market
- Foreign exchange bought/sold for delivery at a future date – exist mainly for widely traded currencies

Currency swaps:
- Conversion of one currency to another currency at one point in time
- An agreement to reconvert it back to the original currency at a specified time in the future
- Rates of both exchanges are agreed to in advance
- Involves a single transaction in which traders agree to pay/receive stipulated amounts of currencies at specified rates

Question 66

Cross exchange rate

Answer 66

Exchange rate between any two currencies (such as the franc and the pound) but derived from the rates of these two currencies in terms of a third currency (the dollar)

Question 67

What happens when demand/supply of pounds increases/decreases?

Answer 67

Increase in the demand for pounds –> dollar depreciates
Decrease “-“ –> dollar appreciates

Increase in the supply of pounds –> dollar appreciats against the pound

Decrease “-“ –> dollar depreciates …

Question 68

Real exchange-rate index

Answer 68

Nominal exchange rate adjusted for relative price levels

Question 69

If the exchange rate between Swiss francs and British pounds is five francs per pound, then the number of pounds that can be obtained for 200 francs equals

a.
80 pounds.

b.
40 pounds.

c.
60 pounds.

d.
20 pounds.

Answer 69

b.
200 francs / 5 francs/pound = 40 pounds.

Question 70

High real interest rates in the United States tend to

a.
increase the demand for U.S. dollars, thus causing the U.S. dollar to depreciate.

b.
increase the demand for U.S. dollars, thus causing the U.S. dollar to appreciate.

c.
decrease the demand for U.S. dollars, thus causing the U.S. dollar to depreciate.

d.
decrease the demand for U.S. dollars, thus causing the U.S. dollar to appreciate.

Answer 70

b.
increase the demand for U.S. dollars, thus causing the U.S. dollar to appreciate.

Question 71

Given a system of floating exchange rates, stronger preferences by domestic residents for imports would

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

b.
an increase in the demand for imports and an increase in the demand for foreign currency.

c.
an increase in the demand for imports and a decrease in the demand for foreign currency.

d.
a decrease in the demand for imports and a decrease in the demand for foreign currency.

Answer 71

b.
an increase in the demand for imports and an increase in the demand for foreign currency.

Question 72

Long-run determinants of the (U.S.) dollar’s exchange value include all of the following EXCEPT

a.
interest rates in U.S. financial markets.

b.
U.S. tariffs placed on imports of foreign produced goods.

c.
preferences of Americans for foreign produced goods.

d.
productivity of the American worker.

Answer 72

a.
interest rates in U.S. financial markets.

Question 73

The Canadian dollar would depreciate on the foreign exchange market if

a.
the profitability of assets in Canada rises relative to the profitability of assets abroad.

b.
Canada experiences a disastrous wheat-crop failure, thus leading to imports of more wheat.

c.
Canada realizes technological improvements in the production of manufactured goods, thus leading to relatively low costs for Canada.

d.
Canadian consumer tastes change in favor of goods produced domestically.

Answer 73

b.
Canada experiences a disastrous wheat-crop failure, thus leading to imports of more wheat.

Question 74

A decrease in the U.S. demand for automobile imports will cause the supply curve of dollars to ______ and result in a(n) ___________.

a.
increase; depreciation of the dollar

b.
increase; appreciation of the dollar

c.
decrease; depreciation of the dollar

d.
decrease; appreciation of the dollar

Answer 74

d.
decrease; appreciation of the dollar

Question 75

Which exchange rate system does NOT require monetary reserves for official exchange rate intervention?

a.
pegged exchange rates

b.
floating exchange rates

c.
pegged exchange rates

Answer 75

b.
floating exchange rates

Question 76

Other things equal, under a floating exchange rate system, an increase in U.S. imports of Japanese goods will cause a demand for Japanese yen to

a.
increase, inducing an appreciation in the yen.

b.
decrease, inducing a depreciation in the yen.

c.
increase, inducing a depreciation in the yen.

d.
decrease, inducing an appreciation in the yen.

Answer 76

a.
increase, inducing an appreciation in the yen.

Question 77

Suppose Japan runs a trade deficit. Other things equal, if the Japanese yen appreciates against other currencies in the exchange markets, this will

a.
tend to improve the Japanese balance of trade because Japanese imports will become more expensive.

b.
have no effect on the Japanese balance of trade.

c.
tend to worsen the Japanese balance of trade because Japanese exports will become cheaper.

Answer 77

???

Question 78

A market-determined decrease in the dollar price of the pound is associated with

a.
revaluation of the dollar.

b.
depreciation of the dollar.

c.
devaluation of the dollar.

d.
appreciation of the dollar.

Answer 78

d.
appreciation of the dollar.