Question :
111) World commodity prices increased significantly over the years 2002-2008. : 1384550
111) World commodity prices increased significantly over the years 2002-2008. Since Canada is a large exporter of commodities, it is not surprising that over this time period Canada experienced
A) a significant depreciation of its currency against the U.S. dollar.
B) a significant increase in the rate of inflation.
C) a significant appreciation of its currency against the U.S. dollar.
D) a significant decrease in the rate of inflation.
E) outflows in the capital-service account.
112) If the central bank pegs the exchange rate above its free-market equilibrium level, there will be a(n) ________ of foreign exchange and the central bank will ________ foreign currency.
A) excess supply; purchase
B) excess supply; sell
C) excess demand; purchase
D) excess demand; sell
113) Consider a country that is operating under a fixed exchange-rate system. The country’s balance of payments will always show total debits equal to total credits because
A) fluctuations in exchange rates will bring debits and credits into equality.
B) any official financing required to maintain the fixed exchange rate will offset any deficit or surplus in the rest of the balance of payments accounts.
C) short-term capital flows will always offset any deficit or surplus in current accounts and long-term capital accounts.
D) the official financing account will always offset a deficit or surplus in the current account.
E) fluctuations in interest rates will bring debits and credits into equality.
114) If the central bank pegs the exchange rate below its free-market equilibrium level, there will be a(n) ________ of foreign exchange and the central bank will ________ foreign currency.
A) excess supply; purchase
B) excess supply; sell
C) excess demand; purchase
D) excess demand; sell
115) Suppose the Bank of Canada fixes the Canada-U.S. exchange rate between the limits of Cdn$1.10 and Cdn$1.20 to the U.S dollar. If the free-market equilibrium exchange rate would otherwise be Cdn$1.25, then the
A) Bank of Canada needs to engage in expansionary monetary policy to support the dollar.
B) Government of Canada must reduce spending and increase taxes.
C) Bank of Canada must sell U.S. dollars.
D) Bank of Canada must buy U.S. dollars.
E) Federal Reserve System in the Untied States is required to increase the number U.S. dollars circulating in Canada.
116) Suppose that Canada’s central bank fixes the Canada-U.S. exchange rate between the limits of Cdn$1.10 and Cdn$1.20 to the U.S dollar. If the free market equilibrium exchange rate would otherwise be Cdn$1.05, then
A) Canada’s central bank must buy U.S. dollars.
B) Canada’s central bank must sell U.S. dollars.
C) Canada’s central bank need not intervene as the exchange rate will return to its equilibrium level on its own.
D) The Federal Reserve System in the United States must decrease the supply of U.S. dollars on international currency markets.
E) Government of Canada must increase spending and increase taxes.
117) China fixes its exchange rate (yuan per units of foreign currency) at a rate well above its free-market equilibrium level, which means that China is keeping the external value of the yuan
A) artificially high.
B) at its free-market price.
C) at the rate established by its trading partners.
D) artificially low.
E) in line with the world market for foreign currency.
118) China fixes its exchange rate (yuan per units of foreign currency) at a rate well above its free-market equilibrium level. In order to maintain this exchange rate, and to prevent its currency from ________, the Chinese central bank must be accumulating ________.
A) appreciating; foreign-exchange reserves
B) appreciating; reserves of its domestic currency
C) depreciating; foreign-exchange reserves
D) depreciating; reserves of its domestic currency
E) depreciating; U.S. dollars
119) The Chinese government fixes its exchange rate well above its free-market equilibrium level. Its purpose in keeping the Chinese currency depreciated is probably to
A) make it more affordable for Chinese firms to import new materials.
B) make it more affordable for Chinese households to purchase consumer goods from the United States.
C) maintain respect for the Chinese yuan.
D) help maintain a current account deficit and thus a capital inflow to China.
E) make Chinese exports more attractive to the rest of the world.
120) Refer to Figure 35-4. Suppose the Bank of Canada pegs the exchange rate at and the supply curve is . The Bank would have to ________ foreign exchange in the amount of ________ per month.
A) sell;
B) sell;
C) purchase;
D) purchase;
E) No transaction would be necessary
