Question 1

Two of the implications of large U.S. trade deficits for the United States are

Accepted Answer

A)  decreased current consumption and decreased indebtedness to foreigners.
B)  reduced budget deficits and decreased indebtedness to foreigners.
C)  reduced current consumption and higher saving.
D)  increased current consumption and increased indebtedness to foreigners.E) C) and D)
F) None of the above

Question 2

The United States has had significant trade and current account surpluses in recent years.

Accepted Answer

A) True 
 B)False

Question 3

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 when the dollar price of yen rises (and the yen price of a dollar falls) it means that U.S. goods are cheaper to the Japanese.
C)  upsloping because when the dollar price of yen falls (and the yen price of a dollar rises) it means that 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) A) and B)
F) None of the above

Question 4

The accompanying table contains hypothetical data for the U.S. balance of payments in a year. All figures are in billions of dollars. The balance on the financial account was a

Accepted Answer

A)  $57 billion surplus.
B)  $52 billion surplus.
C)  $57 billion deficit.
D)  $52 billion deficit.E) B) and D)
F) B) and C)

Question 5

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) B) and C)
F) C) and D)

Question 6

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) All of the above
F) None of the above

Question 7

"International trade" refers to

Accepted Answer

A)  purchasing or selling currently produced goods or services across an international border.
B)  any transaction across an international border.
C)  any financial transaction across an international border.
D)  buying or selling of preexisting assets across an international border.E) A) and C)
F) None of the above

Question 8

In the dollar/yen market, if the supply of yen increases, other things being equal, the dollar will appreciate.

Accepted Answer

A) True 
 B)False

Question 9

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

Accepted Answer

A)  $0.67 per British pound.
B)  $1.50 per British pound.
C)  $0.57 per British pound.
D)  $1.75 per British pound.E) A) and B)
F) A) and C)

Question 10

Suppose that Econland adopts a fixed exchange-rate system and pegs the value of its peso to the U.S. dollar. If Econlanders' demand for dollars increases in the foreign exchange markets, then Econland's foreign-exchange reserves will

Accepted Answer

A)  increase.
B)  decrease.
C)  stay the same.
D)  equal the trade balance.E) All of the above
F) B) and C)

Question 11

If real interest rates rise in the United Kingdom relative to the United States, then this event is most likely to cause the British pound to

Accepted Answer

A)  depreciate and the U.S. dollar to depreciate.
B)  depreciate and the U.S. dollar to appreciate.
C)  appreciate and the U.S. dollar to appreciate.
D)  appreciate and the U.S. dollar to depreciate.E) A) and B)
F) C) and D)

Question 12

The current account on a nation's balance of payments statement includes all of the following except

Accepted Answer

A)  the nation's goods exports.
B)  the nation's goods imports.
C)  net investment income.
D)  net purchases of assets abroad.E) B) and D)
F) B) and C)

Question 13

If the price of British pounds, measured in terms of U.S. dollars, is rising, then the price of U.S. dollars, measured in terms of British pounds, is also rising.

Accepted Answer

A) True 
 B)False

Question 14

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) C) and D)
F) All of the above

Question 15

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

Accepted Answer

A)  a decrease in domestic money supply
B)  a negative item entry in the balance of payments statement
C)  rising inflationary pressure
D)  an increase in the supply of local currency coming from this nation's central bankE) None of the above
F) A) and C)

Question 16

The exchange-rate system that we now have for major currencies like the U.S. dollar, yen, and euro is a "managed-floating" system.

Accepted Answer

A) True 
 B)False

Question 17

As the economy recovers from a recession, economists expect its

Accepted Answer

A)  imports to grow, and therefore its trade deficit would also grow.
B)  exports to grow, and therefore its trade deficit would shrink.
C)  imports and exports to grow at roughly the same rate, so its trade deficit will stay constant.
D)  imports and exports to start declining. Therefore, its trade deficit will also decline a little bit.E) A) and D)
F) None of the above

Question 18

International transactions fall into what two broad categories?

Accepted Answer

A)  manufacturing trade and services trade
B)  international trade and international asset transactions
C)  currency transactions and services trade
D)  newly created assets and preexisting assetsE) B) and D)
F) A) and B)

Question 19

The official reserves of a nation's central bank include

Accepted Answer

A)  foreign currencies only.
B)  foreign currencies, bonds issued by foreign governments, gold reserves, and special reserves held at the International Monetary Fund.
C)  its stock of domestic and foreign currencies.
D)  all domestic and foreign financial assets held by the central bank, including gold reserves.E) C) and D)
F) A) and B)

Question 20

Under flexible (floating)exchange rates, a U.S. trade deficit with Japan will eventually cause the dollar price of yen to rise.

Accepted Answer

A) True 
 B)False

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

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

Correct AnswerverifiedShow Answer

International transactions fall into what two broad categories?

Correct AnswerverifiedShow Answer

In the dollar/yen market, if the supply of yen increases, other things being equal, the dollar will appreciate.

Correct AnswerverifiedShow Answer

The United States has had significant trade and current account surpluses in recent years.

Correct AnswerverifiedShow Answer

The current account on a nation's balance of payments statement includes all of the following except

Correct AnswerverifiedShow Answer

The U.S. supply of Japanese yen is

Correct AnswerverifiedShow Answer

The accompanying table contains hypothetical data for the U.S. balance of payments in a year. All figures are in billions of dollars. The balance on the financial account was a

Correct AnswerverifiedShow Answer

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

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

The exchange-rate system that we now have for major currencies like the U.S. dollar, yen, and euro is a "managed-floating" system.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

If real interest rates rise in the United Kingdom relative to the United States, then this event is most likely to cause the British pound to

Correct AnswerverifiedShow Answer

The official reserves of a nation's central bank include

Correct AnswerverifiedShow Answer

Suppose that Econland adopts a fixed exchange-rate system and pegs the value of its peso to the U.S. dollar. If Econlanders' demand for dollars increases in the foreign exchange markets, then Econland's foreign-exchange reserves will

Correct AnswerverifiedShow Answer

Two of the implications of large U.S. trade deficits for the United States are

Correct AnswerverifiedShow Answer

"International trade" refers to

Correct AnswerverifiedShow Answer

If the price of British pounds, measured in terms of U.S. dollars, is rising, then the price of U.S. dollars, measured in terms of British pounds, is also rising.

Correct AnswerverifiedShow Answer

Under flexible (floating)exchange rates, a U.S. trade deficit with Japan will eventually cause the dollar price of yen to rise.

Correct AnswerverifiedShow Answer

An increase in the dollar price of the British pound will

Correct AnswerverifiedShow Answer

As the economy recovers from a recession, economists expect its

Correct AnswerverifiedShow Answer

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