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Americans buying Japanese cars
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supply U.S. dollars and demand Japanese yen.
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The foreign exchange market is the market in which
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currencies of different countries are bought and sold.
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The higher the U.S. dollar price per Mexican peso, the __________ Mexican goods are for Americans and the __________ Mexican goods Americans will buy; thus __________ pesos will be demanded.
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more expensive; fewer, fewer
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An American computer is priced at $1,500. If the exchange rate between the U.S. dollar and the Mexican peso is $0.089 = 1 peso, approximately how many pesos would a Mexican buyer pay for the computer?
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16,854 pesos
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Which of the following exchange rates between the dollar and the peso would an American buyer of Mexican goods most prefer?
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$0.04 = 1 peso
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The more dollars that must be given up to buy one British pound, the __________ American goods are for the British and the __________ American goods the British will buy; thus __________ dollars will be demanded.
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less expensive; more, more
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The U.S. dollar has depreciated relative to the Japanese yen if it takes
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both fewer yen to buy a dollar and more dollars to buy a yen.
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Suppose that the exchange rate between the U.S. dollar and the Mexican peso is 1 peso = $0.11. If the U.S. dollar price per Mexican peso changes to 1 peso =$0.10, the peso is said to have __________ and the dollar to have __________.
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depreciated; appreciated
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Suppose a Mexican consumer wants to buy an American television for $500 and an American wants to buy a Mexican raincoat for 700 pesos. If the exchange rate is $0.10 = 1 peso, then the price of the television in pesos will be __________ and the price of the raincoat in dollars will be __________.
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5000 pesos; $70
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Suppose that prices in the United States rise relative to prices in France. We expect that (on the foreign exchange market) the demand for U.S. dollars will __________ and the supply of dollars will __________.
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decrease; increase
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Suppose that prices in Japan increase by 15 percent while prices in the United States remain stable. We would expect that
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the dollar will appreciate and the yen will depreciate.
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The U.S. real interest rate rises relative to Japan's. As a result,
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the yen will depreciate and the dollar will appreciate.
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The purchasing power parity theory predicts that changes in the relative price levels of two countries will affect the exchange rate in such a way that
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one unit of a nation's currency will continue to buy the same amount of foreign goods as it did before the change in the relative price levels.
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Suppose that an increase in a nation's income causes the nation's residents to buy more domestic and foreign goods. Given this, if U.S. residents experience an increase in income, but Mexican residents do not, it is likely that, ceteris paribus,
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the U.S. dollar will depreciate and the Mexican peso will appreciate
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A "devaluation" occurs when
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the official price of a currency is lowered
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When the official dollar price of a foreign currency is set below its equilibrium level, the foreign currency
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is undervalued.
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Suppose that the exchange rate between the U.S. dollar and the Mexican peso starts out at $0.12 per peso, and then changes to $0.09 per peso. The result will be that Americans will buy __________ pesos because Mexican goods become relatively __________ expensive.
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more; less
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Suppose there are only two countries in the world, Mexico and the United States. On the foreign exchange market, it follows that the
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supply of pesos is linked to the demand for dollars
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An overvalued dollar makes U.S.
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exports rise in price.
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According to the text, the _______________ is currently the primary reserve currency.
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U.S. Dollar
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One of the reasons why the AD curve slopes downward is that as the
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price level falls, purchasing power rises.
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Suppose consumption increases at each price level. As a result, aggregate demand __________, and the AD curve shifts __________.
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increases; rightward
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Part of the story of the interest rate effect is that a lower price level causes __________ in the supply of credit, which then causes the interest rate to __________.
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an increase; fall
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If consumption changes because of a change in the price level, then the
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economy moves from one point on an AD curve to another point on the same curve.
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Suppose a drop in stock prices makes people feel less wealthy. This would cause __________ the economy's AD curve.
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a leftward shift of
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As the interest rate rises, businesses invest __________ and the AD curve shifts to the __________.
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less; right
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A lower income tax rate __________ consumption, causing a __________ the AD curve.
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stimulates; rightward shift of
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A rise in foreign real national income tends to raise U.S. __________, shifting the U.S. AD curve to the __________.
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exports; right
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A short-run aggregate supply curve shows the
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real output (Real GDP) people are willing and able to buy and to sell at different price levels, ceteris paribus.??
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An increase in the price of nonlabor inputs
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shifts the SRAS curve leftward.
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If aggregate quantity supplied is greater than aggregate quantity demanded at a particular price level, then a
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surplus exists and the price level will decline.
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Short-run equilibrium exists
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where the AD curve intersects the short-run aggregate supply (SRAS) curve.
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Which of the following would cause a rightward shift in the AD curve?
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an increase in the price level??
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Which of the following best describes how the real balance effect works?
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The price level rises, purchasing power falls, a person's monetary wealth falls, and the person buys fewer goods and services
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The purchases made by the foreign sector are called __________; the purchases made by the household sector are called __________; the purchases made by the government sector are called __________; and the purchases made by the business sector are called investment.
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net exports; consumption; government purchases
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Can a change in the price level change aggregate demand?
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Yes, as the price level rises, aggregate demand falls.
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If wage rates fall at the same time that labor productivity increases, what is the effect on short-run aggregate supply (SRAS)?
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SRAS may rise, fall, or remain constant.
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The short-run aggregate supply curve is ________ and the long-run aggregate supply curve is _________.
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upward sloping; horizontal
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The economy suffers an adverse supply shock. As a result, in the short run Real GDP will __________ and the price level will __________.
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fall; rise
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There is a rise in labor productivity in the economy. As a result, in the short run Real GDP __________ and the price level __________.
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rises; falls
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__________ identifies the level of Real GDP the economy produces when all economywide adjustments have taken place and there are no misperceptions on the part of workers.
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Long-run equilibrium
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Refer to Exhibit 8-1. If we assume that Real GDP and the unemployment rate are inversely related, which of the points on this graph is most likely representative of the highest unemployment rate?
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D
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Refer to Exhibit 8-1. Assume that the economy is originally in equilibrium at point A. If businesses become more optimistic about future sales, at which point is the economy most likely to end up in the short run?
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B
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Refer to Exhibit 8-3. A movement from point A to point B on AD1 would have been the result of
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a decrease in the price level.
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Refer to Exhibit 8-4. Which of the following could not have caused a shift in aggregate supply from SRAS1 to SRAS2?
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a change in the price level
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