Exchange-Rate Adjustments And The Balance of

1.What does empirical research suggest about the impact of currency depreciation on a country's trade balance?

Currency depreciation typically enhances the trade balance.Currency depreciation usually worsens the trade balance.There is no definitive conclusion that applies universally.Currency depreciation does not influence the trade balance.

2.What term describes how quickly domestic and foreign prices respond to a devaluation in the short term?

3.The shorter the period for pass-through, the the beneficial balance of trade effects on the volume of goods exchanged will be observed.

4.If the United Kingdom devalues the pound and both exports and imports are measured in pounds, what happens to the UK's trade balance during the currency adjustment period?

Gets betterDeterioratesRemains unchangedDeclines initially then rises

5.When export agreements are denominated in foreign currency and import agreements are in domestic currency, what is the impact of a dollar depreciation during the contract period?

The dollar amount received from exports is likely to riseThe dollar cost of U.S. imports will probably remain unchangedThe trade balance is expected to improveAll of the aboveNone of the above

6.What happens to U.S. import prices when there is complete currency pass-through following a 10% depreciation of the dollar?

U.S. import prices decrease by 10%U.S. import prices increase by 10%U.S. export prices increase by 10%U.S. export prices decrease by 10%

7.In a world with only two countries, if Japan reduces the value of the yen by 20% and West Germany lowers the mark's value by 15%, what is the outcome for the yen relative to the mark?

Both currencies experience an increase in valueBoth currencies undergo a decrease in valueThe yen strengthens compared to the markThe yen weakens compared to the markNo change occurs in the exchange rate between the yen and the mark

8.How do adjustments in foreign production costs and profit margins affect the timeline of a U.S. dollar depreciation's impact on the trade deficit?

Reduce the duration until the depreciation causes a decrease in the trade deficitReduce the duration until the depreciation causes a decrease in the trade surplusExtend the duration before the depreciation results in a reduction of the trade deficitExtend the duration before the depreciation results in a reduction of the trade surplusNo significant impact on the timing of trade balance changes

9.Due to the J-curve phenomenon and incomplete currency pass-through, a depreciation of the local currency is likely to result in an increase in which of the following over the long term?

A short-term rise in trade surplusA long-term increase in trade surplusA short-term growth in trade deficitA long-term expansion of the trade deficitNo significant change in trade balance

10.According to the Marshall-Lerner condition, when will a depreciation of a country's currency lead to a deterioration in its trade balance?

Export demand elasticity is 0.9 and import demand elasticity is 0.4Export demand elasticity is 0.7 and import demand elasticity is 0.3Export demand elasticity is 0.5 and import demand elasticity is 0.7Export demand elasticity is 0.3 and import demand elasticity is 0.6Export demand elasticity is 1.2 and import demand elasticity is 0.8

11.Under what condition does the trade balance deteriorate in relation to income compared to absorption?

When income risesWhen income fallsWhen income remains constantNone of these

12.What term describes how quickly domestic and foreign prices respond to a currency devaluation in the short term?

pass-throughabsorptionadjustment processcurrency contract duration

13.What is the term for the phenomenon where the trade balance initially worsens after a currency depreciation but improves over time?

14.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?

15.What term describes the degree to which fluctuations in the exchange rate affect the prices of imports and exports?

16.What concept is associated with the transition to imperfectly competitive markets in both domestic and international trade?

17.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?

Both domestic demand for imports and foreign demand for exports are inelasticDomestic demand for imports is elastic while foreign demand for exports remains inelasticDomestic demand for imports is inelastic whereas foreign demand for exports is elasticBoth domestic demand for imports and foreign demand for exports are elasticNone of the above

18.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?