Macroeconomics For Life Smart Choices For All Canadian 2nd Edition Cohen Test Bank

Macroeconomics for Life Smart
Choices for All Canadian 2nd Edition

Cohen Test Bank
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Macroeconomics for Life: Smart Choices for You, 2e (Cohen)
Chapter 10 Trading Dollars for Dollars? Exchange Rates and Payments with the Rest of
the World
10.1 Shuffling Off to Buffalo: Demand and Supply of Canadian Dollars
1) Which statements are true?
A higher value of the Canadian dollar makes:
1. R.O.W. imports and assets more expensive for Canadians.

2. R.O.W. imports and assets less expensive for Canadians.
3. Canadian exports and assets more expensive for non-Canadians.
4. Canadian exports and assets less expensive for non-Canadians.
A) 1 and 3
B) 1 and 4
C) 2 and 3
D) 2 and 4
E) 2 only
Answer: C
Diff: 2 Type: MC Page Ref: 276-283
Skill: Applied
Objective: 10.1 Explain how demand and supply determine the value of the Canadian dollar.
A lower value of the Canadian dollar makes:
1. R.O.W. imports and assets more expensive for Canadians.

2. R.O.W. imports and assets less expensive for Canadians.
3. Canadian exports and assets more expensive for non-Canadians.
4. Canadian exports and assets less expensive for non-Canadians.
A) 1 and 3
B) 1 and 4
C) 2 and 3
D) 2 and 4
E) 1 only
Answer: B
Skill: Applied
1
Copyright © 2016 Pearson Education, Inc.
If the exchange rate changes from C$1 = US$0.90 to C$1 = US$1.10, then the:
1. Canadian dollar depreciated against the U.S. dollar.

2. Canadian dollar appreciated against the U.S. dollar.
3. U.S. dollar depreciated against the Canadian dollar.
4. U.S. dollar appreciated against the Canadian dollar.
A) 1 and 3
B) 1 and 4
C) 2 and 3
D) 2 and 4
E) 2 only
Answer: C
Skill: Applied
If the exchange rate changes from C$1 = US$1.10 to C$1 = US$0.90, then the:

A) 1 and 3
B) 1 and 4
C) 2 and 3
D) 2 and 4
E) 1 only
Answer: B
Skill: Applied
2
If the exchange rate changes from US$1 = C$1.10 to US$1 = C$0.90, then the:

A) 1 and 3
B) 1 and 4
C) 2 and 3
D) 2 and 4
E) 3 only
Answer: C
Skill: Applied
If the exchange rate changes from US$1 = C$0.90 to US$1 = C$1.10, then the:

A) 1 and 3
B) 1 and 4
C) 2 and 3
D) 2 and 4
E) 3 only
Answer: C
Skill: Applied
3
7) When there is excess demand for Canadian dollars in the foreign exchange market,
A) competition among sellers raises the exchange rate.
B) competition among buyers raises the exchange rate.
C) competition among sellers lowers the exchange rate.
D) competition among buyers lowers the exchange rate.
E) cooperation between buyers and sellers lowers the exchange rate.
Answer: B
Skill: Applied
8) When there is a shortage of Canadian dollars in the foreign exchange market,

