ECON ANSWERS
Test Bank: I Topic: The Balance of Payments
With which of the following countries does the United States have its largest goods and services deficit?
Canada
Germany
Japan
D. China
AACSB: Analytical Thinking Accessibility: Keyboard Navigation
Blooms: Analyze Difficulty: 03 Hard
Learning Objective: 21-02 Analyze the balance sheet the United States uses to account for the international payments it makes and receives.
Test Bank: I Topic: The Balance of Payments
A market in which the money of one nation is exchanged for the money of another nation is a
resource market.
bond market.
stock market.
D. foreign exchange market.
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 21-03 Discuss how exchange rates are determined in currency markets that have flexible exchange rates.
Test Bank: I Topic: Flexible Exchange Rates
If the dollar price of yen rises, then
the yen price of dollars also rises.
B. the dollar depreciates relative to the yen.
the yen depreciates relative to the dollar.
the dollar will buy fewer U.S. goods.
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 21-03 Discuss how exchange rates are determined in currency markets that have flexible exchange rates.
Test Bank: I Topic: Flexible Exchange Rates
If the exchange rate between the U.S. dollar and the Japanese yen is $1 = 200 yen, then the dollar price of yen is
A. $0.005.
B. $0.05.
C. $0.50. D. $5.
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 21-03 Discuss how exchange rates are determined in currency markets that have flexible exchange rates.
Test Bank: I Topic: Flexible Exchange Rates
The following are hypothetical exchange rates: $1 = 140 yen; 1 Swiss franc = $0.10. We can conclude that
1 yen = 280 Swiss francs.
1 yen = 14 Swiss francs.
1 Swiss franc = 28 yen.
D. 1 Swiss franc = 14 yen.
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 21-03 Discuss how exchange rates are determined in currency markets that have flexible exchange rates.
Test Bank: I Topic: Flexible Exchange Rates
The following are hypothetical exchange rates: 2 euros = 1 pound; $1 = 2 pounds. We can conclude that
$1 = 4 euros. B. $1 = 0.5 euro. C. 1 euro = $0.50.
D. 1 euro = $2.
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 21-03 Discuss how exchange rates are determined in currency markets that have flexible exchange rates.
Test Bank: I Topic: Flexible Exchange Rates
If the rate of exchange for a pound is $4, the rate of exchange for the dollar is
¼ pound.
B. 4 pounds. C. $0.25.
D. $1.00.
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 21-03 Discuss how exchange rates are determined in currency markets that have flexible exchange rates.
Test Bank: I Topic: Flexible Exchange Rates
In considering yen and dollars, when the dollar rate of exchange for the yen rises
the yen rate of exchange for the dollar will fall.
the yen rate of exchange for the dollar will also rise.
the yen rate of exchange for the dollar may either fall or rise.
U.S. net exports to Japan will fall.
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 21-03 Discuss how exchange rates are determined in currency markets that have flexible exchange rates.
Test Bank: I Topic: Flexible Exchange Rates
In considering euros and dollars, the rates of exchange for the euro and the dollar
are directly related.
B. are inversely related.
are unrelated.
move in the same direction.
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 21-03 Discuss how exchange rates are determined in currency markets that have flexible exchange rates.
Test Bank: I Topic: Flexible Exchange Rates
If the equilibrium exchange rate changes so that fewer dollars are needed to buy a South Korean won, then
Americans will buy fewer Korean goods and services.
the won has appreciated in value.
C. fewer U.S. goods and services will be demanded by the South Koreans.
D. the dollar has depreciated in value.
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 21-03 Discuss how exchange rates are determined in currency markets that have flexible exchange rates.
Test Bank: I Topic: Flexible Exchange Rates
If the exchange rate changes so that more Mexican pesos are required to buy a dollar, then
the peso has appreciated in value.
B. Americans will buy more Mexican goods and services.
more U.S. goods and services will be demanded by the Mexicans.
the dollar has depreciated in value.
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 21-03 Discuss how exchange rates are determined in currency markets that have flexible exchange rates.
Test Bank: I Topic: Flexible Exchange Rates
Depreciation of the dollar will
decrease the prices of both U.S. imports and exports.
increase the prices of both U.S. imports and exports.
decrease the prices of U.S. imports but increase the prices to foreigners of U.S. exports.
