Question 1

Which transaction represents a debit in the current account section of the U.S.balance of payments?

Accepted Answer

A)  The Arab Capital Investment Corporation makes a loan to a U.S.firm.
B)  A U.S.subsidiary exports raw materials to the Canadian parent company.
C)  U.S.tourists in Great Britain purchase pounds with dollars in order to buy souvenirs.
D)  U.S.firms and individuals receive dividends from their investments in Latin America.E) All of the above
F) C) and D)

Question 2

An increase in the dollar price of the British pound will

Accepted Answer

A)  increase the pound price of dollars.
B)  decrease the pound price of dollars.
C)  leave the pound price of dollars unchanged.
D)  cause Britain's terms of trade with the United States to deteriorate.E) B) and C)
F) B) and D)

Question 3

Which of the following was not something that several European nations did or experienced when they became members of the eurozone?

Accepted Answer

A)  They eliminated their own local currencies and adopted a single common currency.
B)  They in essence fixed their exchange rates with one another, at a 1-to-1 peg.
C)  Cross-border trade among members suffered a huge decline.
D)  They gave up control of their own individual monetary policy.E) B) and D)
F) B) and C)

Question 4

Under a system of flexible exchange rates, an increase in the international value of a nation's currency will

Accepted Answer

A)  cause an international surplus of its currency.
B)  contribute to disequilibrium in its balance of payments.
C)  cause gold to flow into that country.
D)  cause its imports to rise.E) A) and D)
F) A) and C)

Question 5

Relatively high rates of U.S.inflation compared to other countries will increase the supply of, and decrease the demand for, dollars in foreign exchange markets.

Accepted Answer

A) True 
 B)False

Question 6

In a system of fixed exchange rates, if the dollar price of euros is above the market equilibrium level,

Accepted Answer

A)  gold will flow from the United States to Europe.
B)  there will be a surplus of euros.
C)  the U.S.government will have to ration euros to U.S.importers.
D)  there will be a shortage of euros.E) A) and B)
F) A) and D)

Question 7

All else being equal, an increased demand for U.S.products in the European Union will create a

Accepted Answer

A)  demand for euros.
B)  supply of euros.
C)  shortage of euros.
D)  surplus of euros.E) All of the above
F) C) and D)

Question 8

In one year the United States had a current account deficit of $461 billion.The balance on the capital account was −$8 billion.What was the balance on the financial account?

Accepted Answer

A)  −$461 billion
B)  +$469 billion
C)  −$469 billion
D)  +$453 billionE) B) and C)
F) A) and B)

Question 9

Mainly because of large current account deficits, the United States

Accepted Answer

A)  is the leading exporting nation in the world.
B)  has the world's largest external debt.
C)  has the world's highest saving rate.
D)  is experiencing an increase in its net inflow of investment income.E) B) and D)
F) B) and C)

Question 10

The flow of payments for purchases and sale of financial assets is included in the current account balance of a nation.

Accepted Answer

A) True 
 B)False

Question 11

A market in which the money of one nation is exchanged for the money of another nation is a

Accepted Answer

A)  resource market.
B)  bond market.
C)  stock market.
D)  foreign exchange market.E) None of the above
F) A) and C)

Question 12

A trade deficit for the United States is generally financed by

Accepted Answer

A)  lending to the federal government.
B)  borrowing from the federal government.
C)  buying securities or assets from other nations.
D)  selling securities or assets to other nations.E) B) and D)
F) All of the above

Question 13

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) None of the above
F) A) and C)

Question 14

When real interest rates in other countries rise relative to that in the U.S., other things being equal, we would expect the U.S.dollar to

Accepted Answer

A)  appreciate.
B)  depreciate.
C)  inflate.
D)  deflate.E) A) and D)
F) None of the above

Question 15

A system of fixed exchange rates is more likely to result in exchange controls than is a system of flexible (floating) exchange rates.

Accepted Answer

A) True 
 B)False

Question 16

(Consider This)  Which of the following has been a consequence of China pegging its currency against the U.S.dollar throughout the 2000s?

Accepted Answer

A)  China has experienced a loss of dollar reserves.
B)  China has experienced strong inflationary pressure, despite sterilization efforts.
C)  China has experienced a large trade deficit in goods with the United States.
D)  The United States has actively intervened in the foreign exchange market to bring the yuan to a free exchange market equilibrium value.E) A) and B)
F) A) and C)

Question 17

If nations adopt a gold standard where various countries' money supply is tied to gold, then there will in effect be a fixed exchange-rate system.