E) cooperation between buyers and sellers lowers the exchange rate.
Answer: B
Skill: Applied
9) When there is excess supply of Canadian dollars in the foreign exchange market,
E) cooperation between buyers and sellers raises the exchange rate.
Answer: C
Skill: Applied
10) When there is a surplus of Canadian dollars in the foreign exchange market,
E) cooperation between buyers and sellers raises the exchange rate.
Answer: C
Skill: Applied
4
11) According to the law of demand for Canadian dollars, as the exchange rate
A) rises, the quantity demanded of Canadian dollars decreases.
B) rises, the demand for Canadian dollars decreases.
C) falls, the quantity demanded of Canadian dollars decreases.
D) falls, the demand for Canadian dollars decreases.
E) rises or falls, none of above are true.
Answer: A
Skill: Applied
A) rises, the quantity demanded of Canadian dollars decreases.
B) rises, the demand curve for Canadian dollars shifts leftward.
C) falls, the quantity demanded of Canadian dollars decreases.
D) falls, the demand curve for Canadian dollars shifts leftward.
Answer: A
Skill: Applied
13) According to the law of supply for Canadian dollars, as the exchange rate
A) rises, the quantity supplied of Canadian dollars decreases.
B) rises, the supply of Canadian dollars decreases.
C) falls, the quantity supplied of Canadian dollars decreases.
D) falls, the supply of Canadian dollars decreases.
Answer: C
Skill: Applied
A) rises, the quantity supplied of Canadian dollars decreases.
B) rises, the supply curve of Canadian dollars shifts leftward.
C) falls, the quantity supplied of Canadian dollars decreases.
D) falls, the supply curve of Canadian dollars shifts leftward.
Answer: C
Skill: Applied
5
A) rises, the quantity demanded of Canadian dollars increases.
B) rises, the demand for Canadian dollars increases.
C) falls, the quantity demanded of Canadian dollars increases.
D) falls, the demand for Canadian dollars increases.
Answer: C
Skill: Applied
A) rises, the quantity demanded of Canadian dollars increases.
B) rises, the demand curve for Canadian dollars shifts rightward.
C) falls, the quantity demanded of Canadian dollars increases.
D) falls, the demand curve for Canadian dollars shifts rightward.
Answer: C
Skill: Applied
A) rises, the quantity supplied of Canadian dollars increases.
B) rises, the supply of Canadian dollars increases.
C) falls, the quantity supplied of Canadian dollars increases.
D) falls, the supply of Canadian dollars increases.
Answer: A
Skill: Applied
A) rises, the quantity supplied of Canadian dollars increases.
B) rises, the supply curve of Canadian dollars shifts rightward.
C) falls, the quantity supplied of Canadian dollars increases.
D) falls, the supply curve of Canadian dollars shifts rightward.
Answer: A
Skill: Applied
6
19) If C$1.00 = US$0.80, what is the reciprocal exchange rate?
A) C$0.80 = US$1.00
B) C$0.80 = US$1.25
C) US$1.00 = C$1.25
D) US$1.00 = C$0.80
E) US$1.00 = C$8.00
Answer: C
Skill: Applied
20) All of the following create a demand for Canadian dollars in the foreign exchange market
except
A) Susan from Manitoba goes shopping in New York.
B) Richard from New York buys a Government of Canada bond.
C) Samantha from France buys a bottle of Canadian wine.
D) Alexandra from Mexico pays tuition to the University of Montreal.
E) Rachel from New Jersey goes on a shopping trip in Toronto.
Answer: A
Skill: Applied
21) When Michael from Ontario buys hockey tickets in Michigan to watch the Maple Leafs
crush the Red Wings, the effect on the foreign exchange market is a(n)
A) increased supply of U.S. dollars.
B) increased demand for Canadian dollars.
C) increased supply of Canadian dollars.
D) decreased supply of U.S. dollars.
E) decreased demand for U.S. dollars.
Answer: C
Skill: Applied
22) When Michael from Ontario buys hockey tickets in Michigan to watch the Maple Leafs
crush the Red Wings, the effect on the foreign exchange market is a
A) rightward shift of the supply curve of U.S. dollars.
B) rightward shift of the demand curve for Canadian dollars.
C) rightward shift of the supply curve of Canadian dollars.
D) leftward shift of the supply curve of U.S. dollars.
E) leftward shift of the demand curve for U.S. dollars.
Answer: C
Skill: Applied
7
23) When Richard from New York buys a Government of Canada bond, the effect on the foreign
exchange market is
A) increased demand for U.S. dollars.
B) decreased demand for Canadian dollars.
C) increased supply of Canadian dollars.
D) increased demand for Canadian dollars.
E) decreased supply of U.S. dollars.
Answer: D
Skill: Applied
24) When Richard from New York buys a Government of Canada bond, the effect on the foreign
exchange market is a
A) rightward shift of the demand curve for U.S. dollars.
B) leftward shift of the demand curve for Canadian dollars.
C) rightward shift of the supply curve of Canadian dollars.
D) rightward shift of the demand curve for Canadian dollars.
E) leftward shift of the supply curve of U.S. dollars.
Answer: D
Skill: Applied
25) When the Canadian Teachers Pension Plan buys stock in the U.S.-based Apple Corporation,
the effect on the foreign exchange market is
A) increased demand for Canadian dollars.
B) increased supply of Canadian dollars.
C) increased supply of U.S. dollars.
D) decreased supply of U.S. dollars.
E) decreased demand for U.S. dollars.
Answer: B
Skill: Applied
26) When the Canadian Teachers Pension Plan buys stock in the U.S.-based Apple Corporation,
the effect on the foreign exchange market is a
A) rightward shift of the demand curve for Canadian dollars.
B) rightward shift of the supply curve of Canadian dollars.
C) rightward shift of the supply curve of U.S. dollars.
D) leftward shift of the supply curve of U.S. dollars.
E) leftward shift of the demand curve for U.S. dollars.
Answer: B
Skill: Applied
8
27) An excess supply of Canadian dollars in the foreign exchange market causes the Canadian
dollar to
A) depreciate, increasing imports.
B) depreciate, decreasing exports.
C) appreciate, increasing exports.
D) appreciate, decreasing exports.
E) depreciate, increasing exports.
Answer: E
Skill: Applied
28) An excess demand for Canadian dollars in the foreign exchange market causes the Canadian
dollar to
A) appreciate, increasing imports.
B) appreciate, increasing exports.
C) depreciate, increasing exports.
D) depreciate, decreasing imports.
E) depreciate, decreasing exports.
Answer: A
Skill: Applied
29) As the value of the Canadian dollar rises in the foreign exchange market, the
A) import effect increases the quantity of Canadian dollars supplied.
B) import effect increases the quantity of Canadian dollars demanded.
C) import effect causes a decrease in imports.
D) export effect causes an increase in exports.
E) export effect increases the quantity of Canadian dollars demanded.
Answer: A
Skill: Applied
30) If the Canadian dollar exchanges for 0.90 U.S. dollars and also for 0.65 Euros, then a U.S.
dollar exchanges for
A) 1.00 Euros.
B) 1.55 Euros.
C) 0.25 Euros.
D) 1.39 Euros.
E) 0.72 Euros.
Answer: E
Skill: Applied
9
31) The market in which the currency of one country exchanges for the currency of another
country is the
A) money market.
B) capital market.
C) foreign exchange market.
D) forward exchange market.
E) international trading market.
Answer: C
Skill: Recall
32) The quantity of Canadian dollars demanded depends on all of the following except the
A) exchange rate.
B) Canadian demand for imports from R.O.W.
C) interest rates in Canada.
D) interest rates in R.O.W.
E) expected future exchange rate.
Answer: B
Skill: Applied
33) The exchange rate between the Canadian dollar and the British pound is 0.5 pounds per
dollar. If a radio sells for 38 pounds in Britain, what is the dollar price of the radio?
A) $19
B) $25
C) $38
D) $57
E) $76
Answer: E
Skill: Applied
34) A big wheat harvest that results in record Canadian export sales increases the demand for
Canadian dollars in the foreign exchange market.
Answer: TRUE
Diff: 1 Type: TF Page Ref: 276-283
Skill: Applied
10
35) An American investor who buys a Government of Canada bond increases the supply of
Canadian dollars in the foreign exchange market.
Answer: FALSE
Skill: Applied
36) When a student from Toronto pays her tuition to a American university, the supply of
Canadian dollars decreases in the foreign exchange market.
Answer: FALSE
Skill: Applied
37) When a student from Toronto pays her tuition to a American university, the demand for U.S.
dollars increases in the foreign exchange market.
Answer: TRUE
Skill: Applied
38) Excess demand for Canadian dollars in the FOREX market causes the Canadian dollar to
depreciate.
Answer: FALSE
Skill: Applied
39) Excess supply of Canadian dollars in the FOREX market causes the Canadian dollar to
depreciate.
Answer: TRUE
Skill: Applied
40) The import effect suggests that when the exchange rate rises, Canadians buy more imported
products.
Answer: TRUE
Skill: Recall
11
41) The import effect suggests that when the exchange rate falls, Canadians buy more imported
products.
Answer: FALSE
Skill: Recall
42) The export effect suggests that when the exchange rate falls, demand for Canadian exports
increases.
Answer: TRUE
Skill: Recall
43) The export effect suggests that when the exchange rate rises, demand for Canadian exports
increases.
Answer: FALSE
Skill: Recall
44) An exchange rate of C$1.00 = US$0.90 means it takes 90 cents U.S. to buy 1 Canadian
dollar.
Answer: TRUE
Skill: Recall
45) An exchange rate of C$1.00 = US$0.90 means it takes 90 cents Canadian to buy 1 U.S.
dollar.
Answer: FALSE
Skill: Applied
46) Non-Canadians' demand for Canadian dollars is a demand for Canadian exports and assets.
Answer: TRUE
Skill: Recall
47) Canadians' supply of Canadian dollars is a demand for imports and assets from R.O.W.
Answer: TRUE
Skill: Recall
12
48) Canadians' supply of Canadian dollars is a supply of exports and assets to R.O.W.
Answer: FALSE
Skill: Recall
49) In the foreign exchange market, the demand for one currency is the supply of another
currency.
Answer: TRUE
Skill: Recall
50) The Canadian dollar appreciated against the U.S. dollar between 2002 and 2007.
Answer: TRUE
Skill: Recall
51) The Canadian dollar appreciated against the U.S. dollar between 1991 and 2002.
Answer: FALSE
Skill: Recall
52) A rise in the exchange rate is called a currency depreciation.

