1.What term describes how quickly domestic and foreign prices respond to a currency devaluation in the short term?
2.What is the term for the phenomenon where the trade balance initially worsens after a currency depreciation but improves over time?
3.Which theory suggests that when an economy is at full employment and experiencing a trade deficit, devaluing the currency will enhance the trade balance only if domestic consumption decreases, thereby allowing more resources to be allocated to export production?
4.What term describes the degree to which fluctuations in the exchange rate affect the prices of imports and exports?
5.What concept is associated with the transition to imperfectly competitive markets in both domestic and international trade?
6.According to economic theory, under which condition does a depreciation of the domestic currency result in the smallest improvement in the country’s trade balance?
7.If the U.S. dollar loses 70% of its value relative to the Japanese yen, but the prices of Japanese exports sold to the U.S. do not fall by the same proportion, what is the most likely reason?
8.If a Big Mac costs $3 in the United States and 2 pesos in Mexico, what is the implied purchasing power parity (PPP) exchange rate between the peso and the US dollar?
9.If Japan, with its high savings rate, invests capital overseas, how is the Japanese yen likely to be affected, and what impact would this have on Japan's trade balance?
10.If interest rates are the same on similar assets in the U.S. and abroad, and investors expect the U.S. dollar to weaken relative to foreign currencies in the future, where are investment funds most likely to move?
11.If a country's money demand equals its money supply and its balance of payments is initially balanced, which of the following changes would cause the balance of payments to shift into a surplus?
12.Which market expectation would lead to the U.S. dollar strengthening against the Japanese yen?
13.In a floating exchange rate system, what effect would a decline in income in the United States have on the demand for imports and foreign currency?
14.Given that the annual interest rate on U.S. government bonds is 12% with an inflation rate of 8%, and in Japan the interest rate on government bonds is 10% with an inflation rate of 5%, which direction will investment capital most likely move, and what will be the impact on the U.S. dollar?
15.What happens to Japanese exports if Japan experiences a current account deficit while its currency exchange rates are determined by the market?
16.Imagine a world where only Canada and Switzerland exist. If there is a surplus of Swiss francs available in the foreign exchange market, what does this indicate about the current account balances?
17.What occurs in the foreign exchange market when the exchange rate is set above its equilibrium level?
18.What was the primary reason for the strong foreign exchange value of the U.S. dollar during the early 1980s?
19.If the price of wheat is $4 per bushel in the United States and £2 per bushel in Great Britain, what should the exchange rate be according to the purchasing power parity theory?
20.If the United States experiences an 8% inflation rate while Japan has zero inflation, what does the purchasing power parity theory predict will happen to the value of the US dollar relative to the Japanese yen in the long term?