Solutions? B) more expensive; decrease C) less expensive; decrease D) more expen

Question

Solutions? B) more expensive; decrease C) less expensive; decrease D) more expensive; increase 2.50 2.00 1.50 1.00 0.50 0.8 0.9 1.0 1.1 1.2 1.3 Quantity (trillions of U.S. dollars per day) 39) In the figure above, an increase in the U.S. interest rate relative to that in Canada shifts the demand curve for U.S. dollars A) rightward; leftward. B) rightward; rightward. C) leftward; rightward. D) leftward; leftward and shifts the supply curve of U.S. dollars 40) If the United States sells beef to Japan, the U.S. beef producer is paid with A) dollars. B) yen, the Japanese currency C) international monetary credits. D) euros, or any other third currency. and U.S. imports 41) When the U.S. exchange rate rises, foreign goods become A) less expensive; increase B) more expensive; decrease C) less expensive; decrease D) more expensive; increase 42) The idea that the value of money is equal across countries is known as A) exchange rate parity B) purchasing power parity. C) the expected profit parity effect D) interest rate parity.

Explanation / Answer

Question 39. When the interest rate in the United States increases it brings in capital from foreign countries and this implies that the demand for US dollars will increase. Hence the demand curve for US dollars will shift to the right and this will shift the supply curve of the US dollars to the left.

Correct option is option A.

Question 40

When United States exports any particular product to Japan then the Japanese importer will pay the US beef producer only in dollars. Hence the correct option is option A

Question 41

In case the exchange rate of the United States increases then the dollar will appreciate and this will reduce the amount of exports by the United States. At the same time it will be cheaper to buy foreign goods

Correct option is option A

Question 42

The correct option is option B. The value of money should remain same across all the countries in the long run. This view is based on the fact that transportation costs are assumed to be zero.

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