Answer: FALSE
Skill: Recall
53) A fall in the exchange rate is called a currency depreciation.

Answer: TRUE
Skill: Recall
13
10.2 Dancing With Dollars: Fluctuating Exchange Rates
1) The Canadian dollar depreciates if

A) Canadian interest rates fall relative to other countries.
B) the Canadian inflation rate falls relative to other countries.
C) Canadian real GDP increases.
D) R.O.W. demand for Canadian exports increases.
E) world prices for Canadian resources rise.
Answer: A
Skill: Applied
Objective: 10.2 Explain five forces causing exchange rate fluctuations.
2) The Canadian dollar appreciates if

A) Canadian real GDP decreases.
B) world prices for Canadian resources fall.
C) Canadian interest rates fall relative to other countries.
D) the Canadian inflation rate rises relative to other countries.
E) speculators believe the Canadian dollar will appreciate in the future.
Answer: E
Skill: Applied
3) The Canadian dollar appreciates against the U.S. dollar if

A) Canadian interest rates fall relative to U.S. interest rates.
B) U.S. interest rates rise relative to Canadian interest rates.
C) U.S. demand for Canadian exports decreases.
D) prices rise in the U.S. but remain constant in Canada.
E) speculators believe the Canadian dollar will depreciate in the future.
Answer: D
Skill: Applied
4) A negative demand shock causes the Canadian dollar to depreciate because

A) the Canadian interest rate differential increases.
B) import spending is reduced.
C) investor confidence in Canada is reduced.
D) negative demand shocks cause inflation.
E) Canadian resources will be less valuable in international markets.
Answer: C
Skill: Applied
14
5) A lower inflation rate in Canada relative to other countries causes the Canadian dollar to
appreciate because
A) Canadian real interest rates fall.
B) prices of Canadian resources fall in international markets.
C) speculators anticipate depreciation of the Canadian dollar.
D) Canadian products and services are relatively cheaper so exports to R.O.W. increase.
E) Canadian products and services are relatively cheaper so imports from R.O.W. increase.
Answer: D
Skill: Applied
6) When Canadian interest rates fall the

A) demand for Canadian dollars in the foreign exchange market increases.
B) Canadian inflation rate falls.
C) demand for Canadian exports decreases.
D) supply of Canadian dollars in the foreign exchange market decreases.
E) Canadian dollar depreciates.
Answer: E
Skill: Applied
7) When Canadian interest rates fall the

A) demand curve for Canadian dollars in the foreign exchange market shifts rightward.
B) Canadian inflation rate falls.
C) demand for Canadian exports decreases.
D) supply curve of Canadian dollars in the foreign exchange market shifts leftward.
Answer: E
Skill: Applied
8) When most currency speculators expect the Canadian dollar to depreciate, the
A) Canadian dollar depreciates.
B) Canadian dollar appreciates.
C) demand for Canadian dollars increases.
D) supply of Canadian dollars decreases.
E) Canadian interest rate differential increases.
Answer: A
Skill: Applied
15
9) When most currency speculators expect the Canadian dollar to depreciate, the
A) Canadian dollar depreciates.
B) Canadian dollar appreciates.
C) demand curve for Canadian dollars shifts rightward.
D) supply curve of Canadian dollars shifts leftward.
E) Canadian interest rate differential increases.
Answer: A
Skill: Applied
10) When most currency speculators expect the Canadian dollar to appreciate, the
A) demand for Canadian dollars decreases.
B) supply of Canadian dollars increases.
C) demand for Canadian dollars increases.
D) demand for Canadian dollars does not change.
E) supply of Canadian dollars does not change.
Answer: C
Skill: Applied
11) When most currency speculators expect the Canadian dollar to appreciate, the
A) demand curve for Canadian dollars shifts leftward.
B) supply curve of Canadian dollars shifts rightward.
C) demand curve for Canadian dollars shifts rightward.
D) demand curve for Canadian dollars does not shift.
E) supply curve of Canadian dollars does not shift.
Answer: C
Skill: Applied
12) Currency speculators sell Canadian dollars whenever they think that the
A) Canadian real interest rates are rising.
B) Canadian inflation rate is falling.
C) Canadian real GDP is increasing.
D) world prices for Canadian resources are falling.
E) demand for Canadian dollars is increasing.
Answer: D
Skill: Applied
16
13) When the Canadian money supply increases, the
B) supply of Canadian dollars decreases.
C) Canadian dollar appreciates in value.
D) Canadian interest rates rise.
E) velocity of money decreases.
Answer: A
Skill: Applied
14) When the Canadian money supply increases, the

B) supply curve of Canadian dollars shifts leftward.
D) Canadian interest rates rise.
E) velocity of money decreases.
Answer: A
Skill: Applied
15) When the Canadian money supply decreases, the

B) supply of Canadian dollars increases.
D) Canadian interest rates fall.
E) value of the Canadian dollar does not change.
Answer: C
Skill: Applied
16) When the Canadian money supply decreases, the

B) supply curve of Canadian dollars shifts rightward.
D) Canadian interest rates fall.
E) value of the Canadian dollar does not change.
Answer: C
Skill: Applied
17
17) When R.O.W. demand for Canadian exports decreases, the
A) Canadian dollar is not affected.
B) demand for Canadian dollars increases.
C) supply of Canadian dollars decreases.
D) Canadian dollar appreciates.
Answer: E
Skill: Applied
18) When R.O.W. demand for Canadian exports decreases, the

