Question : 21) Everything else held constant, if a factor increases the : 1373812

21) Everything else held constant, if a factor increases the demand for ________ goods relative to ________ goods, the domestic currency will appreciate.

A) foreign; domestic

B) foreign; foreign

C) domestic; domestic

D) domestic; foreign

22) Everything else held constant, if a factor decreases the demand for ________ goods relative to ________ goods, the domestic currency will depreciate.

A) foreign; domestic

B) foreign; foreign

C) domestic; domestic

D) domestic; foreign

23) An increase in productivity in a country will cause its currency to ________ because it can produce goods at a ________ price, everything else held constant.

A) depreciate; lower

B) appreciate; lower

C) depreciate; higher

D) appreciate; higher

24) If, in retaliation for “unfair” trade practices, Congress imposes a 30 percent tariff on Japanese DVD recorders, but at the same time, U.S. demand for Japanese goods increases, then, in the long run, ________, everything else held constant

A) the Japanese yen should appreciate relative to the U.S. dollar

B) the Japanese yen should depreciate relative to the U.S. dollar

C) there is no effect on the Japanese yen relative to the U.S. dollar

D) the Japanese yen could appreciate, depreciate or remain constant relative to the U.S. dollar

25) If the U.S. Congress imposes a quota on imports of Japanese cars due to claims of “unfair” trade practices, and Japanese demand for American exports increases at the same time, then, in the long run ________, everything else held constant.

A) the Japanese yen will appreciate relative to the U.S. dollar

B) the Japanese yen will depreciate relative to the U.S. dollar

C) the Japanese yen will either appreciate, depreciate or remain constant against the U.S. dollar

D) there will be no effect on the Japanese yen relative to the U.S. dollar

26) If the inflation rate in the United States is higher than that in Mexico and productivity is growing at a slower rate in the United States than in Mexico, then, in the long run, ________, everything else held constant.

A) the Mexican peso will appreciate relative to the U.S. dollar

B) the Mexican peso will depreciate relative to the U.S. dollar

C) the Mexican peso will either appreciate, depreciate, or remain constant relative to the U.S. dollar

D) there will be no effect on the Mexican peso relative to the U.S. dollar

27) If the Brazilian demand for American exports rises at the same time that U.S. productivity rises relative to Brazilian productivity, then, in the long run, ________, everything else held constant.

A) the Brazilian real will appreciate relative to the U.S. dollar

B) the Brazilian real will depreciate relative to the U.S. dollar

C) the Brazilian real will either appreciate, depreciate, or remain constant relative to the U.S. dollar

D) there is no effect on the Brazilian real relative to the U.S. dollar

28) Explain the law of one price and the theory of purchasing power parity. Why doesn’t purchasing power parity explain all exchange rate movements? What factors determine long-run exchange rates?