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The statistical evidence is that there is a strong correlation 



1. "The survey found that 28 percent of U.S. dollar trading in North America is in the mark, 23 percent in the yen, 13 percent in the British pound and 9 percent in the Swiss franc. Rounding out the list of major trading currencies at 3 percent to 7 percent each, are the Canadian and Australian dollars and the French franc." The U.S. trades more with Canada than with any other country. The Canadian dollar is low in this survey because 
a) although the volume of trade with Canada is high, its value is low 
b) exports to and imports from Canada come close to canceling each other 
c) most dollar buying and selling doesn't have anything to do with trade 
d) the balance of trade with Canada is almost exactly offset by capital flows 
2. "The statistical evidence is that there is a strong correlation between increases in current account surpluses and declines in the value of the dollar. This is just the opposite of the conventional wisdom." This evidence can best be explained by 
a) declines in the value of the dollar causing increases in exports and decreases in imports 
b) declines in the value of the dollar causing decreases in exports and increases in imports 
c) increases in current account surpluses causing demand for the dollar to exceed its supply 
d) increases in current account surpluses causing supply of the dollar to exceed its demand 
3. "With our unemployment rate so close to the natural rate, there is no room for interest rate cuts, but if unemployment should start to rise, Alan Blinder, Vice-Chairman of the Federal Reserve Board, may want an early cut in rates. If he succeeds, bond yields and the dollar could both be in for a mauling." The dollar would fall because 
a) exports would fall b) imports would fall 
c) capital inflows would fall d) capital outflows would fall 105 
4. "The large and persistent trade deficit has provoked concern among the general public and in the financial markets. The deficit resulted from the high-dollar policies of the Reagan administration in the early 1980s." The high-dollar policy resulted from 
a) national pride b) high interest rates c) high money growth 
d) import restrictions which created a balance of trade surplus 
5. "These reports suggest that the United States is heading for a recession. Activity on the futures market for the U.S. dollar suggests that the market thinks the dollar will soon depreciate." The dollar is likely to depreciate because 
a) the recession will decrease imports 
b) the demand for the dollar currently exceeds its supply 
c) the recession will prompt the Fed to lower interest rates 
d) the recession will prompt the government to increase its spending



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