Question

For the first three questions consider the U.S.- Japan exchange rate, expressed as yen per dollar.

Using the basic supply and demand diagram as illustrated at the beginning of Week 9 lecture

slides, answer the following:

1. Other things being equal, an increase in the Japanese price level will shift the supply curve of dollars_________, the demand curve for dollars__________ and cause the dollar to ________.

a. rightward, leftward, depreciate

b. leftward, rightward, depreciate

c. leftward, rightward, appreciate

d. rightward, leftward, appreciate

2. Other thing being equal, if ex ante real interest rates fall in the United States, this will shift

the

supply curve of dollars__________, the demand curve for dollars___________ and cause the

dollar to __________.

a. leftward, rightward, appreciate

b. rightward, leftward, appreciate

c. rightward, leftward, depreciate

d. leftward, rightward, depreciate

3. Other things being equal, if the Federal Reserve announces it is raising its inflation target from 2 percent per year to 4 percent, the supply curve of dollars will shift_________, the demand curve for dollars will shift ____________, and the dollar will _____________.

a. right, left, depreciate

b. right, left, appreciate

c. left, right, depreciate

d. left, right, appreciate

4. According to the purchasing power parity theory, if prices rise 4 percent in the U.S. and 2

percent in Japan in the next year, the U.S. dollar will

a. appreciate by 2 percent vs. the yen

b. appreciate 6 percent vs. the yen

c. depreciate 6 percent vs. the yen

d. depreciate 2 percent vs. the yen

5. Which of the following is true about the Bretton Woods system of exchange rates?

a. weak-currency nations like Greece were often forced to impose austerity programs

b. the system collapsed in the early 1970s

c. nations seeking to devalue their currencies had to get permission from the IMF

d. all of the above are true

6. Over the past 45 years, the U.S. dollar has ________against the Japanese yen because_____

a. depreciated, U.S. prices have risen faster than Japanese prices

b. depreciated, U.S. interest rates have been higher than Japanese interest rates

c. depreciated, U.S. has outpaced Japan in areas of innovation

d. appreciated, U.S. has maintained lower inflation than Japan

7. A depreciation of the U.S. dollar tends to

a. help U.S. consumers and help U.S. farmers

b. help U.S. consumers and hurt U.S. farmers

c. help U.S. consumers and hurt workers in the U.S. auto industry

d. hurt U.S. consumers and help workers in the U.S. auto industry

8. On the commercial bank balance sheet, which of the following is a liability?

a. the bank’s deposit at the Federal Reserve

b. capital

c. savings deposits

d. none of the above

9. When a bank writes off a loan as a bad loan, the bank’s

a. total liabilities and capital decrease by that amount

b. total assets and capital decrease by that amount

c. total assets and liabilities decrease by that amount

d. total assets, liabilities, and capital all decrease by that amount

10. Other things being equal, when banks are collectively expanding loans

a. reserves rise, required reserves fall, and the money supply rises

b. reserves fall, capital rises, and the money supply rises

c. required reserves rise, excess reserves fall, and the money supply rises

d. reserves rise, required reserves rise, and the money supply rises

11. Assume a bank earns a rate of return of 1.0 percent on total assets. If the bank’s capital ratio (capital/total assets) is 8 percent, the bank’s rate of return on capital or equity is

a. 10 percent

b. 12.5 percent

c. 8 percent

d. none of the above

12. Commercial banks obtain funds by

a. borrowing from other banks

b. issuing ownership claims (equity)

c. issuing savings deposits

d. all of the above

13. If a bank is subject to a 10 percent reserve requirement, has DDO of $100 million, and has

excess reserves of $2 million, then

a. its reserves are $12 million

b. its required reserves are $12 million

c. its reserves are $8 million

d. none of the above are true

Answer 1

1. c) leftward, rightward, appreciate

2. a) leftward, rightward, appreciate

3. c) left, right, depreciate

5. d) all of the above

7. a) help US consumers and help US farmers

8. d) None of the above

9. b) total assets and capital decrease by that amount

10. b) reserves fall, capital rises, money supply rises

11. d) None of the above

12. d) all of the above

13. d) none of the above is true