Practice Exam 3 - PracticeExam3 PointsAwarded PointsMissed...

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Practice Exam 3 Your response has been submitted successfully.   Points Awarded  33 Points Missed  12 Percentage  73% 1. The following diagram illustrates a supply curve for dollars due to current account transactions.   The exchange rate, E, is measured as Swiss francs per U.S. dollar.   Based on this figure, we can infer that A. the American elasticity of demand for Swiss goods is less than 1 but greater than zero. B. the American elasticity of demand for Swiss goods is greater than 1. C. the American elasticity of demand for Swiss goods is equal to 1. D. the American elasticity of demand for Swiss goods is zero. E. the Swiss elasticity of demand for U.S. goods is equal to 1. F. the Swiss elasticity of demand for U.S. goods is equal to zero. G. the Swiss elasticity of demand for U.S. goods is greater than 1. H. the Swiss elasticity of demand for U.S. goods is less than 1 but greater than zero. Since the supply of dollars is derived from the underlying American demand for Swiss goods, the  information contained in the diagram tells us something about the American demand for Swiss goods.  
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In this case, regardless of the exchange rate (and therefore, regardless of how expensive Swiss goods  become from the American perspective), the quantity of dollars supplied  does not change.  This  means that, say, a 1 percent increase in the price of Swiss goods is offset by a 1 percent decline in the  quantity demanded, and therefore the total amount of dollars spent on Swiss goods group2_rem  constant. Points Earned: 0/1 Correct Answer: C Your Response: F 2. The following diagram illustrates the demand and supply for European euros due to current  account transactions.  The exchange rate is measured as U.S. dollars per euro.   Suppose that the actual exchange rate (driven by interest parity, say) is 1.50 dollars per euro.  We  can then infer
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At an exchange rate of 1.50 dollars per euro, there is an excess supply of euros due to current account  transactions.  See the figure below:   In turn, this means that Europeans suppy more euros to exchange for dollars to buy U.S. goods and  services) than Americans are willing to buy on the FX market (where American demand for euros is  derived from American demand for European goods and services).  The U.S. has a current account  surplus.  Since the current account + financial account = 0, this must mean that the U.S. financial  account has a deficit.
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