Question 1

As the economy recovers from a recession, economists expect its:

Accepted Answer

A)   Imports to grow, and therefore its trade deficit would also grow
B)   Exports to grow, and therefore its trade deficit would shrink
C)   Imports and exports to grow at roughly the same rate, so its trade deficit will stay constant
D)   Imports and exports to start declining, therefore its trade deficit will also decline a little bitE) A) and D)
F) A) and C)

Question 2

In foreign exchange markets, speculators help:

Accepted Answer

A)   Decrease the influence of the futures market because their trades demand current payments
B)   Increase fluctuations in exchange rates because of wild buying and selling
C)   Decrease the value of most currencies because they tend to hedge the market
D)   Increase international trade because they absorb risk which others do not want to bearE) None of the above
F) All of the above

Question 3

In equilibrium, if $1 = 0.5 pound sterling and 1 pound sterling = 40 Swiss francs, the exchange rate between dollar and franc will be:

Accepted Answer

A)   1 franc = $.10
B)   1 franc = $.20
C)   $1 = 80 francs
D)   $1 = 20 francsE) A) and D)
F) B) and D)

Question 4

Fixed exchange rates are often maintained by using all of the following except:

Accepted Answer

A)   Open speculation by individual traders in foreign currency markets
B)   International monetary reserves held by central banks
C)   Controls on imports and exports such as tariffs and quotas
D)   Domestic macroeconomic adjustments using monetary and fiscal policiesE) All of the above
F) C) and D)

Question 5

The following table contains hypothetical data for the U.S. balance of payments in a year. Answer the following question on the basis of these data. All figures are in billions of dollars. U.S. 
Refer to the table above. The balance on the current account was a:

Accepted Answer

A)   $51 billion surplus
B)   $92 billion deficit
C)   $22 billion surplus
D)   $82 billion deficitE) All of the above
F) A) and B)

Question 6

When a U.S. company purchases a factory in Singapore, this will be a:

Accepted Answer

A)   Credit on the current account of the U.S. balance of payments
B)   Debit on the current account of the U.S. balance of payments
C)   Credit on the financial account of the U.S. balance of payments
D)   Debit on the financial account of the U.S. balance of paymentsE) B) and C)
F) A) and B)

Question 7

Assume that Japan and the United States are engaged in a system of flexible exchange rates.  Refer to the graph above. One U.S. dollar will purchase how many Japanese yen?

Accepted Answer

A)   80
B)   120
C)   125
D)   140E) B) and D)
F) None of the above

Question 8

The following table contains hypothetical data for the U.S. balance of payments in a year. Answer the following question on the basis of these data. All figures are in billions of dollars. U.S. 
Refer to the table above. The data indicate that there was a trade:

Accepted Answer

A)   Deficit in goods and also a trade deficit in services
B)   Surplus in goods and also a trade surplus in services
C)   Deficit in goods and a trade surplus in services
D)   Surplus in goods and a trade deficit in servicesE) B) and C)
F) None of the above

Question 9

Refer to the graph above. Higher inflation in the United States relative to that in Canada, ceteris paribus, will cause a(n) :

Accepted Answer

A)   Decrease in the supply of U.S. dollars
B)   Increase in the demand for U.S. dollars
C)   Decrease in the value of the U.S. dollar in terms of the Canadian dollar
D)   Increase in the value of the U.S. dollar in terms of the Canadian dollarE) B) and C)
F) None of the above

Question 10

A nation's balance of trade on goods is equal to its exports of goods less its imports of:

Accepted Answer

A)   Goods
B)   Capital
C)   Financial assets
D)   Official reservesE) All of the above
F) A) and B)

Question 11

Answer the question on the basis of the following balance of payments data for the hypothetical nation of Econland. All figures are in billions of dollars. (1)  Goods exports +$220
(2)  Goods imports -328
(3)  Exports of services +54
(4)  Imports of services -55
(5)  Net investment income +18
(6)  Net transfers -11
(7)  Capital account -1
(8)  Foreign purchases of Econland assets +124
(9)  Econland purchases of foreign assets -21
Refer to the table above. Econland's balance on the current account shows a:

Accepted Answer

A)   Deficit of $91 billion
B)   Deficit of $102 billion
C)   Deficit of $109 billion
D)   Surplus of $109 billionE) A) and C)
F) All of the above

Question 12

The purchasing-power-parity theory holds that exchange rates should equalize the inflation rates among the trading nations.

