Question 1

U.S. exports create a

Accepted Answer

A)   supply of foreign currencies and a demand for dollars in the foreign exchange markets.
B)   demand for foreign currencies and a supply of dollars in the foreign exchange markets.
C)   supply of foreign currencies and a supply of dollars in the foreign exchange markets.
D)   demand for foreign currencies and a demand for dollars in the foreign exchange markets.E) None of the above
F) A) and C)

Question 2

Which of the following would be an indication that a nation has a balance of payments deficit?

Accepted Answer

A)   It is buying gold abroad.
B)   Its imports exceed its exports.
C)   Its holdings of official reserves are declining.
D)   It is borrowing abroad to finance capital investments.E) B) and C)
F) A) and B)

Question 3

A nation that imports more goods and services than it exports is necessarily realizing an international balance of payments deficit.

Accepted Answer

A) True 
 B)False

Question 4

The exchange-rate system that we now have for major currencies like the U.S. dollar, yen, and euro is a "managed-floating" system.

Accepted Answer

A) True 
 B)False

Question 5

Which of the following combinations is plausible, as it relates to a nation's balance of payments?

Accepted Answer

A)   Current account = +$40 billion; capital account = +$20 billion; financial account = −$50 billion.
B)   Current account = −$50 billion; capital account = +$20 billion; financial account = +$30 billion.
C)   Current account = +$10 billion; capital account = +$40 billion; financial account = +$50 billion.
D)   Current account = +$30 billion; capital account = −$20 billion; financial account = −$50 billion.E) B) and C)
F) A) and B)

Question 6

Suppose the balance on the current account is +$50 billion and the balance on the capital account is +$1 billion. The balance on the financial account is

Accepted Answer

A)   −$51 billion.
B)   −$50 billion.
C)   −$49 billion.
D)   +$51 billion.E) All of the above
F) B) and C)

Question 7

Which of the following lists of exchange-rate systems is arranged in proper historical order, from earliest to most current?

Accepted Answer

A)   Bretton Woods system, gold standard, managed float
B)   gold standard, managed float, Bretton Woods system
C)   managed float, Bretton Woods system, gold standard
D)   gold standard, Bretton Woods system, managed floatE) C) and D)
F) A) and C)

Question 8

Suppose that Econland has a fixed exchange-rate system. Econland’s government (its central bank)  will exchange as much local currency (say pesos)  for foreign currency (say dollars)  and as much foreign currency (say dollars)  for local currency (say pesos)  as is necessary to maintain the peg. Which     of the following statements is not true?

Accepted Answer

A)   Satisfying requests by people to get local pesos in exchange for foreign dollars is easy for the central bank to do.
B)   The central bank has a restricted capacity to satisfy requests by people to get foreign dollars in exchange for local pesos.
C)   Being the central bank, it has an equal capacity to satisfy requests to exchange dollars for pesos, and pesos for dollars.
D)   The central bank needs to stockpile some foreign-exchange reserves in order to maintain the peg.E) B) and C)
F) A) and B)

Question 9

Relatively rapid U.S. growth between 2002 and 2006 contributed to large U.S. trade deficits by

Accepted Answer

A)   increasing U.S. national income, which decreased U.S. exports.
B)   reducing real interest rates in the United States.
C)   increasing U.S. tax revenues and reducing the federal budget deficit.
D)   increasing U.S. national income, which increased U.S. imports.E) B) and C)
F) A) and D)

Question 10

Which of the following appears as a positive item on the balance of payments accounts for the United States?

Accepted Answer

A)   the U.S. government sending aid to natural-disaster victims in Asia
B)   American tourists spending money in the other countries
C)   the purchase of U.S. Treasury bonds by a foreign bank
D)   the payment of stock dividends by U.S. firms to foreign shareholdersE) A) and C)
F) A) and B)

Question 11

United States exports, international tourism in the United States, and foreign capital inflow into the United States all give rise to

Accepted Answer

A)   depreciation of the U.S. dollar.
B)   a supply of foreign currencies to the United States.
C)   a demand for foreign currencies in the United States.
D)   decreased foreign-exchange reserves in the United States.E) A) and B)
F) All of the above

Question 12

Other things being equal, which of the following is a necessary consequence of a depreciation of the U.S. dollar against other currencies?

Accepted Answer

A)   The terms of trade will move in favor of the United States.
B)   The United States will experience an increase in the volume of imports.
C)   International speculators will buy U.S. dollars and sell other currencies.
D)   U.S. exports will become cheaper relative to other nations' products.E) A) and B)
F) C) and D)

Question 13

The expectations of speculators in the United States that the exchange rate for the euro will fall in the future will increase the supply of euros in the foreign exchange market and decrease the exchange rate for the euros.

Accepted Answer

A) True 
 B)False

Question 14

Which is not a serious disadvantage associated with freely fluctuating exchange rates?

