AICE Econ Inflation and Foreign Currency Exchange

The government increases spending on defense and programs to increase worker productivity. What will happen to AD and AS?

• AD increase and AS increase

• AD increase and AS decrease

• AD decrease and AS increase

• AD decrease and AS decrease

The consumer price index falls from 150 to 148 between March and April of the SAME YEAR. What happened between these two months?

• Decrease in annual rate of inflation

• decrease in real interest rates

• increase in purchasing power of money

• increase in the standard of living

What would be likely to increase inflation in an economy?

• increase in consumer savings

• increase in interest rates

• increase in labor productivity

• increase in taxes on imports

Australia spends less on imports and decreases investment in other countries. What will happen to Australia's currency in the foreign exchange market?

• supply decrease

• demand decrease

• supply increase

• demand increase

The government decides to cut income taxes. What will happen to AD?

• AD increase

• AD decrease

• AD unchanged

Currently 1 yen = 1.2 dollars. The Japanese government wants the exchange rate to be 1 yen = 1 dollar. Which of the following moves will allow them to achieve their aim?

• buying US currency and buying its own currency

• buying US currency and selling its own currency

• selling US currency and buying its own currency

• selling US currency and selling its own currency

A government has a large current account deficit. It decides to devalue its currency. Under what circumstances would this devaluation reduce the deficit?

• PED exports = 0 and PED imports =0

• PED exports = 0 and PED imports =.5

• PED exports = .5 and PED imports = .5

• PED exports = .5 and PED imports = 1.0

Over a period of one year, the annual rate of inflation becomes negative. Which statement must be correct?

• the cost of living has fallen

• The purchasing power of money has fallen

• the standard of living has increased

• there was an increase in the consumer price index

A depreciation of the exchange rate of the UK pound against the US dollar from 1 pound = 1.50 dollars to 1 pound = 1.00 dollars must mean that?

• dollars will become more expensive in terms of pounds

• the pound will be undervalued

• UK imports from the US will become cheaper

• US imports from the UK will become more expensive

What always happens when there is an increase in the Consumer price index?

• an increase in consumer expenditure

• an increase in the cost of living

• reduction in living standards

• reduction in real disposable income