A) Canadian dollar is not affected.
B) demand curve for Canadian dollars shifts rightward.
C) supply curve of Canadian dollars shifts leftward.
D) Canadian dollar appreciates.
Answer: E
Skill: Applied
19) The economic force that causes opposite effect on the value of the Canadian dollar is
changes in
A) interest rate differentials.
B) inflation rate differentials.
C) Canadian real GDP.
D) R.O.W. demand for Canadian exports.
E) expectations.
Answer: C
Skill: Applied
20) The economic force that reinforces the effect of other forces on the value of the Canadian
dollar is changes in
C) Canadian real GDP.
D) R.O.W. demand for Canadian exports.
E) expectations.
Answer: E
Skill: Applied
18
21) The economic force that causes opposite effects on the value of the Canadian dollar is
changes in
C) world prices for Canadian resource exports.
D) Canadian real GDP.
E) expectations.
Answer: D
Skill: Applied
22) The economic force that reinforces the effect of other forces on value of the Canadian dollar
is changes in
B) expectations.
C) world prices for Canadian resource exports.
D) Canadian real GDP.
E) inflation rate differentials.
Answer: B
Skill: Recall
23) What increases the supply of Canadian dollars in the foreign exchange market?
A) An increase in demand for imports from R.O.W. by Canadians.
B) A decrease in demand for Canadian exports by non-Canadians.
C) The Canadian dollar is expected to appreciate next year.
D) U.S. interest rates fall.
E) None of the above.
Answer: A
Skill: Applied
24) What increases the demand for Canadian dollars in the foreign exchange market?
A) An increase in demand for imports from R.O.W. by Canadians.
B) A decrease in demand for Canadian exports by non-Canadians.
C) The Canadian dollar is expected to appreciate next year.
D) U.S. interest rates rise.
E) The Canadian dollar is expected to depreciate next year.
Answer: C
Skill: Applied
19
25) The Canadian dollar depreciates against the Japanese yen if there is a(n)
A) rise in the Canadian interest rate.
B) fall in the Canadian interest rate.
C) fall in the Japanese interest rate.
D) increase in the expected future value of the Canadian dollar.
E) increase in the Canadian interest rate differential.
Answer: B
Skill: Applied
26) If you think the Canadian dollar will depreciate, you can expect to make money by
A) only buying Canadian dollars.
B) only buying U.S. dollars.
C) only selling Canadian dollars.
D) only selling U.S. dollars.
E) both buying U.S. dollars and selling Canadian dollars.
Answer: E
Skill: Applied
27) A decreasing Canadian inflation rate differential causes the Canadian dollar to appreciate
because our exports become relatively cheaper in international markets.
Answer: TRUE
Skill: Applied
28) A decreasing Canadian inflation rate differential causes the Canadian dollar to depreciate
because our exports become relatively more expensive in international markets.
Answer: FALSE
Skill: Applied
29) When most speculators expect the Canadian dollar to appreciate, they increase the supply of
our currency in the FOREX market so, the Canadian dollar appreciates.
Answer: FALSE
Skill: Applied
20
30) When most speculators expect the Canadian dollar to appreciate, they increase the demand
for our currency in the FOREX market so, the Canadian dollar appreciates.
Answer: TRUE
Skill: Applied
31) When R.O.W demand for Canadian exports increases, demand for Canadian dollars in the
FOREX market increases.
Answer: TRUE
Skill: Applied
32) When R.O.W demand for Canadian exports increases, demand for Canadian dollars in the
FOREX market decreases.
Answer: FALSE
Skill: Applied
33) When world prices for Canadian resource exports fall, demand for Canadian dollars in the
FOREX market increases.
Answer: FALSE
Skill: Applied
34) When world prices for Canadian resource exports fall, demand for Canadian dollars in the
FOREX market decreases.
Answer: TRUE
Skill: Applied
35) Currency speculators buy Canadian dollars if they think that world prices for Canadian
resources will fall.
Answer: FALSE
Skill: Applied
21
36) Currency speculators buy Canadian dollars if they think that world prices for Canadian
resources will rise.
Answer: TRUE
Skill: Applied
37) An increase in Canadian interest rates relative to other countries causes the Canadian dollar
to appreciate.
Answer: TRUE
Skill: Applied
38) A decrease in Canadian interest rates relative to other countries causes the Canadian dollar to
appreciate.
Answer: FALSE
Skill: Applied
39) When Canadian real GDP increases, demand for Canadian dollars in the FOREX market
increases.
Answer: TRUE
Skill: Applied
40) When Canadian real GDP decreases, demand for Canadian dollars in the FOREX market
increases.
Answer: FALSE
Skill: Applied
41) When Canadian real GDP decreases, the import effect alone causes the Canadian dollar to
depreciate.
Answer: FALSE
Skill: Applied
22
42) When Canadian real GDP increases, the growth effect alone causes the Canadian dollar to
depreciate.
Answer: FALSE
Skill: Applied
43) When Canadian real GDP decreases, the growth effect alone causes the Canadian dollar to
depreciate.
Answer: TRUE
Skill: Applied
44) An increase in the world price of oil causes the Canadian dollar to appreciate.
Answer: TRUE
Skill: Applied
45) Currency speculators sell Canadian dollars if they think that Canadian interest rates will rise.
Answer: FALSE
Skill: Applied
46) Currency speculators sell Canadian dollars if they think that Canadian interest rates will fall.
Answer: TRUE
Skill: Applied
47) Changes in Canadian GDP is the economic force that causes opposite effects on the value of
the Canadian dollar.
Answer: TRUE
Skill: Applied
48) Changes in world prices for Canadian resource exports is the economic force that causes
opposite effects on the value of the Canadian dollar.
Answer: FALSE
Skill: Applied
23
49) Changes in expectations is the economic force that reinforces the effect of other forces on the
value of the Canadian dollar.
Answer: TRUE
Skill: Applied
50) Changes in Canadian GDP is the economic force that reinforces the effect of other forces on
the value of the Canadian dollar.
Answer: FALSE
Skill: Applied
51) When Canadian GDP increases, the growth effect usually dominates the import effect on the
Answer: TRUE
Skill: Applied
52) When Canadian GDP increases, the import effect usually dominates the growth effect on the
Answer: FALSE
Skill: Applied
53) If investors are confident that the Canadian economy will be strong, they buy Canadian
assets, pushing up the value of the Canadian dollar.
Answer: TRUE
Skill: Applied
54) If investors are confident that the Canadian economy will be strong, they sell Canadian assets
to make profits, pushing down the value of the Canadian dollar.
Answer: FALSE
Skill: Applied
24
10.3 How Exchange Rates Affect Your Life: International Transmission Mechanism
1) An appreciating Canadian dollar causes a

A) negative demand shock.
B) positive demand shock.
C) positive supply shock.
D) negative supply shock.
E) stagflation.
Answer: A
Skill: Applied
Objective: 10.3 Trace the effect of exchange rates on real GDP, unemployment, and inflation.
2) A depreciating Canadian dollar causes a

A) negative supply shock.
B) positive supply shock.
C) positive demand shock.
D) negative demand shock.
E) stagflation.
Answer: C
Skill: Applied
3) A depreciating Canadian dollar causes a(n)

A) inflationary gap.
B) recessionary gap.
C) stagflation.
D) positive supply shock.
E) negative supply shock.
Answer: A
Skill: Applied
4) An appreciating Canadian dollar causes a(n)

A) inflationary gap.
B) stagflation.
C) recessionary gap.
D) positive supply shock.
E) negative supply shock.
Answer: C
Skill: Applied
25
5) An appreciating Canadian dollar is a negative demand shock because
A) government spending decreases.
B) imports decrease.
C) business investment spending decreases.
D) consumer spending decreases.
E) exports decrease.
Answer: E
Skill: Applied
6) A depreciating Canadian dollar is a positive demand shock because