Accepted Answer

A)   uncertainty which tends to diminish trade
B)   greater instability in unemployment levels
C)   longer lags in eliminating balance of payments surpluses or deficits
D)   swings in the terms of trade related to currency appreciation or depreciationE) All of the above
F) A) and D)

Question 15

In the U.S. balance of payments, U.S. purchases of assets abroad are a(n)

Accepted Answer

A)   U.S. dollar outflow.
B)   U.S. dollar inflow.
C)   current account item.
D)   inpayment.E) None of the above
F) A) and B)

Question 16

In recent years, the United States has had large

Accepted Answer

A)   current account surpluses.
B)   current account deficits.
C)   balance of trade surpluses.
D)   balance of payments surpluses.E) C) and D)
F) None of the above

Question 17

If the United States experiences an increase in foreign exchange reserves,

Accepted Answer

A)   the net transfers line in the balance of payments statement will increase.
B)   it will also realize a decrease in the domestic supply of dollars.
C)   this will appear as a positive item in the U.S. balance of payments statement.
D)   this will appear as a negative item in the U.S. balance of payments statement.E) C) and D)
F) B) and D)

Question 18

Foreign exchange rates refer to the

Accepted Answer

A)   price at which purchases and sales of foreign goods take place.
B)   rate of exchange of goods and services between two trading nations.
C)   price of one nation's currency in terms of another nation's currency.
D)   difference between exports and imports of a particular nation with another.E) All of the above
F) A) and B)

Question 19

At the time when a trade deficit is occurring, U.S. consumers benefit from having more goods and services available.

Accepted Answer

A) True 
 B)False

Question 20

If the dollar price of yen rises, then

Accepted Answer

A)   the yen price of dollars also rises.
B)   the dollar depreciates relative to the yen.
C)   the yen depreciates relative to the dollar.
D)   the dollar will buy fewer U.S. goods.E) A) and D)
F) C) and D)

Exam 27: The Balance of Payments, Exchange Rates, and Trade Deficits

Suppose the balance on the current account is +$50 billion and the balance on the capital account is +$1 billion. The balance on the financial account is

Correct Answer
verified

Which of the following lists of exchange-rate systems is arranged in proper historical order, from earliest to most current?

Correct Answer
verified

In recent years, the United States has had large

Correct Answer
verified

U.S. exports create a

Correct Answer
verified

Which is not a serious disadvantage associated with freely fluctuating exchange rates?

Correct Answer
verified

Other things being equal, which of the following is a necessary consequence of a depreciation of the U.S. dollar against other currencies?

Correct Answer
verified

A nation that imports more goods and services than it exports is necessarily realizing an international balance of payments deficit.

Correct Answer
verified

If the United States experiences an increase in foreign exchange reserves,

Correct Answer
verified

Which of the following appears as a positive item on the balance of payments accounts for the United States?

Correct Answer
verified

The expectations of speculators in the United States that the exchange rate for the euro will fall in the future will increase the supply of euros in the foreign exchange market and decrease the exchange rate for the euros.

Correct Answer
verified

Relatively rapid U.S. growth between 2002 and 2006 contributed to large U.S. trade deficits by

Correct Answer
verified

United States exports, international tourism in the United States, and foreign capital inflow into the United States all give rise to

Correct Answer
verified

At the time when a trade deficit is occurring, U.S. consumers benefit from having more goods and services available.

Correct Answer
verified

Which of the following would be an indication that a nation has a balance of payments deficit?

Correct Answer
verified

Correct Answer
verified

The exchange-rate system that we now have for major currencies like the U.S. dollar, yen, and euro is a "managed-floating" system.

Correct Answer
verified

If the dollar price of yen rises, then

Correct Answer
verified

Foreign exchange rates refer to the

Correct Answer
verified

In the U.S. balance of payments, U.S. purchases of assets abroad are a(n)

Correct Answer
verified

Which of the following combinations is plausible, as it relates to a nation's balance of payments?

Correct Answer
verified

Exam 27: The Balance of Payments, Exchange Rates, and Trade Deficits

Suppose the balance on the current account is +$50 billion and the balance on the capital account is +$1 billion. The balance on the financial account is

Correct AnswerverifiedShow Answer

Which of the following lists of exchange-rate systems is arranged in proper historical order, from earliest to most current?

Correct AnswerverifiedShow Answer

In recent years, the United States has had large

Correct AnswerverifiedShow Answer

U.S. exports create a

Correct AnswerverifiedShow Answer

Which is not a serious disadvantage associated with freely fluctuating exchange rates?

Correct AnswerverifiedShow Answer

Other things being equal, which of the following is a necessary consequence of a depreciation of the U.S. dollar against other currencies?

Correct AnswerverifiedShow Answer

A nation that imports more goods and services than it exports is necessarily realizing an international balance of payments deficit.

Correct AnswerverifiedShow Answer

If the United States experiences an increase in foreign exchange reserves,

Correct AnswerverifiedShow Answer

Which of the following appears as a positive item on the balance of payments accounts for the United States?

Correct AnswerverifiedShow Answer

The expectations of speculators in the United States that the exchange rate for the euro will fall in the future will increase the supply of euros in the foreign exchange market and decrease the exchange rate for the euros.

Correct AnswerverifiedShow Answer

Relatively rapid U.S. growth between 2002 and 2006 contributed to large U.S. trade deficits by

Correct AnswerverifiedShow Answer

United States exports, international tourism in the United States, and foreign capital inflow into the United States all give rise to

Correct AnswerverifiedShow Answer

At the time when a trade deficit is occurring, U.S. consumers benefit from having more goods and services available.

Correct AnswerverifiedShow Answer

Which of the following would be an indication that a nation has a balance of payments deficit?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

The exchange-rate system that we now have for major currencies like the U.S. dollar, yen, and euro is a "managed-floating" system.

Correct AnswerverifiedShow Answer

If the dollar price of yen rises, then

Correct AnswerverifiedShow Answer

Foreign exchange rates refer to the

Correct AnswerverifiedShow Answer

In the U.S. balance of payments, U.S. purchases of assets abroad are a(n)

Correct AnswerverifiedShow Answer

Which of the following combinations is plausible, as it relates to a nation's balance of payments?

Correct AnswerverifiedShow Answer

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