D. increase the prices of U.S. imports but decrease the prices to foreigners of U.S. exports.
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 21-03 Discuss how exchange rates are determined in currency markets that have flexible exchange rates.
Test Bank: I Topic: Flexible Exchange Rates
Appreciation of the Canadian dollar will
intensify an existing disequilibrium in Canada's balance of payments.
make Canada's exports less expensive and its imports more expensive.
C. make Canada's exports more expensive and its imports less expensive.
D. make Canada's exports and imports both more expensive.
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 21-03 Discuss how exchange rates are determined in currency markets that have flexible exchange rates.
Test Bank: I Topic: Flexible Exchange Rates
If the U.S. dollar depreciates relative to the Russian ruble, the ruble
will be less expensive to Americans.
may either appreciate or depreciate relative to the dollar.
C. will appreciate relative to the dollar.
D. will depreciate relative to the dollar.
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 21-03 Discuss how exchange rates are determined in currency markets that have flexible exchange rates.
Test Bank: I Topic: Flexible Exchange Rates
The U.S. demand for British pounds is
downsloping because a higher dollar price of pounds means British goods are cheaper to Americans.
downsloping because a lower dollar price of pounds means British goods are more expensive to Americans.
upsloping because a lower dollar price of pounds means British goods are cheaper to Americans.
D. downsloping because a lower dollar price of pounds means British goods are cheaper to Americans.
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 21-03 Discuss how exchange rates are determined in currency markets that have flexible exchange rates.
Test Bank: I Topic: Flexible Exchange Rates
The U.S. supply of Japanese yen is
downsloping because a lower dollar price of yen means U.S. goods are cheaper to the Japanese.
B. upsloping because a higher dollar price of yen means U.S. goods are cheaper to the Japanese.
upsloping because a lower dollar price of yen means U.S. goods are cheaper to the Japanese.
downsloping because a higher dollar price of yen means U.S. goods are cheaper to the Japanese.
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 21-03 Discuss how exchange rates are determined in currency markets that have flexible exchange rates.
Test Bank: I Topic: Flexible Exchange Rates
The U.S. demand for euros is
downsloping because, at lower dollar prices for euros, Americans will want to buy more European goods and services.
downsloping because, at higher dollar prices for euros, Americans will want to buy more European goods and services.
downsloping because the dollar price of euros and the euro price of dollars are directly related.
upsloping because a higher dollar price of euros makes European goods and services more attractive to Americans.
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 21-03 Discuss how exchange rates are determined in currency markets that have flexible exchange rates.
Test Bank: I Topic: Flexible Exchange Rates
Which of the following will generate a demand for country X's currency in the foreign exchange market?
travel by citizens of country X in other countries
B. the desire of foreigners to buy stocks and bonds of firms in country X
the imports of country X
charitable contributions by country X's citizens to citizens of developing nations
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 21-03 Discuss how exchange rates are determined in currency markets that have flexible exchange rates.
Test Bank: I Topic: Flexible Exchange Rates
66.
The accompanying diagram represents a flexible exchange market for foreign currency. At the equilibrium exchange rate,
$8 will buy 1 euro.
0.8 euros will buy $1.
C. 1.25 euros will buy $1.
D. $1 will buy 8 euros.
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 21-03 Discuss how exchange rates are determined in currency markets that have flexible exchange rates.
Test Bank: I Topic: Flexible Exchange Rates
Type: Graph
67.
The accompanying diagram represents a flexible exchange market for foreign currency. At the price $0.80 for 1 euro,
A. the quantity of euros demanded equals the quantity supplied.
the dollar-euro exchange rate is unstable.
the dollar price of 1 euro equals the euro price of 1 dollar.
there will be a surplus of euros in the foreign exchange market.
AACSB: Knowledge Application
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 21-03 Discuss how exchange rates are determined in currency markets that have flexible exchange rates.
Test Bank: I Topic: Flexible Exchange Rates
Type: Graph
68.
The accompanying diagram represents a flexible exchange market for foreign currency. Other things equal, a rightward shift of the demand curve would
A. depreciate the dollar.
appreciate the dollar.
reduce the equilibrium quantity of euros.
depreciate the euro.
AACSB: Knowledge Application
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 21-03 Discuss how exchange rates are determined in currency markets that have flexible exchange rates.
