Question 1

U.S. imports

Accepted Answer

A)  increase the foreign demand for foreign currencies.
B)  increase the domestic demand for foreign currencies.
C)  decrease the foreign supply of foreign currencies.
D)  increase the domestic supply of foreign currencies.E) B) and C)
F) None of the above

Question 2

In recent years, the United States has had large

Accepted Answer

A)  current account surpluses.
B)  capital and financial account deficits.
C)  balance of trade deficits.
D)  balance of payments surpluses.E) A) and B)
F) C) and D)

Question 3

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

Question 4

Assume that, under a system of floating exchange rates, Mexicans decide to increase their investments in the United States. As a result,

Accepted Answer

A)  the peso and the dollar will both depreciate.
B)  the peso and the dollar will both appreciate.
C)  the peso will depreciate and the dollar will appreciate.
D)  the peso will appreciate and the dollar will depreciate.E) B) and C)
F) C) and D)

Question 5

The table contains hypothetical data for the U.S. balance of payments. All figures are in billions of dollars. The United States' balance on financial account is a

Accepted Answer

A)  $20 billion surplus.
B)  $15 billion surplus.
C)  $30 billion deficit.
D)  $20 billion deficit.E) A) and D)
F) B) and C)

Question 6

The U.S. demand for euros is

Accepted Answer

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) None of the above

Question 7

If the U.S. dollar appreciates relative to the British pound, then

Accepted Answer

A)  the pound will appreciate relative to the U.S. dollar.
B)  the pound will depreciate relative to the U.S. dollar.
C)  British goods will be more expensive for Americans.
D)  American goods will be less expensive for the British.E) A) and D)
F) None of the above

Question 8

Other things being equal, the international value of foreign currencies will increase against the U.S. dollar if

Accepted Answer

A)  U.S. citizens reduce spending on imports.
B)  the U.S. Federal Reserve raises real interest rates.
C)  the number of foreign tourists in the United States increases.
D)  foreigners withdraw funds from U.S. money markets.E) None of the above
F) All of the above

Question 9

In one year the United States had a current account deficit of −$461 billion. The balance on the capital account was −$6 billion. What was the balance on the financial account?

Accepted Answer

A)  +$467 billion
B)  −$467 billion
C)  +$455 billion
D)  −$461 billionE) All of the above
F) C) and D)

Question 10

If the dollar price of yen rises, then

Accepted Answer

A)  the yen price of dollars also rises.
B)  the dollar depreciates relative to the yen.
C)  the yen depreciates relative to the dollar.
D)  the dollar will buy fewer U.S. goods.E) All of the above
F) A) and B)

Question 11

The table contains balance of payments data for the hypothetical nation of Econland. All figures are in billions of dollars. Econland's balance on the current account shows a

Accepted Answer

A)  deficit of $91 billion.
B)  deficit of $102 billion.
C)  deficit of $109 billion.
D)  surplus of $109 billion.E) A) and B)
F) A) and C)

Question 12

Assume that Japan and the United States are engaged in a system of flexible exchange rates. If more Japanese tourists decide to visit the United States for their vacations,

Accepted Answer

A)  the yen will appreciate and the U.S. dollar will depreciate.
B)  the yen will depreciate and the U.S. dollar will appreciate.
C)  the yen and the U.S. dollar will appreciate.
D)  the yen and the U.S. dollar will depreciate.E) All of the above
F) B) and D)

Question 13

Explain the relationship between the current account and the capital and financial account in the balance of payments.

Accepted Answer

The balance on the current account and t...

Question 14

If the exchange rate between the U.S. dollar and the Japanese yen is $1 = 200 yen, then the dollar price of yen is

Accepted Answer

A)  $0.005.
B)  $0.05.
C)  $0.50.
D)  $5.E) C) and D)
F) A) and B)

Question 15

The table contains balance of payments data for the hypothetical nation Econland . All figures are in billions of dollars. There was a

Accepted Answer

A)  trade deficit but a current account surplus.
B)  trade surplus but a current account deficit.
C)  trade surplus and a current account surplus.
D)  trade deficit and a current account deficit.E) None of the above
F) A) and C)

Question 16

The basic type of intervention by central banks under the managed floating exchange rate system is to

Accepted Answer

A)  readjust the peg for exchange rates.
B)  buy and sell currencies to influence supply and demand for foreign exchange.
C)  renegotiate the rate at which foreign currencies can be converted into gold.
D)  make pronouncements but then do nothing and let the market set the exchange rate.E) A) and D)
F) None of the above

Question 17

The exchange rate for the Mexican peso changes from $1 = 5 pesos to $1 = 6 pesos. This change will lead to

Accepted Answer

A)  U.S. goods becoming less expensive for Mexicans.
B)  Mexican goods becoming more expensive for Americans.
C)  an increase in U.S. exports to Mexico.
D)  a decrease in U.S. exports to Mexico.E) A) and B)
F) None of the above

Question 18

With which of the following countries does the United States have its largest goods and services deficit?

Accepted Answer

A)  Canada
B)  Germany
C)  Japan
D)  ChinaE) A) and D)
F) All of the above

Question 19

Assume that Japan and South Korea have flexible exchange rates. Other things equal, if economic growth is more rapid in Japan than in South Korea,

Accepted Answer

A)  gold bullion will flow out of Japan.
B)  the Japanese yen will depreciate.
C)  the South Korean won will depreciate.
D)  the yen and won exchange rate will stay constant.E) C) and D)
F) B) and D)

Question 20

The current system of exchange rates can best be described as

Accepted Answer

A)  freely fluctuating exchange rates.
B)  managed floating exchange rates.
C)  rigidly fixed exchange rates.
D)  an adjustable peg system.E) A) and C)
F) A) and B)

Exam 27: The Balance of Payments, Exchange Rates, and Trade Deficits

The table contains hypothetical data for the U.S. balance of payments. All figures are in billions of dollars. The United States' balance on financial account is a

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U.S. imports

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Assume that Japan and the United States are engaged in a system of flexible exchange rates. If more Japanese tourists decide to visit the United States for their vacations,

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Other things being equal, the international value of foreign currencies will increase against the U.S. dollar if

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If the exchange rate between the U.S. dollar and the Japanese yen is $1 = 200 yen, then the dollar price of yen is

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The table contains balance of payments data for the hypothetical nation Econland . All figures are in billions of dollars. There was a

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The U.S. demand for euros is

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The table contains balance of payments data for the hypothetical nation of Econland. All figures are in billions of dollars. Econland's balance on the current account shows a

Correct AnswerverifiedShow Answer

The basic type of intervention by central banks under the managed floating exchange rate system is to

Correct AnswerverifiedShow Answer

In recent years, the United States has had large

Correct AnswerverifiedShow Answer

If the dollar price of yen rises, then

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The exchange rate for the Mexican peso changes from $1 = 5 pesos to $1 = 6 pesos. This change will lead to

Correct AnswerverifiedShow Answer

Assume that, under a system of floating exchange rates, Mexicans decide to increase their investments in the United States. As a result,

Correct AnswerverifiedShow Answer

The current system of exchange rates can best be described as

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With which of the following countries does the United States have its largest goods and services deficit?

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In one year the United States had a current account deficit of −$461 billion. The balance on the capital account was −$6 billion. What was the balance on the financial account?

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Assume that Japan and South Korea have flexible exchange rates. Other things equal, if economic growth is more rapid in Japan than in South Korea,

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

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If the U.S. dollar appreciates relative to the British pound, then

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Explain the relationship between the current account and the capital and financial account in the balance of payments.

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The balance on the current account and t...
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