A) government spending increases.
B) imports increase.
C) business investment spending increases.
D) consumer spending increases.
E) exports increase.
Answer: E
Skill: Applied
7) The direct impact on Canadian inflation of an exchange rate depreciation occurs because
A) higher prices of imports to Canada are inflationary.
B) lower prices of Canadian exports are deflationary.
C) decreasing net exports decrease aggregate demand.
D) increasing net exports increase aggregate demand.
E) increasing net exports lead to stagflation.
Answer: A
Skill: Applied
8) The direct impact on Canadian inflation of an exchange rate appreciation occurs because
A) lower prices of Canadian exports are deflationary.
B) lower prices of imports to Canada are deflationary.
C) decreasing net exports decrease aggregate demand.
D) increasing net exports increase aggregate demand.
E) decreasing net exports lead to stagflation.
Answer: B
Skill: Applied
26
9) The indirect effect on Canadian inflation of an exchange rate appreciation
A) reinforces the direct effect.
B) can sometimes offset the direct effect.
C) can never offset the direct effect.
D) is equal and opposite to the direct effect.
E) is inflationary.
Answer: A
Skill: Applied
10) The indirect effect on Canadian inflation of an exchange rate depreciation

A) can sometimes offset the direct effect.
B) reinforces the direct effect.
C) can never offset the direct effect.
D) is equal and opposite to the direct effect.
E) is deflationary.
Answer: B
Skill: Applied
11) A recessionary gap results from

A) depreciation of the C$ leading to decreased imports.
B) appreciation of the C$ leading to increased exports.
C) appreciation of the C$ leading to decreased exports.
D) depreciation of the C$ leading to increased imports.
E) depreciation of the C$ leading to decreased exports.
Answer: C
Skill: Applied
12) An inflationary gap results from

A) appreciation of the C$ leading to increased exports.
B) depreciation of the C$ leading to increased imports.
C) appreciation of the C$ leading to decreased exports.
D) depreciation of the C$ leading to increased exports.
E) appreciation of the C$ leading to decreased imports.
Answer: D
Skill: Applied
27
13) A stronger Canadian dollar hurts
A) importers.
B) exporters.
C) Canadians who shop in the U.S.
D) Canadian students who attend U.S. universities.
E) Americans only.
Answer: B
Skill: Applied
14) A weaker Canadian dollar hurts

A) importers.
B) exporters.
C) U.S. tourists in Canada.
D) U.S. students who attend Canadian universities.
E) none of the above.
Answer: A
Skill: Applied
15) As the Canadian dollar weakens, Canadian

A) real GDP decreases.
B) inflation decreases.
C) exports decrease.
D) imports increase.
E) unemployment decreases.
Answer: E
Skill: Applied

A) real GDP increases.
E) unemployment increases.
Answer: A
Skill: Applied
28
B) inflation increases.
Answer: B
Skill: Applied

C) exports increase.
Answer: C
Skill: Applied

D) imports decrease.
Answer: D
Skill: Applied
20) As the Canadian dollar strengthens, Canadian

Answer: B
Skill: Applied
29
Answer: A
Skill: Applied

Answer: C
Skill: Applied

Answer: D
Skill: Applied

Answer: E
Skill: Applied
30
25) An appreciating Canadian dollar causes a negative demand shock because export spending
decreases and import spending increases.
Answer: TRUE
Skill: Applied
26) A depreciating Canadian dollar causes stagflation.

Answer: FALSE
Skill: Applied
27) An appreciating Canadian dollar causes stagflation.

Answer: FALSE
Skill: Applied
28) A depreciating Canadian dollar causes a positive demand shock because export spending
increases and import spending decreases.
Answer: TRUE
Skill: Applied
29) A depreciating dollar causes a recessionary gap.

Answer: FALSE
Skill: Applied
30) The direct impact on Canadian inflation of an exchange rate depreciation occurs because
higher prices of imports to Canada are inflationary.
Answer: TRUE
Skill: Applied
31) A recessionary gap can be caused by an appreciation of the Canadian dollar and decreased
exports.
Answer: TRUE
Skill: Applied
31
32) A strong Canadian dollar hurts exporters.
Answer: TRUE
Skill: Applied
33) A weak Canadian dollar hurts exporters.

Answer: FALSE
Skill: Applied
34) A strong Canadian dollar hurts importers.

Answer: FALSE
Skill: Applied
35) A weak Canadian dollar hurts importers.

Answer: TRUE
Skill: Applied
36) As the dollar weakens, unemployment increases.

Answer: FALSE
Skill: Applied
37) As the dollar weakens, unemployment decreases.

Answer: TRUE
Skill: Applied
38) An inflationary gap can be caused by a depreciation of the Canadian dollar and increased
exports.
Answer: TRUE
Skill: Applied
32
39) When the Canadian dollar depreciates, the direct effect on Canadian inflation always
reinforces the indirect effect.
Answer: TRUE
Skill: Applied
40) A stronger Canadian dollar is always preferable to a weaker Canadian dollar.

Answer: FALSE
Skill: Applied
41) A weaker Canadian dollar is always preferable to a stronger Canadian dollar.

Answer: FALSE
Skill: Applied
42) The key to international transmission mechanisms is the impact of exchange rates on interest
rates.
Answer: FALSE
Skill: Applied
43) The key to international transmission mechanisms is the impact of exchange rates on exports
and imports.
Answer: TRUE
Skill: Applied
44) When the price of Canadian exports to the rest of the world rise, the inflation rate rises in
other countries.
Answer: TRUE
Skill: Applied
45) When the price of imports to Canada rise, measured in Canadian dollars, the inflation rate
rises in Canada.
Answer: TRUE
Skill: Applied
33
46) An appreciating Canadian dollar causes inflation in Canada.
Answer: FALSE
Skill: Applied
47) A depreciating Canadian dollar causes inflation in Canada.

Answer: TRUE
Skill: Applied
48) When the Canadian dollar appreciates, the direct impact on inflation in Canada reinforces the
indirect impact on inflation.
Answer: TRUE
Skill: Applied
49) When the Canadian dollar depreciates, the direct impact on inflation in Canada is opposite to
the indirect impact on inflation.
Answer: FALSE
Skill: Applied
34
10.4 Overvalued Compared to What? Purchasing Power Parity and Rate of Return Parity
Anchors
1) Purchasing power parity states that

A) exchange rates adjust to equalize prices across countries.
B) prices adjust to equalize rates of return across countries.
C) rates of return adjust to equalize expected exchange rate fluctuations.
D) exchange rates adjust to equalize the real purchasing power of money across countries.
E) purchasing power adjusts to reflect expected exchange rate fluctuations.
Answer: D
Skill: Applied
Objective: 10.4 Describe how purchasing power parity and rate of return parity provide
standards for exchange rates.
2) With interest rate parity,