Test Bank: I Topic: Flexible Exchange Rates
Type: Graph
69.
The accompanying diagram represents a flexible exchange market for foreign currency. Other things equal, a leftward shift of the demand curve would
depreciate the dollar.
appreciate the euro.
C. reduce the equilibrium quantity of euros.
D. cause a surplus of euros.
AACSB: Knowledge Application
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 21-03 Discuss how exchange rates are determined in currency markets that have flexible exchange rates.
Test Bank: I Topic: Flexible Exchange Rates
Type: Graph
70.
The accompanying diagram represents a flexible exchange market for foreign currency. Other things equal, a leftward shift of the supply curve would
A. appreciate the euro.
cause a shortage of euros.
increase the equilibrium quantity of euros.
appreciate the dollar.
AACSB: Knowledge Application
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 21-03 Discuss how exchange rates are determined in currency markets that have flexible exchange rates.
Test Bank: I Topic: Flexible Exchange Rates
Type: Graph
71.
The accompanying diagram represents a flexible exchange market for foreign currency. Other things equal, a rightward shift of the supply curve would
appreciate the euro.
cause a surplus of euros.
decrease the equilibrium quantity of euros.
D. appreciate the dollar.
AACSB: Knowledge Application
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 21-03 Discuss how exchange rates are determined in currency markets that have flexible exchange rates.
Test Bank: I Topic: Flexible Exchange Rates
Type: Graph
72.
Refer to the diagram. The initial demand for and supply of pesos are shown by D1 and S1. The exchange rate will be
A. M dollars for one peso.
B. B dollars for one peso.
A dollars for one peso.
C dollars for one peso.
AACSB: Knowledge Application
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 21-03 Discuss how exchange rates are determined in currency markets that have flexible exchange rates.
Test Bank: I Topic: Flexible Exchange Rates
Type: Graph
73.
Refer to the diagram. The initial demand for and supply of pesos are shown by D1 and S1. Suppose the United States reduces its imports of Mexican goods, shifting its demand for pesos from D1 to D2. If the United States was operating under a system of exchange controls, the U.S. government would
A. find that, at the controlled exchange rate, pesos would be in surplus.
be faced with deteriorating terms of trade.
be faced with the problem of rationing BG pesos to U.S. importers, who want BF pesos.
be faced with the problem of rationing BF pesos to U.S. importers, who want BG pesos.
AACSB: Knowledge Application
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 21-04 Describe the differences between flexible and fixed exchange rates, including how changes in foreign exchange reserves bring about automatic changes in the domestic money supply under a fixed exchange rate.
Test Bank: I Topic: Fixed Exchange Rates
Type: Graph
74.
Refer to the diagram. The initial demand for and supply of pesos are shown by D1 and S1. Suppose the United States reduces its imports of Mexican goods, shifting its demand for pesos from D1 to D2. Under a system of freely floating exchange rates,
A. gold would flow from Mexico to the United States.
B. the dollar price of pesos would fall from B dollars equals 1 peso to A dollars equals 1 peso.
a problem of rationing a shortage of pesos would arise in the United States.
the dollar price of pesos would increase to C dollars equals 1 peso.
AACSB: Knowledge Application
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 21-03 Discuss how exchange rates are determined in currency markets that have flexible exchange rates.
Test Bank: I Topic: Flexible Exchange Rates
Type: Graph
Under a system of freely flexible (floating) exchange rates, a U.S. trade deficit with Mexico will tend to cause
the U.S. government to ration pesos to U.S. importers.
a flow of gold from the United States to Mexico.
an increase in the peso price of dollars.
D. an increase in the dollar price of pesos.
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 21-03 Discuss how exchange rates are determined in currency markets that have flexible exchange rates.
Test Bank: I Topic: Flexible Exchange Rates
Which of the following have substantially equivalent effects on a nation's volume of exports and imports?
exchange rate appreciation and a decrease in the domestic supply of money
exchange rate appreciation and domestic deflation
C. exchange rate depreciation and domestic deflation
D. exchange rate depreciation and domestic inflation
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 21-03 Discuss how exchange rates are determined in currency markets that have flexible exchange rates.
Test Bank: I Topic: Flexible Exchange Rates
In a system of fixed exchange rates, if the dollar price of euros is above the market equilibrium level,
gold will flow from the United States to Europe.
