International Finance: EU versus America

1. How are each of the following events likely to affect the U.S. trade balance?
a. the European price level increases relative to the U.S. price level
b. the dollar appreciates in value relative to the currencies of its trading partners
c. the U.S. government offers subsidies to firms that export goods

2. How are each of the following events likely to affect the value of the dollar relative to the euro?
a. interest rates in the European Union increase relative to the United States
b. the European Union price level rises relative to the U.S. price level
c. the European central bank intervenes by selling dollars on currency markets

3. If the demand for a domestic currency decreases in a country using a fixed exchange rate system, what must the central bank do to keep the currency value steady?

4. What happens to the supply curve for dollars in the currency market under the following conditions?
a. Americans wish to buy more Japanese consumer electronics
b. the United States wishes to prop up the value of the yen