A) exchange rates remain equal.
B) expected depreciations equal expected appreciations.
C) money flows to where interest rates are lowest.
D) interest rates charged in different countries remain equal.
E) rates of return are equalized, accounting for expected exchange rate fluctuations.
Answer: E
Skill: Applied
3) Suppose purchasing power parity (PPP) depends only on hamburgers. The exchange rate is
C$1.00 = US$0.80 and hamburger prices are C$2.00 in Canada and US$1.50 in the U.S. PPP
suggests that the
A) Canadian dollar is overvalued.
B) Canadian dollar is undervalued.
C) demand for Canadian dollars will increase.
D) supply of Canadian dollars will decrease.
E) supply of U.S. dollars will decrease.
Answer: A
Skill: Applied
35
suggests that the
A) demand for Canadian dollars will decrease.
B) Canadian dollar is overvalued.
C) Canadian dollar is undervalued.
D) supply of Canadian dollars will increase.
E) supply of U.S. dollars will increase.
Answer: C
Skill: Applied
suggests that the
A) supply of Canadian dollars will increase.
C) demand for Canadian dollars will decrease.
D) Canadian dollar is undervalued.
E) supply of U.S. dollars will increase.
Answer: D
Skill: Applied
suggests that the
A) Canadian dollar is undervalued.
C) demand for Canadian dollars will increase.
D) supply of Canadian dollars will decrease.
E) supply of U.S. dollars will decrease.
Answer: A
Skill: Applied
36
C$1.00 = US$0.80 and hamburger prices are C$2.00 in Canada. PPP suggests that the price of a
hamburger in the U.S. should be
A) US$ 1.25.
B) US$ 2.00.
C) US$ 2.50.
D) US$ 1.60.
E) US$ 0.80.
Answer: D
Skill: Applied
C$1.00 = US$0.80 and hamburger prices are US$2.00 in the U.S. PPP suggests that the price of
a hamburger in Canada should be
A) C$ 2.50.
B) C$ 2.00.
C) C$ 1.60.
D) C$ 1.25.
E) C$ 0.80.
Answer: A
Skill: Applied
9) Suppose purchasing power parity (PPP) depends only on hotel rooms. The exchange rate is
C$1.00 = US$0.80 and a room at the Weston Hotel in Niagara Falls, New York costs US$200.
PPP suggests that the price of a room at the Weston Hotel in Niagara Falls, Ontario should be
A) C$ 200.
B) C$ 250.
C) C$ 160.
D) C$ 125.
E) C$ 80.
Answer: B
Skill: Applied
37
C$1.00 = US$0.80 and a room at the Weston Hotel in Niagara Falls, Ontario costs C$200. PPP
suggests that the price of a room at the Weston Hotel in Niagara Falls, New York should be
A) US$ 80.
B) US$ 200.
C) US$ 250.
D) US$ 125.
E) US$ 160.
Answer: E
Skill: Applied
11) Which statement best describes how rate of return parity happens?
A) The expected depreciation of the Canadian dollar is currently lowering demand for it.
B) The price of apples is the same in Canada and the U.S., adjusting for the exchange rate.
C) The market feeling is that the Canadian dollar is overvalued and will likely appreciate.
D) The recent high Canadian interest rate has decreased the supply of Canadian dollars.
Answer: D
Skill: Applied
12) Which statement best describes purchasing power parity?

A) The expected depreciation of the Canadian dollar is currently lowering demand for it.
B) The price of apples is the same in Canada and the U.S., adjusting for the exchange rate.
C) The market feeling is that the Canadian dollar is overvalued and will likely depreciate.
D) The recent high Canadian interest rate has increased the demand for Canadian dollars.
Answer: B
Skill: Applied
38
13) If the rate of return in India is higher than the rate of return in Canada, rate of return parity
suggests the difference is due to
A) expected interest rates.
B) expected exchange rates.
C) current interest rates.
D) current exchange rates.
E) purchasing power parity.
Answer: B
Skill: Applied
14) If the interest rate in Japan is greater than the interest rate in Canada, rate of return parity
suggests that
A) the inflation rate is lower in Japan than in Canada.
B) Canadian financial assets are poor investments.
C) the yen is expected to depreciate against the Canadian dollar.
D) the yen is expected to appreciate against the Canadian dollar.
E) Japanese financial assets are poor investments.
Answer: C
Skill: Applied
15) If the interest rate in Japan is less than the interest rate in Canada, rate of return parity
suggests that
A) the inflation rate is higher in Japan than in Canada.
B) Canadian financial assets are poor investments.
C) the yen is expected to depreciate against the Canadian dollar.
D) the yen is expected to appreciate against the Canadian dollar.
E) Japanese financial assets are poor investments.
Answer: D
Skill: Applied
39
16) If the rate of return is 8 percent in Mexico and 3 percent in Canada, the
A) law of one price predicts a single international rate of return between 8 percent and 3 percent.
B) Mexican peso is expected to depreciate against the Canadian dollar by 5 percent.
C) Mexican peso is expected to appreciate against the Canadian dollar by 5 percent.
D) rate of return in Mexico is expected to fall to 3 percent.
E) rate of return in Canada is expected to rise to 8 percent.
Answer: B
Skill: Applied
D) rate of return in Mexico is expected to rise to 8 percent.
E) rate of return in Canada is expected to fall to 3 percent.
Answer: C
Skill: Applied
D) rate of return in Mexico is expected to fall to 1 percent.
E) rate of return in Canada is expected to rise to 3 percent.
Answer: B
Skill: Applied
D) rate of return in Mexico is expected to rise to 3 percent.
E) rate of return in Canada is expected to fall to 1 percent.
Answer: C
Skill: Applied
40
20) A hamburger costs C$4.50 in Fredericton, New Brunswick, and the exchange rate is 67 U.S.
cents per Canadian dollar. Then the
A) hamburger will cost US$4.50 if purchasing power parity holds.
B) Canadian dollar is expected to depreciate according to purchasing power parity.
C) Canadian dollar is expected to appreciate according to purchasing power parity.
D) hamburger will cost US$3.00 if purchasing power parity holds.
E) hamburger will cost US$3.00 if rate of return parity holds.
Answer: D
Skill: Applied
suggests that the exchange rate is undervalued.
Answer: TRUE
Skill: Applied
22) With interest rate parity, money flows to where interest rates are lowest.
Answer: FALSE
Skill: Recall
23) With rate of return parity, money flows to where rates of return are lowest.
Answer: FALSE
Skill: Recall
24) With rate of return parity, money flows to where rates of return are highest.
Answer: TRUE
Skill: Recall
41
25) Purchasing power parity suggests that exchange rates adjust to equalize prices.
Answer: FALSE
Skill: Recall
26) Purchasing power parity suggests that exchange rates adjust to equalize the purchasing
power of money across countries.
Answer: TRUE
Skill: Recall
suggests that the Canadian dollar is overvalued.
Answer: TRUE
Skill: Applied
suggests that the Canadian dollar is undervalued.
Answer: TRUE
Skill: Applied
suggests that the Canadian dollar is overvalued.
Answer: FALSE
Skill: Applied
42
C$1.00 = US$0.80 and hamburger prices are C$2.00 in Canada. PPP suggests that the price of a
hamburger in the U.S. should be US$1.60.
Answer: TRUE
Skill: Applied
C$1.00 = US$0.80 and hamburger prices are US$2.00 in the U.S. PPP suggests that the price of
a hamburger in Canada should be C$2.50.
Answer: TRUE
Skill: Applied
C$1.00 = US$0.80 and a room at the Weston Hotel in Niagara Falls, New York costs US$200.
PPP suggests that the price of a room at the Weston Hotel in Niagara Falls, Ontario should be
C$250.
Answer: TRUE
Skill: Applied
C$1.00 = US$0.80 and a room at the Weston Hotel in Niagara Falls, Ontario costs C$200. PPP
suggests that the price of a room at the Weston Hotel in Niagara Falls, New York should be
US$160.
Answer: TRUE
Skill: Applied
34) The law of one price states that different products and services in a market must have the
same price.
Answer: FALSE
Skill: Recall
43
35) The law of one price states that differences in prices of the same product across markets will
be eliminated by the actions of profit-seekers.
Answer: TRUE
Skill: Recall
36) A floating exchange rate is determined by governments or central banks in foreign exchange
markets.
Answer: FALSE
Skill: Recall
37) A fixed exchange rate is determined by governments or central banks.

