Question

110. Suppose that last month one U.S. dollar could be exchanged for one euro, while, today it takes two U.S. dollars to buy one euro. From this, we can conclude that:

a. the U.S. dollar has depreciated relative to the euro.

b. the euro has appreciated relative to the U.S. dollar.

c. the U.S. dollar has appreciated relative to the euro.

d. both the U.S. dollar and the euro have depreciated relative to each other.

e. Both A and B are true.

113. An increase in U.S. exports to Britain would occur if there was:

a. an increase in the demand for pounds.

b. a decrease in the supply of pounds.

c. an increase in the supply of dollars.

d. a decrease in the demand for dollars.

e. Both A and C are correct.

115. An increase in which of the following factors (from the perspective of the domestic country) would cause a depreciation of the domestic currency in the short run?

a. Foreign interest rate.

b. Relative price level.

c. Relative export demand.

d. All of the above.

e. None of the above.

Answer 1

110. Both A and B are true. This is because of now we have to pay more dollar to biy one euro and hence it means dollar is depreciated against the euro or euro has appreciated against the dollar. Hence Option E is correct

113.Option E is correct. An increase in demand for pounds will shift the demand curve for pound to the right as a result exchange rate will become higher for pound or pound will appreciate or dollar will depreciate which makes the US goods cheaper and hence export will rise. Similarly, an increase in supply of dollar will depreciates the dollar against pounds which makes the US goods cheaper and hence export will rise.

115. Option D is correct. All of the above. If Foreign interest rate increase the demand for foreign currency will rise as a result domestic currency become cheaper and depreciates.

similarly, price level and relative export demand. If export demand is higher the demand for foreign currency will also be higher which increases the value of foreign currency.