Question 1

In a nation's balance of payments, which one of the following items is always recorded as a positive entry?

Accepted Answer

A)  goods imports
B)  balance on capital account
C)  U.S.purchases of assets abroad
D)  exports of servicesE) B) and D)
F) A) and B)

Question 2

Faster economic growth in the United States relative to other nations tends to worsen the U.S.trade deficit.

Accepted Answer

A) True 
 B)False

Question 3

Under a fixed exchange-rate system, if the equilibrium exchange rate is continually and substantially below the fixed rate, that means that the local currency is overvalued relative to equilibrium.In this case, the central bank's FX reserves will rise, and in response it has the following options, except

Accepted Answer

A)  reset the peg lower.
B)  abandon the peg altogether.
C)  counterbalance the inflationary effects with sterilization operations.
D)  allow and wait for the value of the local currency to rise.E) None of the above
F) C) and D)

Question 4

If a Japanese importer could buy $1,000 U.S.for 122,000 yen, the rate of exchange for one dollar would be

Accepted Answer

A)  8.19 yen.
B)  122 yen.
C)  820 yen.
D)  1,220 yen.E) None of the above
F) B) and C)

Question 5

If the United States wants to regain ownership of domestic assets sold to foreigners, it will have to

Accepted Answer

A)  increase domestic consumption.
B)  increase its national debt.
C)  export more than it imports.
D)  import more than it exports.E) B) and D)
F) A) and D)

Question 6

It may be misleading to label a trade deficit as unfavorable or adverse, because

Accepted Answer

A)  the multiplier does not apply to a trade deficit.
B)  a trade deficit increases a nation's aggregate output and employment.
C)  a nation's consumers benefit from a trade deficit during the period it occurs.
D)  a trade deficit precludes inflation.E) A) and B)
F) All of the above

Question 7

In the balance of payments statement, a current account deficit is always matched by a capital and financial accounts surplus.

Accepted Answer

A) True 
 B)False  True

Question 8

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 9

Fixed exchange rates usually provide more certainty to those engaged in international trade.

Accepted Answer

A) True 
 B)False

Question 10

The U.S.supply of Japanese yen is

Accepted Answer

A)  downsloping because a lower dollar price of yen means U.S.goods are cheaper to the Japanese.
B)  upsloping because a higher dollar price of yen means U.S.goods are cheaper to the Japanese.
C)  upsloping because a lower dollar price of yen means U.S.goods are cheaper to the Japanese.
D)  downsloping because a higher dollar price of yen means U.S.goods are cheaper to the Japanese.E) All of the above
F) A) and B)

Question 11

In a graph showing the market supply and demand for British pounds in terms of U.S.dollars, the supply-of-pounds curve is upsloping because

Accepted Answer

A)  fewer British pounds can be purchased per dollar if U.S.dollars become more expensive.
B)  fewer U.S.dollars can be purchased per pound if the British pounds become less expensive.
C)  the British will purchase more U.S.goods or services when the dollar price of pounds rises.
D)  the British will purchase more U.S.goods or services when the dollar price of pounds falls.E) All of the above
F) A) and B)

Question 12

Which of the following factors has helped maintain the large U.S.trade deficits over the years?

Accepted Answer

A)  a decline in investment
B)  capital and financial account surpluses
C)  a decrease in economic growth
D)  an increase in U.S.net exportsE) B) and C)
F) A) and D)

Question 13

Suppose interest rates fall sharply in the United States but are unchanged in Great Britain.Other things equal, under a system of freely 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) All of the above
F) B) and C)

Question 14

Suppose that a central bank that fixes its exchange rate against other currencies is facing a regular increase of foreign exchange reserves.To offset unwanted changes in the domestic money supply, the central bank could

Accepted Answer

A)  reset the peg to a higher level.
B)  reduce domestic interest rates.
C)  use a sterilization policy of buying bonds or decreasing banking system reserve requirements.
D)  use a sterilization policy of selling bonds or increasing banking system reserve requirements.E) A) and B)
F) A) and D)

Question 15

In 1985, the exchange rate between the U.S.dollar and the Japanese yen was $1 = 262 yen; in 2003, the rate was $1 = 110 yen.Between 1985 and 2003, the

Accepted Answer

A)  dollar appreciated in value relative to the yen.
B)  yen appreciated in value relative to the dollar.
C)  dollar price of yen fell.
D)  yen price of dollars rose.E) B) and D)
F) B) and C)

Question 16

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 = −$10 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 = −$10 billion.E) B) and C)
F) C) and D)

Question 17

Which of the following is not a major disadvantages of a flexible exchange-rate system?

Accepted Answer

A)  It is susceptible to wild swings in rates, causing high uncertainty and reduced trade.
B)  It could drain the foreign-exchange reserves of a nation.
C)  A depreciation of a nation's currency would worsen its terms of trade.
D)  Wild swings in exchange rates may destabilize the domestic economy through the effects on the traded-goods sectors.E) A) and B)
F) A) and C) B

Question 18

The current account portion of a nation's balance of payments statement includes net investment income.

