Question

1. What could cause a shift in the (U.S.) demand for British pounds?

a. A change in our tastes and preferences for their goods.

b. A change in our income.

c. A change in trade restrictions.

d. A change in monetary policy.

e. All of the above.

2. The exchange rate between the U.S. and Japan can be interpreted as:

a. the price of U.S. currency in terms of the Japanese currency.

b. the cost of obtaining funds in the U.S. relative to the cost of obtaining funds in Japan.

c. the difference between the interest rates in the U.S. and Japan.

d. All of the above.

e. None of the above.

3. Suppose that one U.S. dollar is exchanged for 100 yen in the foreign exchange market. If so, then a toy selling for 1,000 yen in Japan has a U.S. dollar price of:

a. 10 cents.

b. $1.

c. $10.

d. $100

e. $1000.

4. If the price of a British pound falls from $1.50 to $1.00, we can say that:

a. the dollar price of British goods has fallen.

b. the pound price of British goods has risen.

c. the dollar price of U.S. goods has fallen.

d. All of the above.

e. Only B and C of the above.

5. If the euro appreciates against the U.S. dollar, then:

a. European consumers will buy more American goods.

b. Americans will buy fewer European goods.

c. More Europeans will travel to, and visit, the United States.

d. All of the above.

e. None of the above.

Answer 1

1. A change in the tastes and preferences for British goods will cause Americans to change their import of British goods. This will change their demand for British pounds.

A change in Americans' income will change their demand for British goods, thereby changing their demand for British pounds.

A change in trade restrictions changes US import of British goods, thereby changing their demand for British pounds.

A change in monetary policy changes real output in the US. This will change income of US residents. Therefore, their demand for British goods also changes, shifting the demand for British pounds leftward or Rightward.

Answer: option E

2. The exchange rate between the US and Japan can be interpreted as the price of US currency in terms of the Japanese currency.

Answer: option A

3. 100 yen = 1 dollar

Or, 1 yen = (1/100) dollar

Or, 1000 yen = (1000/100) dollar = $10

Answer: option C

4. If the price of a British pound falls from $1.50 to $1.00, it means Americans now have to pay less to buy 1 pound worth of British goods.

Answer: option A