Question 1

Which of the following have substantially equivalent effects on a nation's volume of exports and imports?

Accepted Answer

A)  exchange rate appreciation and a decrease in the domestic supply of money
B)  exchange rate appreciation and domestic deflation
C)  exchange rate depreciation and domestic deflation
D)  exchange rate depreciation and domestic inflationE) A) and C)
F) None of the above

Question 2

The United States' current account deficit reached a new high in

Accepted Answer

A)  2006.
B)  2007.
C)  2009.
D)  2015.E) B) and C)
F) None of the above

Question 3

There must always be a balance of a nation's

Accepted Answer

A)  goods exports and gold imports.
B)  total international payments.
C)  imports and exports of goods and services.
D)  net transfers and net investment income.E) None of the above
F) A) and D)

Question 4

Under a fixed exchange-rate system, which of the following will not occur if the demand for the local currency rises?

Accepted Answer

A)  The central bank will accumulate foreign-exchange reserves.
B)  The domestic money supply will increase.
C)  As a result of the central bank's actions to maintain the peg, a positive item appears in the balance-of-payments statement.
D)  The economy will experience an increase in inflationary pressure.E) B) and C)
F) A) and D)

Question 5

If the United States has full employment and the dollar dramatically depreciates in value, we can expect (other things equal)

Accepted Answer

A)  both U.S.imports and U.S.exports to rise.
B)  both U.S.imports and U.S.exports to fall.
C)  U.S.exports to fall and U.S.imports to increase.
D)  inflation to occur.E) A) and B)
F) C) and D)

Question 6

The two pure types of exchange-rate systems are

Accepted Answer

A)  supply and demand for foreign exchange.
B)  dollar exchange rate and foreign exchange rate.
C)  flexible- or floating-rate and fixed-rate.
D)  depreciating rate and appreciating rate.E) A) and B)
F) None of the above

Question 7

The trade deficit has had the effect of

Accepted Answer

A)  decreasing the Federal budget deficit.
B)  increasing economic growth in less-developed nations.
C)  increasing direct foreign investment in the United States.
D)  decreasing protectionist pressure among U.S.businesses.E) C) and D)
F) None of the above

Question 8

The large trade deficit that the United States has with China persists in part because

Accepted Answer

A)  the U.S.economy has grown slowly in recent years.
B)  China has fixed its exchange rate to a basket of currencies that includes the dollar, and has not allowed the yuan to appreciate relative to the U.S.dollar.
C)  China has experienced rapid economic growth over the past decade.
D)  China has recently imposed or increased tariffs on most goods imported from the United States.E) B) and C)
F) A) and C)

Question 9

A nation's current account balance is equal to its exports less its imports of

Accepted Answer

A)  goods and services.
B)  goods and services, minus U.S.purchases of assets abroad.
C)  goods and services, plus net investment income and net transfers.
D)  goods and services, plus foreign purchases of assets in the United States.E) A) and B)
F) A) and C)

Question 10

When a Japanese company buys a U.S.software company, this transaction 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 payments.E) C) and D)
F) All of the above

Question 11

Which of the following is an item in the current account balance of the United States?

Accepted Answer

A)  the purchase of a U.S.company by a foreign company
B)  the purchase of stock in a foreign corporation by a U.S.company
C)  the purchase of insurance in the United States by a foreign company
D)  the purchase of a United States Treasury bond by a wealthy foreignerE) A) and D)
F) A) and B)

Question 12

To keep the exchange rate constant, an increase in the demand for a country's currency should be matched by a corresponding increase in supply to be administered by the government.

Accepted Answer

A) True 
 B)False

Question 13

(Last Word)  Nations belonging to a common currency

Accepted Answer

A)  lose the ability to maintain competitiveness by making external adjustments to their current account balances.
B)  reduce their exchange-rate risk and costs of currency conversion.
C)  realize all of these things.
D)  sacrifice independent monetary policy.E) B) and C)
F) None of the above

Question 14

A nation's capital and financial account

Accepted Answer

A)  contains inpayment items but not outpayment items.
B)  includes service exports and service imports.
C)  includes both inpayments and outpayments.
D)  includes net investment income and net transfers.E) All of the above
F) A) and C)

Question 15

The exchange rate system currently used by the industrially advanced nations is

Accepted Answer

A)  the gold standard.
B)  the Bretton Woods system.
C)  the managed float.
D)  a fixed rate system.E) None of the above
F) A) and B)

Question 16

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 17

Suppose the balance on the financial account is +$200 billion and the balance on the capital account is +$2 billion.The size of the current account is

Accepted Answer

A)  +$200 billion.
B)  −$202 billion.
C)  −$198 billion.
D)  +$2 billion.E) A) and B)
F) B) and D)

Question 18

Which of the following shows the net difference between how much Americans forgave in debts owed to them by foreigners compared with how much foreigners forgave debts owed to them by Americans?

Accepted Answer

A)  current account
B)  capital account
C)  financial account
D)  net transfersE) A) and D)
F) A) and C)

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

Assume that Brazil and Mexico have floating exchange rates.Other things unchanged, if the price level is stable in Mexico, but Brazil experiences rapid inflation,

Accepted Answer

A)  gold bullion will flow into Brazil.
B)  the Brazilian real will depreciate.
C)  the Mexican peso will depreciate.
D)  the Brazilian real will appreciate.E) A) and B)
F) B) and C)

Exam 41: The Balance of Payments, Exchange Rates, and Trade Deficits

Which of the following shows the net difference between how much Americans forgave in debts owed to them by foreigners compared with how much foreigners forgave debts owed to them by Americans?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

To keep the exchange rate constant, an increase in the demand for a country's currency should be matched by a corresponding increase in supply to be administered by the government.

Correct AnswerverifiedShow Answer

A nation's current account balance is equal to its exports less its imports of

Correct AnswerverifiedShow Answer

When a Japanese company buys a U.S.software company, this transaction will be a

Correct AnswerverifiedShow Answer

There must always be a balance of a nation's

Correct AnswerverifiedShow Answer

Assume that Brazil and Mexico have floating exchange rates.Other things unchanged, if the price level is stable in Mexico, but Brazil experiences rapid inflation,

Correct AnswerverifiedShow Answer

Suppose the balance on the financial account is +$200 billion and the balance on the capital account is +$2 billion.The size of the current account is

Correct AnswerverifiedShow Answer

The exchange rate system currently used by the industrially advanced nations is

Correct AnswerverifiedShow Answer

Which of the following have substantially equivalent effects on a nation's volume of exports and imports?

Correct AnswerverifiedShow Answer

The trade deficit has had the effect of

Correct AnswerverifiedShow Answer

The large trade deficit that the United States has with China persists in part because

Correct AnswerverifiedShow Answer

The two pure types of exchange-rate systems are

Correct AnswerverifiedShow Answer

A nation's capital and financial account

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

If the United States has full employment and the dollar dramatically depreciates in value, we can expect (other things equal)

Correct AnswerverifiedShow Answer

The United States' current account deficit reached a new high in

Correct AnswerverifiedShow Answer

(Last Word) Nations belonging to a common currency

Correct AnswerverifiedShow Answer

Which of the following is an item in the current account balance of the United States?

Correct AnswerverifiedShow Answer

Under a fixed exchange-rate system, which of the following will not occur if the demand for the local currency rises?

Correct AnswerverifiedShow Answer

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