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15 Cards in this Set

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  • Back
Suppose the Chinese government decides to abandon pegging the yuan to the dollar at a rate which undervalues the yuan. Using the figure above, the equilibrium exchange rate would be ________ and Chinese exports to the United States would ________ ...
Suppose the Chinese government decides to abandon pegging the yuan to the dollar at a rate which undervalues the yuan. Using the figure above, the equilibrium exchange rate would be ________ and Chinese exports to the United States would ________ in price.
$0.14/yuan; increase
What impact might a decrease in the U.S. federal budget deficit have on interest rates and exchange rates in the market for the U.S. dollar? (Assume the exchange rate is stated in terms of foreign currency per U.S. dollar.)
Interest rates and exchange rates decrease.
If a country's currency is "pegged" to the dollar, its exchange rate is
fixed.

According to the Theory of the impossible trinity, a country that chooses to have free capital flows and a fixed exchange rate cannot also have ________________.
control over interest rates
The Chinese government pegs the yuan to the dollar, at one of the specified exchange rates on the graph, such that it undervalues its currency. Using the figure above, this would generate a
The Chinese government pegs the yuan to the dollar, at one of the specified exchange rates on the graph, such that it undervalues its currency. Using the figure above, this would generate a
a shortage of yuan equal to 400 million

Which of the following explains why purchasing power parity does not completely explain long-run fluctuations in exchange rates?


Some goods and services produced in any country are not traded internationally

Although the pegged exchange rate between the yuan and the dollar has undervalued the yuan, China has been reluctant to abandon the peg for fear that abandoning the peg would


reduce exports and reduce economic growth

If a country's currency is determined only by the demand and supply for that country's currency, the country is said to have a
floating exchange rate.
A persistent surplus of pounds at a given fixed exchange rate (in dollars per pound) is evidence that the pound is ________ versus the dollar. This surplus can be reduced or eliminated through a ________ of the pound.
overvalued; devaluation
A Big Mac costs $3.60 in the United States and 8.00 reals in Brazil. If the exchange rate is 2 reals per dollar, purchasing power parity predicts that
the dollar will appreciate as the supply of dollars falls in the long run
During the Chinese experience with pegging the yuan to the dollar, the yuan was undervalued. Their main motivation for this was to make ___________ more affordable and keep ___________ higher.
exports; net exports
Destabilizing speculation refers to
actions taken by investors who sell a country's currency in anticipation of buying it back later at a lower price.
When Americans decrease their demand for Japanese goods
the supply of dollars will fall, and the demand for yen will fall
If the implied exchange rate from the Big Mac price index was lower than the actual exchange rate between two countries, economists would say that the exchange rate is _______________. In the future, they would expect that exchange rate to ___________.
undervalued; rise
Monetary policy has a ________ effect on aggregate demand in a(an) ________ economy, and fiscal policy has a ________ effect on aggregate demand in a(an) ________ economy.
weaker; closed; stronger; closed