Accepted Answer

A) True 
 B)False

Question 13

French and German farmers wanting to buy equipment from an American manufacturer based in the U.S. will be:

Accepted Answer

A)   Supplying dollars and also supplying euros in the foreign exchange market
B)   Demanding dollars and also demanding euros in the foreign exchange market
C)   Supplying dollars and demanding euros in the foreign exchange market
D)   Supplying euros and demanding dollars in the foreign exchange marketE) B) and C)
F) A) and B)

Question 14

Which one of the following is part of the financial account on the U.S. balance of payments?

Accepted Answer

A)   Net transfers
B)   Net investment income
C)   U.S. goods exports
D)   U.S. purchases of assets abroadE) B) and C)
F) A) and B)

Question 15

In the dollar/yen market, if the supply of yen increases other things being equal, the dollar will appreciate.

Accepted Answer

A) True 
 B)False

Question 16

Assume that U.S. and European governments adopt a system of flexible exchange rates, and the figure below shows the market for euros.  Refer to the graph above. If currency traders think the European economy will experience a recession and the U.S. economy will not, then this event will most likely cause the:

Accepted Answer

A)   Euro to appreciate
B)   Euro to depreciate
C)   U.S. dollar to depreciate
D)   The supply of euros to decreaseE) B) and D)
F) A) and B)

Question 17

Critics of the managed floating exchange rate system argue that it:

Accepted Answer

A)   Is dominated by G-8 nations
B)   Is a "non-system" with unclear rules
C)   Increased the growth in world trade at too fast a rate
D)   Puts too much reliance on the adjustable-peg mechanism for stabilizing exchange ratesE) C) and D)
F) None of the above

Question 18

Consider the currency market for British pounds and U.S. dollars. An increase in the supply of British pounds:

Accepted Answer

A)   Results in an appreciation of the pound and a depreciation of the dollar
B)   Results in a depreciation of the pound and a depreciation of the dollar
C)   Is equivalent to an increase in the demand for the U.S. dollar
D)   Is equivalent to a decrease in the demand for the U.S. dollarE) All of the above
F) A) and D)

Question 19

Which of the following transactions represents a credit on the financial account of the U.S. balance of payments?

Accepted Answer

A)   Oil is imported from Venezuela
B)   United States firms pay dividends to foreigners
C)   United States citizens purchase foreign securities
D)   A Canadian firm increases its direct investment in its U.S. branchE) A) and B)
F) A) and C)

Question 20

If there is a small surplus in the combined current account plus capital and financial account for a certain year, then to make the two accounts balance there will be:

Accepted Answer

A)   An increase in the exchange rate
B)   A decrease in the exchange rate
C)   An increase in official reserve holdings
D)   A decrease in official reserve holdingsE) A) and C)
F) None of the above

Exam 21: The Balance of Payments, Exchange Rates, and Trade Deficits

If there is a small surplus in the combined current account plus capital and financial account for a certain year, then to make the two accounts balance there will be:

Correct Answer
verified

Refer to the graph above. Higher inflation in the United States relative to that in Canada, ceteris paribus, will cause a(n) :

Correct Answer
verified

Which one of the following is part of the financial account on the U.S. balance of payments?

Correct Answer
verified

The purchasing-power-parity theory holds that exchange rates should equalize the inflation rates among the trading nations.

Correct Answer
verified

The following table contains hypothetical data for the U.S. balance of payments in a year. Answer the following question on the basis of these data. All figures are in billions of dollars. U.S. Refer to the table above. The balance on the current account was a:

Correct Answer
verified

Assume that Japan and the United States are engaged in a system of flexible exchange rates. Refer to the graph above. One U.S. dollar will purchase how many Japanese yen?

