University of Illinois Department of Economics
Econ 103 – Fall 2014
Exercise 7
TA: Zheng Zhang
1.
If a basket of goods costs 1000 dollars in US and the exchange rate between
euro and US dollar is 1 euro to 1.4 US dollars, then the same basket of goods in
Europe should cost ________ when priced in euros.
A) $ 140.00
B) $ 714.29
C) $1000.00
D) $1400.00
2.
Define a country’s exchange rate as the price of domestic currency in terms
of foreign currency.
Now take US dollar as domestic currency and suppose its exchange rate relative to
Canadian dollar falls from 1.21 to 1.13. This fall indicates a(n) ________ of the
Canadian dollar, which means it takes ________ Canadian dollars to purchase one U.S.
dollar.
A) appreciation; fewer
B) depreciation; fewer
C) depreciation; more
D) appreciation; more
3.
Exchange rates are 150 yen per dollar, 0.8 euro per dollar and 20 pesos per
dollar. A bottle of beer in New York costs 6 dollars, 1,200 yen in Tokyo, 7 euro in
Munich and 100 pesos in Cancun. Where is the most expensive and the cheapest
beer in that order?
A)
B)
C)
D)
4.
Cancun, New York
New York, Toyko
Toyko, Munich
Munich, Cancun
When US dollar depreciates, U.S goods become
A) Less expensive relative to foreign goods, which makes exports rise and
imports fall.
B) Less expensive relative to foreign goods, which makes exports fall and
imports rise.
C) More expensive relative to foreign goods, which makes exports rise and
imports fall.
D) More expensive relative to foreign goods, which makes exports fall and
imports rise.
Figure 7.1 shows the changes in export and import markets of US and UK after
dollar appreciates and British pound depreciates.
University of Illinois Department of Economics
5 In the US imports market (Upper Left), at each price in $, British firms get______
£ for their goods. Thus, they will supply _________ goods to US, which is represented
as supply curve shifting ________.
A less ; fewer ; up
B less ; more ; down
C more ; fewer ; up
D more ; more ; down
6 In the US exports market (Upper Right): At each price in $, UK consumers will
have to pay _____ for US goods. Thus, they will demand ________ US goods: demand for
US exports will _________. The amount of US exports decreases in the new
equilibrium.
A less ; less ; decrease
B less ; more ; increase
C more ; less ; decrease
D more ; more ; increase
7 In UK exports market (Lower Left): At each price in £, Americans has to pay_____
(in $) for UK good. Therefore, Americans will demand ______ UK goods: demand for
UK exports will__________. UK exports a higher amount of goods to US in the new
equilibrium.
A less ; fewer ; decrease
University of Illinois Department of Economics
B less ; more ; increase
C more ; fewer ; decrease
D more ; more ; increase
8 In UK imports market (Lower Right): At each price in £, US firms will get______ $
for their products. Therefore, the supply of US goods (= UK imports) will be ________
and the supply curve shifts ______. UK imports fewer US goods in the new
equilibrium.
A less ; less ; up
B less ; more ; down
C more ; less ; up
D more ; more ; up
9 Who BENEFIT from an appreciation in US dollar and a depreciation in British
pounds
A US exporters and UK consumers of US goods
B US exporters and US consumers of UK goods
C UK exporters and US consumers of UK goods
D UK exporters and UK consumers of US goods
10 Who LOSE as a result of an appreciation in US dollar and a depreciation in British
pounds
A US exporters and UK consumers of US goods
B US exporters and US consumers of UK goods
C UK exporters and US consumers of UK goods
D UK exporters and UK consumers of US goods
University of Illinois Department of Economics
Answer Key:
1. B 2. A 3. D 4. A 5. D 6. C 7 B 8 A 9 C 10 A