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

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Question 61

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The U.S. demand for euros is

A) downsloping because, at lower dollar prices for euros, Americans will want to buy more European goods and services.
B) downsloping because, at higher dollar prices for euros, Americans will want to buy more European goods and services.
C) downsloping because the dollar price of euros and the euro price of dollars are directly related.
D) upsloping because a higher dollar price of euros makes European goods and services more attractive to Americans.

E) B) and C)
F) A) and D)

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Question 62

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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. Which one of the following might be a plausible explanation for the Change in the dollar-yen exchange rate from 1985 to 2003?

A) Japan exported much more to the United States during this period than it imported from the United States.
B) Japan greatly increased its purchases of military equipment from the United States during this period.
C) Japan's economy grew far faster than the U.S. economy during this period.
D) Japan's government devalued the yen during this period.

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

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Question 63

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Under an international gold standard,

Which system would be accompanied by occasional currency interventions by central banks to stabilize or alter rates to avoid persistent balance of payments deficits or surpluses?

A declining amount of foreign-exchange reserves resulting from maintaining a pegged exchange rate would have which of the following effects?

To maintain a fixed exchange rate, the government can use the following tools, except

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

If the U.S. national income grows much faster than that of Canada, this would tend to make the U.S. dollar

Refer to the graph, which shows the supply and demand for British pounds. $D _ { 1 }$ and $S _ { 1 }$ represent the Initial demand and supply curves. What will be the new market equilibrium point as indicated in the Graph if there is an increase in consumer spending by the British for American products and a Decrease in consumer spending by Americans for British products?

List the six determinants of exchange rates.

If Japanese autos surge in popularity in the United States, then this event is most likely to cause the Japanese yen to

Improved economic growth in the major trading partners of the United States would reduce its trade deficit.

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

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

$\begin{array} { | l | c | } \hline \text { (1) Goods Exports } & + \$ 15 \\\hline \text { (2) Goods Imports } & - 17 \\\hline \text { (3) Service Exports } & + 5 \\\hline \text { (4) Service Imports } & - 2 \\\hline \text { (5) Net Investment Income } & - 5 \\\hline \text { (6) Net Transfers } & + 4 \\\hline \text { (7) Foreign Purchases of Assets } & + 5 \\\hline \text { (8) Purchases of Foreign Assets } & - 11 \\\hline \text { (9) Balance on Capital Account } & + 1 \\\hline\end{array}$ The table shows a balance of payments statement for Transylvania. All ?gures are in billions of dollars. Transylvania had a $2 billion balance of trade (goods) surplus in this particular year.

$\begin{array} { | l | c | } \hline \text { (1) Goods Exports } & + \$ 15 \\\hline \text { (2) Goods Imports } & - 17 \\\hline \text { (3) Service Exports } & + 5 \\\hline \text { (4) Service Imports } & - 2 \\\hline \text { (5) Net Investment Income } & - 5 \\\hline \text { (6) Net Transfers } & + 4 \\\hline \text { (7) Foreign Purchases of Assets } & + 5 \\\hline \text { (8) Purchases of Foreign Assets } & - 11 \\\hline \text { (9) Balance on Capital Account } & + 1 \\\hline\end{array}$ The table shows a balance of payments statement for Transylvania. All ?gures are in billions of dollars. Transylvania realized a ?nancial and capital account de?cit for the year.

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

Define the two "pure" types of exchange-rate systems.

In the balance of payments of the United States, inflows of money to the United States are recorded as

A market basket of goods costs $350 in the United States and 200 pounds in the United Kingdom. According to the purchasing power parity theory, the exchange rate should move toward