Question 1

Suppose the balance on the ﬁnancial account is −$300 billion and the balance on the capital account is +$5 billion. The size of the current account is

Accepted Answer

A)   +$295 billion.
B)   −$295 billion.
C)   +$305 billion.
D)   +$5 billion.E) A) and B)
F) B) and C)

Question 2

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

Question 3

Depreciation of the dollar will

Accepted Answer

A)   decrease the prices of both U.S. imports and exports.
B)   increase the prices of both U.S. imports and exports.
C)   decrease the prices of U.S. imports but increase the prices to foreigners of U.S. exports.
D)   increase the prices of U.S. imports but decrease the prices to foreigners of U.S. exports.E) B) and D)
F) B) and C)

Question 4

U.S. exports represent two ﬂows,

Accepted Answer

A)   an outﬂow of goods or services and an outﬂow of payments.
B)   an inﬂow of goods or services and an outﬂow of payments.
C)   an outﬂow of goods or services and an inﬂow of payments.
D)   an inﬂow of goods or services and an inﬂow of payments.E) All of the above
F) B) and D)

Question 5

The equilibrium exchange rate between two currencies is determined by the supply and demand in the

Accepted Answer

A)   traded goods markets.
B)   stock exchange markets.
C)   foreign exchange markets.
D)   money markets.E) A) and B)
F) A) and C)

Question 6

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

Question 7

If the Canadian dollar price of United States dollars increases from C$0.80 to C$1.00, it can be concluded that

Accepted Answer

A)   both countries are on the international gold standard.
B)   the Canadian dollar has appreciated in value relative to the United States dollar.
C)   the United States dollar has depreciated in value relative to the Canadian dollar.
D)   the Canadian dollar has depreciated in value relative to the United States dollar.E) C) and D)
F) A) and C)

Question 8

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 9

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) All of the above
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 reserves.E) A) and C)
F) A) and B)

Question 11

Refer to the diagram. The initial demand for and supply of pesos are shown by  D1 and S1⋅D _ { 1 } 	ext { and } S _ { 1\cdot }D1​ and S1⋅​  . Suppose
The United States reduces its imports of Mexican goods, shifting its demand for pesos from
 D1 to D2⋅D _ { 1 } 	ext { to } D _ { 2\cdot }D1​ to D2⋅​  If the United States and Mexico were both on the international gold standard,

Accepted Answer

A)   gold would ?ow from Mexico to the United States.
B)   the exchange rate would rise from B dollars equals 1 peso to C dollars equals 1 peso.
C)   gold would ?ow from the United States to Mexico.
D)   the exchange rate would fall from B dollars equals 1 peso to A dollars equals 1 peso. E) All of the above
F) C) and D)

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

(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\begin{array} { | l | c | } \hline 	ext { (1)  Goods exports } & + \$ 220 \\hline 	ext { (2)  Goods imports } & - 328 \\hline 	ext { (3)  Exports of services } & + 54 \\hline 	ext { (4)  Imports of services } & - 55 \\hline 	ext { (5)  Net investment income } & + 18 \\hline 	ext { (6)  Net transfers } & - 11 \\hline 	ext { (7)  Capital account } & - 1 \\hline 	ext { (8)  Foreign purchases of Econland assets } & + 124 \\hline 	ext { (9)  Econland purchases of foreign assets } & - 21 \\hline\end{array} (1)  Goods exports  (2)  Goods imports  (3)  Exports of services  (4)  Imports of services  (5)  Net investment income  (6)  Net transfers  (7)  Capital account  (8)  Foreign purchases of Econland assets  (9)  Econland purchases of foreign assets ​+$220−328+54−55+18−11−1+124−21​​  The table contains balance of payments data for the hypothetical nation Econland . All ?gures are in billions of dollars. There was a

Accepted Answer

A)   trade de?cit but a current account surplus.
B)   trade surplus but a current account de?cit.
C)   trade surplus and a current account surplus.
D)   trade de?cit and a current account de?cit. E) B) and D)
F) A) and D)

Question 14

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) All of the above
F) A) and B)

Question 15

Which one of the following is not a major factor that contributed to large trade deﬁcits in the United States in the period 2002-2007?

Accepted Answer

A)   a declining saving rate coupled with a rising investment rate in the U.S.
B)   a U.S. economy growing faster than its trading partners
C)   large trade deﬁcits with OPEC economies
D)   ﬂexible exchange rate between the U.S. dollar and the Chinese yuanE) A) and B)
F) A) and C)

Question 16

Which of the following statements is not true in the current exchange-rate system?

Accepted Answer

A)   Major currencies like the U.S. dollar, euro, pound, and yen operate mostly in a ﬂexible system responding to supply and demand forces.
B)   Some developing nations peg their currencies to the dollar and allow their currencies to ﬂuctuate with it relative to other currencies.
C)   Each country uses its own unique currency; for example, only the U.S. uses the U.S. dollar as its currency.
D)   Many nations peg their currencies to a "basket," or group, of other currencies, rather than to a single other currency.E) All of the above
F) A) and C)

Question 17

The graph shows the supply and demand curves for dollars in the pound/dollar market. Assume that D1 and S1 are the initial demand for and supply of dollars. The exchange rate will be

Accepted Answer

A)   $5 equals 1 pound.
B)   $4 equals 1 pound.
C)   $1 equals 5 pounds.
D)   $0.20 equals 1 pound.E) B) and D)
F) C) and D)

