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MacroUnit6StudyGuide2 221207 115022

The document is a study guide for a macroeconomics unit on international trade and finance. It covers topics such as the balance of payments accounts, exchange rates, the foreign exchange market, and how exchange rates impact net exports. Some key points include: 1) The balance of payments accounts measure international transactions and classify them into the current account (goods/services/income) and the financial/capital account (financial/capital flows). 2) A currency appreciates if it takes less of other currencies to purchase it, and depreciates if it takes more. Exchange rates and net exports are related - an appreciation lowers a country's net exports. 3) The foreign exchange market determines exchange rates

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71 views2 pages

MacroUnit6StudyGuide2 221207 115022

The document is a study guide for a macroeconomics unit on international trade and finance. It covers topics such as the balance of payments accounts, exchange rates, the foreign exchange market, and how exchange rates impact net exports. Some key points include: 1) The balance of payments accounts measure international transactions and classify them into the current account (goods/services/income) and the financial/capital account (financial/capital flows). 2) A currency appreciates if it takes less of other currencies to purchase it, and depreciates if it takes more. Exchange rates and net exports are related - an appreciation lowers a country's net exports. 3) The foreign exchange market determines exchange rates

Uploaded by

izelvilli
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Macroeconomics Unit 6 Study Guide

International Trade/Finance
Topic 6.1- Balance of Payments Accounts
1. What do balance of payments (BOP) accounts 4. A trade deficit is when __________ are greater than
measure? __________.
5. A trade surplus is when __________ are greater than
__________.
2. Define net exports (XN). Identify if each is included in the current account (CA) or the
financial/capital account (CFA) for the US:
6. A US company sells jets in Canada.
7. An American buys a beach resort in Mexico.
3. What is the difference between the current account 8. An American on vacation buys Japanese treasury bonds.
(CA) and the financial/capital account (CFA)? 9. A Chinese company sells toys in the US.
10. An immigrant living in the US sends a portion of his
earnings to his family overseas.
11. An American company sells cars in the US.
12. A Canadian buys lumber in the US.
Topic 6.2- Exchange Rates Topic 6.3- The Foreign Exchange Market
1. What is the difference between appreciation and 1. Draw a foreign exchange market for Canadian dollars
depreciation? (CAD) relative to Mexican pesos (MXN) with an equilibrium
exchange rate at 15 pesos

2. Why can’t two currencies both appreciate relative to


each other at the same time?

3. Assume it now takes 100 yen to purchase 1 US dollar


instead of 120 yen. Which currency appreciated and
which currency depreciated?

4. Assume 1 US dollar went from equaling .9 euros to 2. Why is the demand for CAD downward-sloping?
equaling 1 euro. Which currency appreciated and which
currency depreciated?

3. Why is the supply for CAD upward-sloping?


5. If 1 US dollar equals 19 Mexican pesos, 1 peso
equals how many dollars?

Topic 6.4- Changes in the Foreign Exchange Market


1. What are the four shifters of demand and supply in 2. Which shifters shift both the demand and the supply of a
the foreign exchange market? currency at the same time? Explain.

©Copyright Jacob Clifford 2022. Ultimate Review Packet


Do not use unless you have purchased an annual license
Macroeconomics Unit 6 Study Guide
International Trade/Finance
Topic 6.4- Changes in the Foreign Exchange Market (continued)
3. Draw the foreign exchange market for Mexican pesos 6. If American tourists increase visits to Japan, the supply
(MXN) relative to US dollars (USD). What happens if of US dollars will __________ and the demand for
inflation increases in Mexico? Japanese yen will __________. The dollar will
__________. The yen will __________.
7. If the US economy experiences rapid growth, incomes in
the US will increase, the US dollar will __________ and
the yen will __________.
8. If inflation in Japan rises significantly faster than in the
US, the US dollar will __________ and the yen will
__________.
9. If the central bank of Japan sells bonds and increases
Japanese interest rates, the US dollar will __________ and
the yen will __________.
10. If Japan places tariffs on US imports, the dollar will
__________ and the yen will __________.
4. Will pesos appreciate or depreciate? 11. The US suffers a larger recession causing incomes to
5. Will dollars appreciate or depreciate? fall, the dollar will __________ and the yen will
__________.
Topic 6.5- Foreign Exchange and Net Exports
1. If a country’s currency appreciates, net exports will __________.
2. If a country’s currency depreciates, net exports will __________.
3. The US dollar will appreciate relative to another currency if the demand for the dollar __________ or if the supply of
the dollar ___________. This will cause US exports to __________ and imports to __________.
4. The US dollar will depreciate relative to another currency if the demand for the dollar __________ or if the supply of
the dollar __________. This will cause US exports to __________ and imports to __________.
Topic 6.5- Real Interest Rates and International Capital Flows
1. What is net capital inflow? 5. Draw the foreign exchange market for the US dollar
relative to the euro and show what happens if real interest
rates increase in the US.

2. Why does an increase in the real interest rate cause


an increase in net capital inflow?

3. Will a decrease in the real interest rate move a


country’s capital/financial account (CFA) toward a deficit
or toward a surplus? Explain.

4. Why does an increase in the real interest rate shift


both the demand and the supply for currency?
6. Will the dollar appreciate or depreciate?
7. Will the euro appreciate or depreciate?
8. Will the supply of loanable funds in the US increase or
decrease?

©Copyright Jacob Clifford 2022. Ultimate Review Packet


Do not use unless you have purchased an annual license

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