Correct Answer
verified

Consider the currency market for British pounds and U.S. dollars. An increase in the supply of British pounds:

Correct Answer
verified

As the economy recovers from a recession, economists expect its:

Correct Answer
verified

In foreign exchange markets, speculators help:

Correct Answer
verified

French and German farmers wanting to buy equipment from an American manufacturer based in the U.S. will be:

Correct Answer
verified

Fixed exchange rates are often maintained by using all of the following except:

Correct Answer
verified

In equilibrium, if $1 = 0.5 pound sterling and 1 pound sterling = 40 Swiss francs, the exchange rate between dollar and franc will be:

Correct Answer
verified

Critics of the managed floating exchange rate system argue that it:

Correct Answer
verified

The following table contains hypothetical data for the U.S. balance of payments in a year. Answer the following question on the basis of these data. All figures are in billions of dollars. U.S. Refer to the table above. The data indicate that there was a trade:

Correct Answer
verified

Correct Answer
verified

When a U.S. company purchases a factory in Singapore, this will be a:

Correct Answer
verified

A nation's balance of trade on goods is equal to its exports of goods less its imports of:

Correct Answer
verified

Which of the following transactions represents a credit on the financial account of the U.S. balance of payments?

Correct Answer
verified

In the dollar/yen market, if the supply of yen increases other things being equal, the dollar will appreciate.

Correct Answer
verified

Correct Answer
verified

Exam 21: The Balance of Payments, Exchange Rates, and Trade Deficits

If there is a small surplus in the combined current account plus capital and financial account for a certain year, then to make the two accounts balance there will be:

Correct AnswerverifiedShow Answer

Refer to the graph above. Higher inflation in the United States relative to that in Canada, ceteris paribus, will cause a(n) :

Correct AnswerverifiedShow Answer

Which one of the following is part of the financial account on the U.S. balance of payments?

Correct AnswerverifiedShow Answer

The purchasing-power-parity theory holds that exchange rates should equalize the inflation rates among the trading nations.

Correct AnswerverifiedShow Answer

The following table contains hypothetical data for the U.S. balance of payments in a year. Answer the following question on the basis of these data. All figures are in billions of dollars. U.S. Refer to the table above. The balance on the current account was a:

Correct AnswerverifiedShow Answer

Assume that Japan and the United States are engaged in a system of flexible exchange rates. Refer to the graph above. One U.S. dollar will purchase how many Japanese yen?

Correct AnswerverifiedShow Answer

Consider the currency market for British pounds and U.S. dollars. An increase in the supply of British pounds:

Correct AnswerverifiedShow Answer

As the economy recovers from a recession, economists expect its:

Correct AnswerverifiedShow Answer

In foreign exchange markets, speculators help:

Correct AnswerverifiedShow Answer

French and German farmers wanting to buy equipment from an American manufacturer based in the U.S. will be:

Correct AnswerverifiedShow Answer

Fixed exchange rates are often maintained by using all of the following except:

Correct AnswerverifiedShow Answer

In equilibrium, if $1 = 0.5 pound sterling and 1 pound sterling = 40 Swiss francs, the exchange rate between dollar and franc will be:

Correct AnswerverifiedShow Answer

Critics of the managed floating exchange rate system argue that it:

Correct AnswerverifiedShow Answer

The following table contains hypothetical data for the U.S. balance of payments in a year. Answer the following question on the basis of these data. All figures are in billions of dollars. U.S. Refer to the table above. The data indicate that there was a trade:

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

When a U.S. company purchases a factory in Singapore, this will be a:

Correct AnswerverifiedShow Answer

A nation's balance of trade on goods is equal to its exports of goods less its imports of:

Correct AnswerverifiedShow Answer

Which of the following transactions represents a credit on the financial account of the U.S. balance of payments?

Correct AnswerverifiedShow Answer

In the dollar/yen market, if the supply of yen increases other things being equal, the dollar will appreciate.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

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