12. All other things constant, if there is an increase in U.S. exports, then there will be:
A. An increase in U.S. demand for foreign currencies
B. A decrease in the supply of foreign currencies
C. Upward pressure on the U.S. price level
D. A decrease in the United States’ GDP
E. A decrease in U.S. interest rates
13. Which of the following is true regarding a flexible exchange rate system?
A. There is no government involvement.
B. The government only controls the forces of supply and demand.
C. The government controls all aspects of the exchange rate system.
D. The system can only be used with gold.
E. The system depends on the geographical location of the country.
14. Which of the following describes what happens to the dollar if demand for imports rises?
A. Eventually the dollar will lose its value internationally.
B. The dollar will initially have low value, but it will get stronger eventually.
C. Imports have no impact on the dollar.
D. The dollar will appreciate only if imports and exports decrease.
E. The dollar will depreciate only if imports and exports increase.
15. Which of the following is a main guiding force in the flexible exchange market?
A. The government
B. Supply and demand
C. Inflation
D. Currency
E. Specialization
Answers to Review Questions
- C.Globalization is a term that refers to the increasing interdependency between nations. As specialization
becomes more common in the world, countries learn to depend on one another for goods they cannot specialize
in. This dependency translates into efficient and lower production costs.
- C.U.S. tourists traveling in large numbers to Japan contributes to a trade deficit because the dollar is being spent
in large amounts abroad. The dollar is not being spent on domestic goods; rather, it is being spent on international
goods that will contribute to a trade deficit.
- B.An embargo is a law that forbids the trade of certain goods. Embargoes do not limit or tax the amount of
goods traded; they simply stop the availability of a good in an economy. Embargoes are created and lifted by
the government.
- C.An increase in tariffs would benefit all of the choices except for U.S. steel users. A tariff would eliminate
competition for domestic steel producers. With less competition, domestic steel producers can increase their
price, benefiting the company, workers, and even related industries. However, this increase in the price of
domestic steel would come at the expense of consumers, who would have no choice but to pay for a more
expensive product.
International Economics
