S. Payesteh ECO 203

PROBLEM SET #9

Figure 1

($) P_f

S_f

.14

.13

.12

.10

.09

.08

	Billions of francs

1. With reference to Figure 1, as we move from the origin up the vertical axis:

a. the franc is depreciating

b. the dollar is depreciating

c. French goods are becoming cheaper to Americans

d. Americans will buy more French goods

2. With reference to Figure 1, a shift in American tastes from French to California wines would shift the:

a. demand curve for francs to the left and cause the franc to appreciate

b. supply curve of francs to the left and cause the franc to appreciate

c. demand curve for francs to the left and cause the franc to depreciate

d. supply curve to the right and cause the franc to depreciate

3. The combination of monetary and fiscal policy best for reducing a trade deficit is:

a. Expansionary monetary policy, contractionary fiscal policy

b. Expansionary monetary policy, expansionary fiscal policy

c. Contractionary monetary policy, contractionary fiscal policy

d. Contractionary monetary policy, expansionary fiscal policy

4. Ceteris paribus, one can expect the dollar to appreciate if:

a. the American inflation rate is above that of other countries

b. interest rates in the U.S. are higher than in other countries

c. American economy is expanding more rapidly than others

d. American investment in other countries is growing faster than foreign investment in the U.S.

5. When a currency appreciates relative to the dollar:

a. it takes more dollars to buy that currency

b. it takes fewer dollars to buy that currency

c. it becomes less expensive

d. none of the above

6. An increase in U.S. interest rates, ceteris paribus, can be expected to:

a. encourage domestic investment

b. stimulate imports of merchandise

c. lead to depreciation of the dollar

d. none of the above

7. If the price in dollars of French francs changes from $0.25 per franc to $0.30 per franc, the franc has:

a. appreciated

b. depreciated

c. stayed at par

d. none of the above

8. An expansionary monetary policy will: (I) reduce exports; (II) appreciate the currency:

a. I and II

b. I not II

c. II not I

d. neither I nor II

Figure 2

Price Level

RGDP

9. Which of the graphs in Figure 2 are consistent with an appreciation of the U.S. dollar caused by an increase in U.S. interest rates?

a. 1

b. 2

c. 3

d. 4

10. Which of the graphs in Figure 2 is consistent with a depreciation of the U.S. dollar caused by falling U.S. interest rates?

a. 1

b. 2 and 4

c. 4

d. neither 2 nor 4

11. If aggregate demand shifts dominate aggregate supply shifts following a currency depreciation, then:

a. the price level and RGDP will rise

b. the price level will rise and RGDP will fall

c. the price level will fall and RGDP will rise

d. price level will rise, but change in RGDP cannot be predicted