B. there will be a surplus of euros.
the U.S. government will have to ration euros to U.S. importers.
there will be a shortage of euros.
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 21-04 Describe the differences between flexible and fixed exchange rates, including how changes in foreign exchange reserves bring about automatic changes in the domestic money supply under a fixed exchange rate.
Test Bank: I Topic: Fixed Exchange Rates
78.
The table indicates the dollar price of libras, the currency used in the hypothetical nation of Libra. Assume that a system of freely floating exchange rates is in place. The equilibrium dollar price of libras is A. $5.
B. $4.
C. $3.
D. $2.
AACSB: Knowledge Application
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 21-03 Discuss how exchange rates are determined in currency markets that have flexible exchange rates.
Test Bank: I Topic: Flexible Exchange Rates
Type: Table
79.
The table indicates the dollar price of libras, the currency used in the hypothetical nation of Libra. Assume that a system of freely floating exchange rates is in place. The exchange rate is
A. 4 libras for one dollar.
B. 0.25 libra for one dollar.
0.40 libra for one dollar.
3 libras for one dollar.
AACSB: Knowledge Application
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 21-03 Discuss how exchange rates are determined in currency markets that have flexible exchange rates.
Test Bank: I Topic: Flexible Exchange Rates
Type: Table
80.
The table indicates the dollar price of libras, the currency used in the hypothetical nation of Libra. Assume that a system of freely floating exchange rates is in place. Suppose that Libra decided to import more U.S. products. We would expect the quantity of libras
demanded at each dollar price to rise and the dollar to depreciate relative to the libra.
demanded at each dollar price to fall and the dollar to appreciate relative to the libra.
C. supplied at each dollar price to rise and the dollar to appreciate relative to the libra.
D. supplied at each dollar price to fall and the dollar to depreciate relative to the libra.
AACSB: Knowledge Application
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 21-03 Discuss how exchange rates are determined in currency markets that have flexible exchange rates.
Test Bank: I Topic: Flexible Exchange Rates
Type: Table
In 1985, the exchange rate between the U.S. dollar and the Japanese yen was $1 = 262 yen; in 2003, the rate was $1 = 110 yen. Between 1985 and 2003, the
dollar appreciated in value relative to the yen.
B. yen appreciated in value relative to the dollar.
dollar price of yen fell.
yen price of dollars rose.
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 21-03 Discuss how exchange rates are determined in currency markets that have flexible exchange rates.
Test Bank: I Topic: Flexible Exchange Rates
In 1985, the exchange rate between the U.S. dollar and the Japanese yen was $1 = 262 yen; in 2003, the rate was $1 = 110 yen. Which one of the following might be a plausible explanation for the change in the dollar-yen exchange rate from 1985 to 2003?
Japan exported much more to the United States during this period than it imported from the United States.
Japan greatly increased its purchases of military equipment from the United States during this period.
Japan's economy grew far faster than the U.S. economy during this period.
Japan's government devalued the yen during this period.
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 21-03 Discuss how exchange rates are determined in currency markets that have flexible exchange rates.
Test Bank: I Topic: Flexible Exchange Rates
Under a system of flexible exchange rates, an increase in the international value of a nation's currency will
cause an international surplus of its currency.
contribute to disequilibrium in its balance of payments.
cause gold to flow into that country.
D. cause its imports to rise.
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 21-03 Discuss how exchange rates are determined in currency markets that have flexible exchange rates.
Test Bank: I Topic: Flexible Exchange Rates
According to the purchasing power parity theory of exchange rates,
a dollar, when converted to other currencies at the prevailing floating exchange rate, has the same purchasing power in various countries.
in equilibrium, national currencies have equal value in terms of gold.
the higher a nation's price level in terms of its own currency, the greater is the amount of foreign exchange it can obtain for a unit of its currency.
nominal currency values will tend to equalize (become 1 = 1) in the long run.
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 21-03 Discuss how exchange rates are determined in currency markets that have flexible exchange rates.
Test Bank: I Topic: Flexible Exchange Rates
The idea that freely floating exchange rates equate the buying power of national currencies is called
the equation of exchange.
the balance of payments.
Say's Law.
