Assuming the government of a country imposes a tariff on its imports of foreign goods, what is the likely effect on the country’s currency in foreign exchange markets?
A.
The supply of the currency will increase and the currency will depreciate.
B.
The supply of the currency will increase and the currency will appreciate.
C.
The supply of the currency will decrease and the currency will appreciate.
D.
The demand for the currency will decrease and the currency will appreciate.
2.
Assume Country X’s economy is experiencing high rates of inflation. Which of the following policies will control the problem of inflation, and what is the consequent effect on the value of Country X’s currency in foreign exchange markets?
A.
A contractionary monetary policy will increase interest rates, which will cause the currency to depreciate.
B.
A contractionary monetary policy will increase interest rates, which will cause the currency to appreciate.
C.
An expansionary monetary policy will decrease interest rates, which will cause the currency to appreciate.
D.
An expansionary monetary policy will decrease interest rates, which will cause the currency to depreciate.
3.
Assume that a nation’s government uses an expansionary fiscal policy to restore full employment. What effect will the resulting change in the price level have on the supply and demand of the nation’s currency in the foreign exchange market?
A.
The supply and demand will both increase.
B.
The supply and demand will both decrease.
C.
The supply will increase and the demand will decrease.
D.
The supply will decrease and the demand will increase.
4.
Which of the following best explains the change in the international value of the peso caused by a shift of the demand curve from D0 to D1 in the dollar-peso foreign exchange market?
A.
The peso has appreciated because Americans’ demand for Mexican financial assets increased.
B.
The peso has appreciated because Mexicans’ demand for United States financial assets increased.
C.
The peso has depreciated because Americans’ demand for Mexican goods and services decreased.
D.
The peso has depreciated because Mexicans’ demand for American goods and services decreased.
5.
Which of the following monetary policy actions by the Federal Reserve would result in an appreciation of the United States dollar?