Answer: TRUE
Skill: Recall
38) Rate of return parity is another name for purchasing power parity.
Answer: FALSE
Skill: Recall
39) Rate of return parity is an example of the law of one price applied to investments.
Answer: TRUE
Skill: Applied
40) Most countries today have fixed exchange rates.

Answer: FALSE
Skill: Recall
44
41) China has purposefully fixed its exchange rate so that the yuan is overvalued relative to the
U.S. dollar.
Answer: FALSE
Skill: Recall
42) China has purposefully fixed its exchange rate so that the yuan is undervalued relative to the
U.S. dollar.
Answer: TRUE
Skill: Recall
43) Purchasing power parity assumes all products and services are traded easily and without cost
across borders.
Answer: TRUE
Skill: Recall
44) Despite its limitations, purchasing power parity is the best available standard for predicting
where exchange rates are likely to settle.
Answer: TRUE
Skill: Recall
45) The purchasing power parity exchange rate is the best rate for the Canadian macroeconomic
outcomes of full employment, stable prices, and steady economic growth.
Answer: FALSE
Skill: Recall
45
10.5 Where Do All the Dollars Flow? International Balance of Payments
1) Which statement about the balance of payments accounts is true?

A) Flows of Canadian dollars into Canada are positive numbers.
B) Flows of Canadian dollars out of Canada are positive numbers.
C) Canadian exports are negative numbers.
D) Canadian imports are positive numbers.
E) Flows of Canadian dollars into Canada are negative numbers.
Answer: A
Skill: Applied
Objective: 10.5 Describe the two main parts of the balance of payments account, and explain
why they must add up to zero.
2) Which statement about the balance of payments accounts is true?

A) Flows of Canadian dollars into Canada are negative numbers.
B) Flows of Canadian dollars out of Canada are positive numbers.
E) Flows of Canadian dollars out of Canada are negative numbers.
Answer: E
Skill: Applied
3) Which statement about the balance of payments accounts is false?

B) Flows of Canadian dollars out of Canada are negative numbers.
C) Canadian exports are positive numbers.
E) Canadian imports are negative numbers.
Answer: D
Skill: Applied
46
4) Which statement about the balance of payments accounts is false?
B) Flows of Canadian dollars out of Canada are negative numbers.
D) Canadian exports are positive numbers.
E) Canadian imports are negative numbers.
Answer: C
Skill: Applied
5) The main items on the

A) current account are exports and imports.
B) current account are exports and Canadian investments in R.O.W.
C) current account are imports and R.O.W. investments in Canada.
D) financial account are exports and Canadian investments in R.O.W
E) financial account are imports and R.O.W. investments in Canada.
Answer: A
Skill: Applied
6) The main items on the

A) financial account are Canadian investments in R.O.W. and R.O.W. investments in Canada.
B) current account are exports and Canadian investments in R.O.W.
C) current account are imports and R.O.W. investments in Canada.
D) financial account are exports and Canadian investments in R.O.W
E) financial account are imports and R.O.W. investments in Canada.
Answer: A
Skill: Applied
47
7) A current account surplus means
A) Canadian spending on imports from R.O.W. is greater than R.O.W. spending on Canadian
exports.
B) R.O.W. spending on Canadian exports is greater than Canadian spending on imports from
R.O.W.
C) Canadian investments in R.O.W. are greater than R.O.W. investments in Canada.
D) R.O.W. investments in Canada are greater than Canadian investments in R.O.W.
E) there is also a capital account surplus.
Answer: B
Skill: Applied
8) A current account deficit means

exports.
R.O.W.
E) there is also a capital account deficit.
Answer: A
Skill: Applied
9) A capital account surplus means

exports.
R.O.W.
E) there is also a current account surplus.
Answer: D
Skill: Applied
48
10) A capital account deficit means
exports.
R.O.W.
E) there is also a current account deficit.
Answer: C
Skill: Applied
11) Which activity is a positive entry on the Canadian current account?

A) A Canadian tourist spends $2,000 at the SXSW Festival in Austin, Texas.
B) A U.S. tourist spends $3,000 at the Toronto International Film Festival.
C) A Canadian buys a German government bond.
D) A Canadian from Halifax invests in a hockey stick factory in Saskatchewan.
E) A French investor buys a winery in the Okanagan Valley in British Columbia.
Answer: B
Skill: Applied
12) Which activity is a negative entry on the Canadian current account?

Answer: A
Skill: Applied
49
13) Which activity is a positive entry on the Canadian financial account?
Answer: E
Skill: Applied
14) Which activity is a negative entry on the Canadian financial account?

