1. When the United States recovers from a recession, this tends to shift Germany
ID: 1194762 • Letter: 1
Question
1. When the United States recovers from a recession, this tends to shift Germany's AD curve _________________, which _____________ Germany's price level.
a. rightward; lowers
b. rightward; raises
c. leftward; lowers
d. leftward; raises
2. Assuming that the increase in the value of the dollar in the foreign exchange market has a greater impact on aggregate demand than on aggregate supply, an increase in the United States budget deficit will raise Real GDP
a. to the same level irrespective of whether it is a closed or an open economy.
b. more in an open economy than in a closed economy.
c. more in a closed economy than in an open economy.
d. none of the above (i.e. Real GDP will decrease)
3.The United States SRAS curve may shift to the left if we ____________________ Malaysia and the dollar ________________ against the Malaysian ringgit.
a. sell finished goods to; appreciates
b. sell finished goods to; depreciates
c. buy raw materials from; depreciates
d. buy raw materials from; appreciates
4. Proponents of the fixed exchange rate system argue that
a. under a fixed exchange rate system, there would be only one currency.
b. flexible exchange rates may promote international trade, but under a fixed exchange rate system at least we know what the rates will be from day to day.
c. under a flexible exchange rate system, there is no way of knowing what the exchange rate is at any particular point in time.
d. under a flexible exchange rate system, there is too great a chance that the exchange rate will diverge from the equilibrium exchange rate. e. none of the above
NEED CORRECT ANSWERS, PLEASE TAKE YOUR TIME.
Explanation / Answer
Answer 1.
Recession in United states will mean decrease in import of goods from foreign country like German. On recovery from recession, the money income of US people will increase. In order to satisfy this increased demand more goods are rerquired to be imported. So demand for Germany goods in USA will rise.
Thus AD curve of Germany will shift to the right. It will raise intersection of AD ad AS curve. So price will rise.
Answer: Option (b) is correct.
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Answer 2.
Increase in dollar value in foreign exchange market is observed when demand of dollar is more than its supply. It occurs when more goods are exported from USA than Import. So demand of US goods is more than its supply. As demand is high, price will go up. It will make US goods costly. So export will decrease. It will convert favorable balance of USA into adverse balance. Due to price rise, real GDP will decrease.
Answer: Option D is correct.
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Answer 3:
shift in supply curve will mean decrease in supply. It will happen if a portion of GDP is exported. Here it will happe if goods are exported to Malayasia. Export to Malayasia will mean Malayasian importer will require dollar to pay the dues to US exporter. They will buy doller in exchage of domestic currecy. Thus more Malayasian currency will be available in international market. It will depreciate value of Malayasian currecy. Thus dollar value will increase in terms of Malayasia currency.
Answer: Option (a) is correct.
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Answer 4:
Fixed exchage rate is a system when buying and selling of two currencies occurs at a constat ratio. This system was in force for more than 100 years during 19th century to initial part of 20th century. One important advantage of this exchange rate was observed in price. It was almost stable during this phase. It was due autometic mechanism of correcting the demad supply imbalance that causes such mechanism.
In flexible exchage rate the rate is determined on the basis of demand and supply of two currencies. These two are continuously changing. So exchange rate fluctuates frequently. Possibility of divergence of actual exchange rate from equilibrium exchange rate is very high here.
Answer: Thus option (d) is correct.
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