Accepted Answer

A) True 
 B)False

Question 19

Suppose that the economically largest nations collectively decided that the dollar is too strong (high in value)  relative to the yen.These nations might

Accepted Answer

A)  use foreign exchange reserves of yen to buy dollars.
B)  use foreign exchange reserves of dollars to buy yen.
C)  encourage Japan to print more yen.
D)  encourage the United States to increase interest rates.E) C) and D)
F) None of the above B

Question 20

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) B) and C)
F) A) and B)

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

In a nation's balance of payments, which one of the following items is always recorded as a positive entry?

Correct Answer
verified

Faster economic growth in the United States relative to other nations tends to worsen the U.S.trade deficit.

Correct Answer
verified

Correct Answer
verified

If a Japanese importer could buy $1,000 U.S.for 122,000 yen, the rate of exchange for one dollar would be

Correct Answer
verified

If the United States wants to regain ownership of domestic assets sold to foreigners, it will have to

Correct Answer
verified

It may be misleading to label a trade deficit as unfavorable or adverse, because

Correct Answer
verified

In the balance of payments statement, a current account deficit is always matched by a capital and financial accounts surplus.

Correct Answer
verified
True

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

Correct Answer
verified

Fixed exchange rates usually provide more certainty to those engaged in international trade.

Correct Answer
verified

The U.S.supply of Japanese yen is

Correct Answer
verified

In a graph showing the market supply and demand for British pounds in terms of U.S.dollars, the supply-of-pounds curve is upsloping because

Correct Answer
verified

Which of the following factors has helped maintain the large U.S.trade deficits over the years?

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 freely floating exchange rates, we can expect the demand for pounds in the United States to

Correct Answer
verified

Suppose that a central bank that fixes its exchange rate against other currencies is facing a regular increase of foreign exchange reserves.To offset unwanted changes in the domestic money supply, the central bank could

Correct Answer
verified

In 1985, the exchange rate between the U.S.dollar and the Japanese yen was $1 = 262 yen; in 2003, the rate was $1 = 110 yen.Between 1985 and 2003, the

Correct Answer
verified

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

Correct Answer
verified

Which of the following is not a major disadvantages of a flexible exchange-rate system?

Correct Answer
verified
B

The current account portion of a nation's balance of payments statement includes net investment income.

Correct Answer
verified

Suppose that the economically largest nations collectively decided that the dollar is too strong (high in value) relative to the yen.These nations might

Correct Answer
verified
B

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

Correct Answer
verified

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

In a nation's balance of payments, which one of the following items is always recorded as a positive entry?

Correct AnswerverifiedShow Answer

Faster economic growth in the United States relative to other nations tends to worsen the U.S.trade deficit.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

If a Japanese importer could buy $1,000 U.S.for 122,000 yen, the rate of exchange for one dollar would be

Correct AnswerverifiedShow Answer

If the United States wants to regain ownership of domestic assets sold to foreigners, it will have to

Correct AnswerverifiedShow Answer

It may be misleading to label a trade deficit as unfavorable or adverse, because

Correct AnswerverifiedShow Answer

In the balance of payments statement, a current account deficit is always matched by a capital and financial accounts surplus.

Correct AnswerverifiedTrue

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

Correct AnswerverifiedShow Answer

Fixed exchange rates usually provide more certainty to those engaged in international trade.

Correct AnswerverifiedShow Answer

The U.S.supply of Japanese yen is

Correct AnswerverifiedShow Answer

In a graph showing the market supply and demand for British pounds in terms of U.S.dollars, the supply-of-pounds curve is upsloping because

Correct AnswerverifiedShow Answer

Which of the following factors has helped maintain the large U.S.trade deficits over the years?

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 freely floating exchange rates, we can expect the demand for pounds in the United States to

Correct AnswerverifiedShow Answer

Suppose that a central bank that fixes its exchange rate against other currencies is facing a regular increase of foreign exchange reserves.To offset unwanted changes in the domestic money supply, the central bank could

Correct AnswerverifiedShow Answer

In 1985, the exchange rate between the U.S.dollar and the Japanese yen was $1 = 262 yen; in 2003, the rate was $1 = 110 yen.Between 1985 and 2003, the

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Which of the following is not a major disadvantages of a flexible exchange-rate system?

Correct AnswerverifiedB

The current account portion of a nation's balance of payments statement includes net investment income.

Correct AnswerverifiedShow Answer

Suppose that the economically largest nations collectively decided that the dollar is too strong (high in value) relative to the yen.These nations might

Correct AnswerverifiedB

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

Correct AnswerverifiedShow Answer

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True

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B

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B

Correct Answer
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