Answer: C
Skill: Applied
15) Suppose Canada has a zero balance (no surplus or deficit) on the both the current account
and on the capital account. Then Canadian businesses import new machinery from Italy,
financing that increase by borrowing from Japan. On Canada's balance of payments accounts
there is now a current account
A) surplus and a financial account surplus.
B) surplus and a financial account deficit.
C) deficit and a financial account surplus.
D) deficit and a financial account deficit.
E) surplus and a financial account balance of zero.
Answer: C
Skill: Applied
50
16) Suppose Canada has a zero balance (no surplus or deficit) on the both the current account
and on the capital account. Then Canadian businesses export new snow blowing machinery to
Italy, which Italy finances by borrowing from a Canadian bank. On Canada's balance of
payments accounts there is now a current account
A) surplus and a financial account surplus.
B) surplus and a financial account deficit.
C) deficit and a financial account surplus.
D) deficit and a financial account deficit.
E) surplus and a financial account balance of zero.
Answer: B
Skill: Applied
17) Flows of Canadian dollars into Canada are positive numbers on the balance of payments
accounts.
Answer: TRUE
Skill: Recall
18) Flows of Canadian dollars into Canada are negative numbers on the balance of payments
accounts.
Answer: FALSE
Skill: Recall
19) Flows of Canadian dollars out of Canada are positive numbers on the balance of payments
accounts.
Answer: FALSE
Skill: Recall
20) Flows of Canadian dollars out of Canada are negative numbers on the balance of payments
accounts.
Answer: TRUE
Skill: Recall
51
21) Canadian exports are positive numbers on Canada's balance of payments accounts.
Answer: TRUE
Skill: Recall
22) Canadian exports are negative numbers on Canada's balance of payments accounts.
Answer: FALSE
Skill: Recall
23) Imports into Canada are positive numbers on Canada's balance of payments accounts.
Answer: FALSE
Skill: Recall
24) Imports into Canada are negative numbers on Canada's balance of payments accounts.
Answer: TRUE
Skill: Recall
25) To understand the pluses and minuses on Canada's balance of payments accounts, focus on
the flows of money into (positive) and out of (negative) Canada.
Answer: TRUE
Skill: Recall
26) To understand the pluses and minuses on Canada's balance of payments accounts, focus on
the flows of products into (positive) and out of (negative) Canada.
Answer: FALSE
Skill: Recall
52
27) The two main items on the current account are exports and imports.
Answer: TRUE
Skill: Recall
28) The two main items on the current account are Canadian investments in R.O.W. and R.O.W.
investments in Canada.
Answer: FALSE
Skill: Recall
29) The two main items on the financial account are exports and imports.
Answer: FALSE
Skill: Recall
30) The two main items on the financial account are Canadian investments in R.O.W. and
R.O.W. investments in Canada.
Answer: TRUE
Skill: Recall
31) Because demand for one currency is also the supply of another currency, the balance of
payments accounts must add up to zero.
Answer: TRUE
Skill: Recall
32) Current account balance + financial account balance + statistical discrepancy = zero.
Answer: TRUE
Skill: Recall
53
33) A financial account surplus means that R.O.W. invested more in Canada than Canadians
invested in R.O.W.
Answer: TRUE
Skill: Applied
34) A financial account surplus means that Canadians invested more in R.O.W. than R.O.W.
invested in Canada.
Answer: FALSE
Skill: Applied
35) A financial account deficit means that R.O.W. invested more in Canada than Canadians
invested in R.O.W.
Answer: FALSE
Skill: Applied
36) A financial account deficit means that Canadians invested more in R.O.W. than R.O.W.
invested in Canada.
Answer: TRUE
Skill: Applied
37) A current account surplus means that R.O.W. spending on Canadian exports is greater than
Canadian spending on imports from R.O.W.
Answer: TRUE
Skill: Applied
38) A current account surplus means that Canadian spending on imports from R.O.W. is greater
than R.O.W. spending on Canadian exports.
Answer: FALSE
Skill: Applied
54
39) A current account deficit means that R.O.W. spending on Canadian exports is greater than
Canadian spending on imports from R.O.W.
Answer: FALSE
Skill: Applied
40) A current account deficit means that Canadian spending on imports from R.O.W. is greater
than R.O.W. spending on Canadian exports.
Answer: TRUE
Skill: Applied
41) When there is a current account deficit there is a capital account surplus.
Answer: TRUE
Skill: Applied
42) When there is a current account deficit there is a capital account deficit.
Answer: FALSE
Skill: Applied
43) When there is a current account surplus there is a capital account surplus.
Answer: FALSE
Skill: Applied
44) When there is a current account surplus there is a capital account deficit.
Answer: TRUE
Skill: Applied
55

Macroeconomics For Life Smart Choices For All Canadian 2nd Edition Cohen Test Bank

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Macroeconomics For Life Smart Choices For All Canadian 2nd Edition Cohen Test Bank

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Macroeconomics for Life Smart

Choices for All Canadian 2nd Edition

10.1 Shuffling Off to Buffalo: Demand and Supply of Canadian Dollars

1) Which statements are true?

A higher value of the Canadian dollar makes:

1. R.O.W. imports and assets more expensive for Canadians.

2) Which statements are true?

A lower value of the Canadian dollar makes:

1. R.O.W. imports and assets more expensive for Canadians.

1. Canadian dollar depreciated against the U.S. dollar.

4) Which statements are true?

1. Canadian dollar depreciated against the U.S. dollar.

1. Canadian dollar depreciated against the U.S. dollar.

6) Which statements are true?

1. Canadian dollar appreciated against the U.S. dollar.

8) When there is a shortage of Canadian dollars in the foreign exchange market,

52) A rise in the exchange rate is called a currency depreciation.

53) A fall in the exchange rate is called a currency depreciation.

1) The Canadian dollar depreciates if

2) The Canadian dollar appreciates if

3) The Canadian dollar appreciates against the U.S. dollar if

4) A negative demand shock causes the Canadian dollar to depreciate because

6) When Canadian interest rates fall the

7) When Canadian interest rates fall the

14) When the Canadian money supply increases, the

15) When the Canadian money supply decreases, the

16) When the Canadian money supply decreases, the

18) When R.O.W. demand for Canadian exports decreases, the

1) An appreciating Canadian dollar causes a

2) A depreciating Canadian dollar causes a

3) A depreciating Canadian dollar causes a(n)

4) An appreciating Canadian dollar causes a(n)

6) A depreciating Canadian dollar is a positive demand shock because

10) The indirect effect on Canadian inflation of an exchange rate depreciation

11) A recessionary gap results from

12) An inflationary gap results from

14) A weaker Canadian dollar hurts

15) As the Canadian dollar weakens, Canadian

16) As the Canadian dollar weakens, Canadian

18) As the Canadian dollar weakens, Canadian

19) As the Canadian dollar weakens, Canadian

20) As the Canadian dollar strengthens, Canadian

22) As the Canadian dollar strengthens, Canadian

23) As the Canadian dollar strengthens, Canadian

24) As the Canadian dollar strengthens, Canadian

26) A depreciating Canadian dollar causes stagflation.

27) An appreciating Canadian dollar causes stagflation.

29) A depreciating dollar causes a recessionary gap.

33) A weak Canadian dollar hurts exporters.

34) A strong Canadian dollar hurts importers.

35) A weak Canadian dollar hurts importers.

36) As the dollar weakens, unemployment increases.

37) As the dollar weakens, unemployment decreases.

40) A stronger Canadian dollar is always preferable to a weaker Canadian dollar.

41) A weaker Canadian dollar is always preferable to a stronger Canadian dollar.

47) A depreciating Canadian dollar causes inflation in Canada.

1) Purchasing power parity states that

2) With interest rate parity,

12) Which statement best describes purchasing power parity?

37) A fixed exchange rate is determined by governments or central banks.

40) Most countries today have fixed exchange rates.

1) Which statement about the balance of payments accounts is true?

2) Which statement about the balance of payments accounts is true?