Accepted Answer

A) True 
 B)False

Question 18

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 19

One of the consequences of the U.S.trade deficit is that

Accepted Answer

A)  domestic inflation has resulted.
B)  the accumulation of American dollars in foreign hands has enabled foreign firms to build factories in America.
C)  the distribution of income in the United States has become less unequal.
D)  the system of flexible exchange rates has been abandoned in favor of a new gold standard.E) B) and C)
F) A) and C)

Question 20

Suppose that a U.S.firm converts dollars into pounds in order to invest in a British enterprise in the U.K.A year later, the return on the investment is 12 percent in terms of pounds.If, during that period, the dollar appreciated against the pound, then the return on the investment in dollar terms would be

Accepted Answer

A)  greater than 12 percent.
B)  less than 12 percent.
C)  also 12 percent.
D)  dependent on the inflation rate, not the exchange rate.E) All of the above
F) B) and D)

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

An increase in the dollar price of the British pound will

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

One of the consequences of the U.S.trade deficit is that

Correct Answer
verified

In one year the United States had a current account deficit of $461 billion.The balance on the capital account was −$8 billion.What was the balance on the financial account?

Correct Answer
verified

When real interest rates in other countries rise relative to that in the U.S., other things being equal, we would expect the U.S.dollar to

Correct Answer
verified

A market in which the money of one nation is exchanged for the money of another nation is a

Correct Answer
verified

Mainly because of large current account deficits, the United States

Correct Answer
verified

A trade deficit for the United States is generally financed by

Correct Answer
verified

In a system of fixed exchange rates, if the dollar price of euros is above the market equilibrium level,

Correct Answer
verified

Correct Answer
verified

A system of fixed exchange rates is more likely to result in exchange controls than is a system of flexible (floating) exchange rates.

Correct Answer
verified

All else being equal, an increased demand for U.S.products in the European Union will create a

Correct Answer
verified

Which of the following was not something that several European nations did or experienced when they became members of the eurozone?

Correct Answer
verified

Under a system of flexible exchange rates, an increase in the international value of a nation's currency will

Correct Answer
verified

(Consider This) Which of the following has been a consequence of China pegging its currency against the U.S.dollar throughout the 2000s?

Correct Answer
verified

The flow of payments for purchases and sale of financial assets is included in the current account balance of a nation.

Correct Answer
verified

Which transaction represents a debit in the current account section of the U.S.balance of payments?

Correct Answer
verified

If nations adopt a gold standard where various countries' money supply is tied to gold, then there will in effect be a fixed exchange-rate system.

Correct Answer
verified

Relatively high rates of U.S.inflation compared to other countries will increase the supply of, and decrease the demand for, dollars in foreign exchange markets.

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

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

An increase in the dollar price of the British pound will

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

One of the consequences of the U.S.trade deficit is that

Correct AnswerverifiedShow Answer

In one year the United States had a current account deficit of $461 billion.The balance on the capital account was −$8 billion.What was the balance on the financial account?

Correct AnswerverifiedShow Answer

When real interest rates in other countries rise relative to that in the U.S., other things being equal, we would expect the U.S.dollar to

Correct AnswerverifiedShow Answer

A market in which the money of one nation is exchanged for the money of another nation is a

Correct AnswerverifiedShow Answer

Mainly because of large current account deficits, the United States

Correct AnswerverifiedShow Answer

A trade deficit for the United States is generally financed by

Correct AnswerverifiedShow Answer

In a system of fixed exchange rates, if the dollar price of euros is above the market equilibrium level,

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

A system of fixed exchange rates is more likely to result in exchange controls than is a system of flexible (floating) exchange rates.

Correct AnswerverifiedShow Answer

All else being equal, an increased demand for U.S.products in the European Union will create a

Correct AnswerverifiedShow Answer

Which of the following was not something that several European nations did or experienced when they became members of the eurozone?

Correct AnswerverifiedShow Answer

Under a system of flexible exchange rates, an increase in the international value of a nation's currency will

Correct AnswerverifiedShow Answer

(Consider This) Which of the following has been a consequence of China pegging its currency against the U.S.dollar throughout the 2000s?

Correct AnswerverifiedShow Answer

The flow of payments for purchases and sale of financial assets is included in the current account balance of a nation.

Correct AnswerverifiedShow Answer

Which transaction represents a debit in the current account section of the U.S.balance of payments?

Correct AnswerverifiedShow Answer

If nations adopt a gold standard where various countries' money supply is tied to gold, then there will in effect be a fixed exchange-rate system.

Correct AnswerverifiedShow Answer

Relatively high rates of U.S.inflation compared to other countries will increase the supply of, and decrease the demand for, dollars in foreign exchange markets.

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

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