Question

Why did China buy $450 billion in foreign exchange reserves in 2010?

	to encourage free trade between all nations
	to keep the yuan from depreciating
	to keep the yuan from appreciating
	to slow down the growth of the Chinese economy

16.

Under fixed exchange rates, a revaluation decreases aggregate demand by:

	increasing exports.
	reducing imports.
	causing a financial account deficit.
	decreasing exports.

17.

After a revaluation, all other things equal, a country's balance of payments on the current account will likely:

	increase.
	decrease.
	remain the same.
	fluctuate randomly.

18.

A depreciated dollar will cause aggregate demand to:

	increase.
	decrease.
	remain constant.
	fluctuate randomly.

Answer 1

15. c. to keep yuan from appreciating
(china bought $450 billion in foreign exchange reserves with a motive of keeping cheap its own currency so that chinese exports increases).

16. d. decreasing exports
(As a currency is revalued, the real exchange rate falls which makes exports relatvely expensive so exports decreases which will reduce net exports and thus aggregate demand decreases).

17. b. decrease
(Because of revaluation, exports decreases and imports increases as imports become relatively cheaper so balance of payment on the current account will worsen).

18. a. increase
(a depreciated dollar will cause real exchange rate to rise making US goods relatively cheaper which will increase exports and thereby net exports will increase. So, aggregate demand will increase).