D. the purchasing power parity theory.
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 21-03 Discuss how exchange rates are determined in currency markets that have flexible exchange rates.
Test Bank: I Topic: Flexible Exchange Rates
Assume that Japan and South Korea have flexible exchange rates. Other things equal, if economic growth is more rapid in Japan than in South Korea,
gold bullion will flow out of Japan.
B. the Japanese yen will depreciate.
the South Korean won will depreciate.
the yen and won exchange rate will stay constant.
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 21-03 Discuss how exchange rates are determined in currency markets that have flexible exchange rates.
Test Bank: I Topic: Flexible Exchange Rates
Assume that Brazil and Mexico have floating exchange rates. Other things unchanged, if the price level is stable in Mexico, but Brazil experiences rapid inflation,
gold bullion will flow into Brazil.
B. the Brazilian real will depreciate.
the Mexican peso will depreciate.
the Brazilian real will appreciate.
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 21-03 Discuss how exchange rates are determined in currency markets that have flexible exchange rates.
Test Bank: I Topic: Flexible Exchange Rates
Assume that Switzerland and Britain have floating exchange rates. Other things unchanged, if a tight money policy raises interest rates in Britain as compared to Switzerland,
gold bullion will flow into Switzerland.
B. the Swiss franc will depreciate.
the pound will depreciate.
the Swiss franc will appreciate.
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 21-03 Discuss how exchange rates are determined in currency markets that have flexible exchange rates.
Test Bank: I Topic: Flexible Exchange Rates
89.
Refer to the diagram, where D and S are the United States' demand for and supply of Swiss francs. At the equilibrium exchange rate, E, the United States' balance of payments is in equilibrium. A shift of the demand curve to D' might be the result of
a relative decline in interest rates in Switzerland.
a reduction in the United States' relative price level.
a recession in the United States that slows its rate of growth.
D. a relative decline in interest rates in the United States.
AACSB: Knowledge Application
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 21-03 Discuss how exchange rates are determined in currency markets that have flexible exchange rates.
Test Bank: I Topic: Flexible Exchange Rates
Type: Graph
90.
Refer to the diagram, where D and S are the United States' demand for and supply of Swiss francs. At the equilibrium exchange rate, E, the United States' balance of payments is in equilibrium. Given a change in demand from D to D', the United States could maintain the dollar price of Swiss francs by
shifting the S curve to the right through the use of domestic expansionary policies.
instituting exchange controls to ration Ed Swiss francs to U.S. importers, who want Ec francs.
using foreign exchange reserves to cover the Ec shortage of Swiss francs.
D. using foreign exchange reserves to cover the cd shortage of Swiss francs.
AACSB: Knowledge Application
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 21-04 Describe the differences between flexible and fixed exchange rates, including how changes in foreign exchange reserves bring about automatic changes in the domestic money supply under a fixed exchange rate.
Test Bank: I Topic: Fixed Exchange Rates
Type: Graph
91.
Refer to the diagram, where D and S are the United States' demand for and supply of Swiss francs. At the equilibrium exchange rate, E, the United States' balance of payments is in equilibrium. Under a system of flexible exchange rates, the shift in demand from D to D' will
ultimately reduce U.S. exports and raise U.S. imports.
cause the dollar to appreciate.
cause the Swiss franc to depreciate.
D. cause the dollar to depreciate.
AACSB: Knowledge Application
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 21-03 Discuss how exchange rates are determined in currency markets that have flexible exchange rates.
Test Bank: I Topic: Flexible Exchange Rates
Type: Graph
92.
Refer to the diagram, where D and S are the United States' demand for and supply of Swiss francs. At the equilibrium exchange rate, E, the United States' balance of payments is in equilibrium. Under a system of fixed exchange rates, the shift in demand from D to D' will cause
the United States to increase its foreign exchange reserves.
an appreciation of the dollar.
C. the United States to reduce its foreign exchange reserves.
D. a depreciation of the Swiss franc.
AACSB: Knowledge Application
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 21-04 Describe the differences between flexible and fixed exchange rates, including how changes in foreign exchange reserves bring about automatic changes in the domestic money supply under a fixed exchange rate.
Test Bank: I Topic: Fixed Exchange Rates
Type: Graph
If the United States has full employment and the dollar dramatically depreciates in value, we can expect (other things equal)