The supply of U.S. dollars originates from: A) Demand by foreigners for U.S. produced goods. B) Demand for U.S. dollars for speculative purposes. C) Foreign investments in America. D) American demand for imported goods. 2. Generally speaking, a country whose currency appreciates will experience, as a result: A) Reduced aggregate demand because of a decrease in exports. B) Inflationary pressure from higher import prices. C) Increasing interest rates from capital inflow. D) Increased exports. 3. Suppose a men’s suit produced in Moldavia sells for 250 Euros. If the exchange rate between Euros and dollars is ?1 = $1.38, how much will an American pay for the men’s suit in America? A) $345.00 B) $181.16 C) $250.00 D) $138.00 4. In the current account, a deficit in the trade balance is necessarily offset by a surplus in the service balance. A) True B) False 5. When exchange rates are flexible, they are: A) Determined by proclamation of the monetary authorities of a country. B) Determined by the relative levels of gold reserves. C) Permitted to vary with changes in supply and demand in the foreign-exchange market. D) Determined by the provisions of the Bretton Woods agreement. 6. The supply of U.S. dollars is determined by all of the following except: A) Foreign demand for American exports. B) American demand for imports. C) American investments in foreign nations. D) Speculation. 7. The current-account balance is equal to: A) Imports minus exports. B) Exports minus imports. C) The trade balance plus unilateral transfers. D) The trade balance times unilateral transfers. 8. Suppose a bottle of wine produced in France sells for 35 Euros. If the exchange rate between Euros and dollars is ?1 = $1.30, how much will an American pay for the bottle of wine in America? A) $130.00 B) $35.00 C) $45.50 D) $26.92 9. Appreciation of the dollar refers to: A) A loss of foreign-exchange reserves. B) An increase in the dollar price of foreign currency. C) Intervention in international money markets. D) A fall in the dollar price of a foreign currency. 10. Changes in the value of the euro affect the economies of: A) Only those countries using the euro as currency. B) All European countries but there would be no significant impact on countries outside Europe. C) Potentially the entire world. D) There would be no significant impact on any economies as long as exchange rates are flexible. 11. The exchange rate is the: A) Opportunity cost at which goods are produced domestically. B) Balance-of-trade ratio of one country to another. C) Price of one country’s currency expressed in terms of another country’s currency. D) Amount of currency that can be purchased with 1 ounce of gold. 12. The following multiple-choice question requires critical thinking about In the News and World View articles that appear in the text. One World View article, “Weak Dollar Helps U.S. Firms,” discusses the devaluation of the U.S. dollar. When the value of a currency depreciates, exports become: A) More expensive and imports are more expensive. B) More expensive and imports are less expensive. C) Less expensive and imports are more expensive. D) Less expensive and imports are less expensive. 13. Which of the following is not likely to occur because of exchange-rate fluctuations? A) An end to flexible exchange rates worldwide B) A decrease in the demand for exports C) An increase in the demand for imports D) Inflation 14. The U.S. desire for foreign currency represents: A) A demand for U.S. dollars. B) A supply of U.S. dollars. C) The foreign demand for U.S. exports. D) A point of disequilibrium in the foreign-exchange market. 15. Places where foreign currencies are bought and sold are: A) Capital-account markets. B) Foreign-exchange reserves. C) Foreign-exchange markets. D) Currency appreciation markets. 16. The following multiple-choice question requires critical thinking about In the News and World View articles that appear in the text. One World View article, “Weak Dollar Helps U.S. Firms,” discusses the devaluation of the U.S. dollar. When the value of a currency depreciates, imports become: A) More expensive causing an increase in demand for domestically produced goods. B) More expensive causing a decrease in demand for domestically produced goods. C) Less expensive causing a decrease in demand for domestically produced goods. D) Less expensive causing an increase in demand for domestically produced goods. 17. Ceteris paribus, if interest rates in the United States rise relative to those abroad, then the surplus in the U.S. capital account would: A) Become smaller and the dollar would appreciate. B) Become smaller and the dollar would depreciate. C) Grow larger and the dollar would appreciate. D) Grow larger and the dollar would depreciate. 18. When foreigners buy U.S. dollars because it is a more stable currency than the currency in their country, they are generating a: A) Demand for U.S. dollars and a demand for a foreign currency. B) Supply of U.S. dollars and a supply of a foreign currency. C) Demand for U.S. dollars and a supply of a foreign currency. D) Supply of U.S. dollars and a demand for a foreign currency. 19. When foreigners come to the United States as tourists, they are generating a: A) Demand for U.S. dollars and a demand for a foreign currency. B) Supply of U.S. dollars and a supply of a foreign currency. C) Supply of U.S. dollars and a demand for a foreign currency. D) Demand for U.S. dollars and a supply of a foreign currency. 20. When the dollar price of yen increases, Honda automobiles from Japan become cheaper to U.S. residents. A) True B) False 21. Ceteris paribus, an increase in the U.S. demand for Greek goods in Figure 35.1 will: A) Result in a movement from M to R on the supply curve for dollars. B) Result in a movement from M to N on the demand curve for dollars. C) Increase the dollar price of Euros above $2 = 1 euro. D) Make U.S. goods more expensive to Greek residents. 22. Which of the following could be responsible for the depreciation of a country’s currency? A) The country expands it tourist industry B) Speculators anticipate economic growth in that nation C) The country experiences a sudden drop in the rate of inflation while other nations do not D) The country defaults on bonds held by foreigners 23. Which of the following can a nation use to shift the supply or demand for their currency? A) Fiscal policy but not monetary policy B) Monetary policy but not trade policy C) Trade policies such as tariffs but not fiscal policy D) Fiscal, monetary and trade policies 24. The depreciation of a country’s currency causes the price of imports to: A) Rise and the prices of exports to rise. B) Rise and the prices of exports to fall. C) Fall and the prices of exports to rise. D) Fall and the prices of exports to fall. 25. When American companies buy office buildings in Australia, they are generating a: A) Supply of U.S. dollars and a demand for a foreign currency. B) Supply of U.S. dollars and a supply of a foreign currency. C) Demand for U.S. dollars and a supply of a foreign currency. D) Demand for U.S. dollars and a demand for a foreign currency.