Question 18

Suppose interest rates fall sharply in the United States but are unchanged in Great Britain. Other things equal, under a system of ﬂoating exchange rates, we can expect the demand for pounds in
The United States to

Accepted Answer

A)   decrease, the supply of pounds to increase, and the dollar to appreciate relative to the pound.
B)   increase, the supply of pounds to increase, and the dollar may either appreciate or depreciate relative to the pound.
C)   increase, the supply of pounds to decrease, and the dollar to depreciate relative to the pound.
D)   decrease, the supply of pounds to increase, and the dollar to depreciate relative to the pound.E) A) and D)
F) A) and C)

Question 19

The current monetary system for conducting international trade is usually described as a system of

Accepted Answer

A)   ﬁxed exchange rates.
B)   freely ﬂoating exchange rates.
C)   a managed gold standard.
D)   managed ﬂoating exchange rates.E) A) and B)
F) A) and C)

Question 20

Current Account  (1)  Goods Exports +$80 (2)  Goods Imports −70 (3)  Exports of Services +20 (4)  Imports of Services −25 (5)  Net Investment Income +5 (6)  Net Transfers −5 Financial Account  (7)  Foreign Purchases of Assets in the United States +13 (8)  US Purchases of Foreign Assets Abroad −23 Capital Account  (9)  Balance on Capital Account +5\begin{array} { | l | r | } \hline 	ext { Current Account } & \\hline 	ext { (1)  Goods Exports } & + \$ 80 \\hline 	ext { (2)  Goods Imports } & - 70 \\hline 	ext { (3)  Exports of Services } & + 20 \\hline 	ext { (4)  Imports of Services } & - 25 \\hline 	ext { (5)  Net Investment Income } & + 5 \\hline 	ext { (6)  Net Transfers } & - 5 \\hline 	ext { Financial Account } & \\hline 	ext { (7)  Foreign Purchases of Assets in the United States } & + 13 \\hline 	ext { (8)  US Purchases of Foreign Assets Abroad } & - 23 \\hline 	ext { Capital Account } &\\hline 	ext { (9)  Balance on Capital Account } & + 5 \\hline\end{array} Current Account  (1)  Goods Exports  (2)  Goods Imports  (3)  Exports of Services  (4)  Imports of Services  (5)  Net Investment Income  (6)  Net Transfers  Financial Account  (7)  Foreign Purchases of Assets in the United States  (8)  US Purchases of Foreign Assets Abroad  Capital Account  (9)  Balance on Capital Account ​+$80−70+20−25+5−5+13−23+5​​ 
The table contains balance of payments data (+ and -)  for the hypothetical nation of Zabella. All figures are in billions of dollars. Zabella's balance on the capital and financial account shows a

Accepted Answer

A)   de?cit of $5 billion.
B)   surplus of $10 billion.
C)   de?cit of $10 billion.
D)   surplus of $5 billion. E) B) and C)
F) B) and D)

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

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 Answer
verified

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 Answer
verified

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

Correct Answer
verified

Suppose interest rates fall sharply in the United States but are unchanged in Great Britain. Other things equal, under a system of ﬂoating exchange rates, we can expect the demand for pounds in The United States to

Correct Answer
verified

Which one of the following is not a major factor that contributed to large trade deﬁcits in the United States in the period 2002-2007?

Correct Answer
verified

If the Canadian dollar price of United States dollars increases from C$0.80 to C$1.00, it can be concluded that

Correct Answer
verified

Suppose the balance on the ﬁnancial account is −$300 billion and the balance on the capital account is +$5 billion. The size of the current account is

Correct Answer
verified

The current monetary system for conducting international trade is usually described as a system of

Correct Answer
verified

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

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

The equilibrium exchange rate between two currencies is determined by the supply and demand in the

Correct Answer
verified

Which of the following statements is not true in the current exchange-rate system?

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 graph shows the supply and demand curves for dollars in the pound/dollar market. Assume that D1 and S1 are the initial demand for and supply of dollars. The exchange rate will be

Correct Answer
verified

The trade deﬁcit has had the effect of

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

Correct Answer
verified

Depreciation of the dollar will

Correct Answer
verified

U.S. exports represent two ﬂows,

Correct Answer
verified

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

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

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

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

Correct AnswerverifiedShow Answer

Suppose interest rates fall sharply in the United States but are unchanged in Great Britain. Other things equal, under a system of ﬂoating exchange rates, we can expect the demand for pounds in The United States to

Correct AnswerverifiedShow Answer

Which one of the following is not a major factor that contributed to large trade deﬁcits in the United States in the period 2002-2007?

Correct AnswerverifiedShow Answer

If the Canadian dollar price of United States dollars increases from C$0.80 to C$1.00, it can be concluded that

Correct AnswerverifiedShow Answer

Suppose the balance on the ﬁnancial account is −$300 billion and the balance on the capital account is +$5 billion. The size of the current account is

Correct AnswerverifiedShow Answer

The current monetary system for conducting international trade is usually described as a system of

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

The equilibrium exchange rate between two currencies is determined by the supply and demand in the

Correct AnswerverifiedShow Answer

Which of the following statements is not true in the current exchange-rate system?

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 graph shows the supply and demand curves for dollars in the pound/dollar market. Assume that D1 and S1 are the initial demand for and supply of dollars. The exchange rate will be

Correct AnswerverifiedShow Answer

The trade deﬁcit has had the effect of

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

Correct AnswerverifiedShow Answer

Depreciation of the dollar will

Correct AnswerverifiedShow Answer

U.S. exports represent two ﬂows,

Correct AnswerverifiedShow Answer

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