Exchange Rates
When a currency becomes more valuable relative to another currency. Does it appreciate or depreciate?
What is appreciation?
A tax placed on imports.
What is a tariff?
The account that records exports and imports of goods and services. Is it current account or financial account?
Answer: What is the current account?
The ability to produce a good at a lower opportunity cost than another producer. Is it absolute advantage or comparative advantage?
Answer: What is comparative advantage?
The market where currencies are bought and sold.
Answer: What is the foreign exchange market (forex market)?
Does a strong or weak dollar make imports cheaper and exports more expensive.
What is a strong (or appreciated) currency/dollar?
A limit on the quantity of imports allowed into a country.
Answer: What is a quota?
Tourism spending by foreigners visiting the United States is recorded in this account. Is it current account or financial account?
Answer: What is the current account?
If a country has comparative advantage in a good, it should do this.
Answer: What is specialize in producing that good and trade?
When Americans buy foreign goods, this increases in the foreign exchange market.
Answer: What is the supply of dollars?
Will a currency appreciate or depreciate when the supply of a currency increases in the foreign exchange market.
What is depreciation?
A government payment given to domestic producers to encourage production and exports.
Answer: What is a subsidy?
This occurs when a country imports more goods and services than it exports.
Answer: What is a trade deficit?
This economic concept explains why two countries can both benefit from trade.
Answer: What is comparative advantage?
When foreigners buy U.S. goods, this increases in the foreign exchange market.
Answer: What is the demand for dollars?
If U.S. interest rates increase relative to other countries, will the U.S. dollar appreciate or depreciate?
What is the dollar appreciates?
Government policies designed to restrict imports and protect domestic industries. Is it free trade or protectionism?
Answer: What is protectionism?
Foreign direct investment, such as building factories overseas, is recorded in this account. Is it current account or financial account?
Answer: What is the financial account?
The key difference between comparative advantage and absolute advantage.
Answer: What is comparative advantage is based on opportunity cost while absolute advantage is based on productivity?
This curve shifts to the right when foreign demand for U.S. goods increases.
Answer: What is the demand curve for dollars?
There are two types of exchange rate systems - a fixed and floating. Which type of exchange rate system is it where supply and demand determine currency values.
What is a floating exchange rate system?
List one major economic argument against tariffs.
Answer: What is higher consumer prices or reduced economic efficiency?
The account that records purchases of foreign assets such as stocks, bonds, and real estate. Is it current account or financial account?
Answer: What is the financial account?
If Jazz can make 7 pancakes an hour and 21 cookies an hour whereas Mark can make 5 pancakes an hour and 20 cookies an hour, who has the comparative advantage in making pancakes? (you must do the calculations in order to win the points!)
Who is
Jazz: 1 pancake = 3 cookies, 1 cookie = 1/3 pancake
Mark: 1 pancake = 4 cookies, 1 cookie = 1/4 pancake
An increase in U.S. interest rates will shift this curve to the right in the foreign exchange market. (You must also explain why to get the points)
Answer: What is the demand for dollars?
Why? Demand for dollars increases because foreigners want higher returns on dollars (the interest) which attracts foreign capital. Investors buy dollars to invest in these higher yielding assets, increasing demand and the currency's value.