Question 1

If a U.S. importer can purchase 10,000 British pounds for $20,000, the rate of exchange is

Accepted Answer

A)  $1 = 2 British pounds in the United States.
B)  $2 = 1 British pound in the United States.
C)  $1 = 2 British pounds in Great Britain.
D)  $0.50 = 1 British pound in Great Britain.E) A) and B)
F) B) and D)

Question 2

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 current account was a

Accepted Answer

A)  $51 billion surplus.
B)  $92 billion deficit.
C)  $22 billion surplus.
D)  $82 billion deficit.E) A) and B)
F) C) and D)

Question 3

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

Accepted Answer

A)  currency market intervention.
B)  controlling the flow of trade through various barriers.
C)  rationing of foreign exchange.
D)  keeping its level of international reserves strictly fixed.E) C) and D)
F) A) and D)

Question 4

Under the managed floating system of exchange rates,

Accepted Answer

A)  all exchange rates vary with changes in the free-market prices of gold.
B)  industrialized nations meet once each year to negotiate readjustments in their exchange rates.
C)  exchange rates are essentially flexible, but governments intervene to offset disorderly fluctuations in rates.
D)  exchange rates are adjusted at the discretion of the IMF.E) None of the above
F) All of the above

Question 5

Mainly because of large current account deficits, the United States

Accepted Answer

A)  is the leading exporting nation in the world.
B)  has experienced increased foreign ownership of assets in the United States.
C)  has the world's highest saving rate.
D)  is experiencing an increase in its net inflow of investment income.E) B) and C)
F) None of the above

Question 6

Suppose that the United States fixes the dollar-pound exchange rate. In the process of maintaining the fixed exchange rate, the U.S. central bank regularly finds itself in a position of having to increase its reserves of pounds. Based on this, we could conclude that

Accepted Answer

A)  the fixed dollar-pound exchange rate is consistently below the equilibrium exchange rate that would be produced by a private foreign exchange market.
B)  the fixed dollar-pound exchange rate consistently exceeds the equilibrium exchange rate that would be produced by a private foreign exchange market.
C)  the fixed dollar-pound exchange rate is a good approximation of the exchange rate that would be produced by a private foreign exchange market.
D)  the U.S. central bank is regularly having to reduce the domestic money supply.E) B) and D)
F) A) and D)

Question 7

The purchase of a foreign hotel by a U.S. company is recorded as an inflow of money in the financial account of the U.S. balance-of-payments statement.

Accepted Answer

A) True 
 B)False

Question 8

A trade deficit for the United States is generally financed by

Accepted Answer

A)  lending to the federal government.
B)  borrowing from the federal government.
C)  buying securities or assets from other nations.
D)  selling securities or assets to other nations.E) A) and D)
F) C) and D)

Question 9

If the exchange rate between the U.S. dollar and the Japanese yen is $1 = 250 yen, then the dollar price of yen is

Accepted Answer

A)  $0.004.
B)  $4.
C)  $0.40.
D)  $0.04.E) All of the above
F) None of the above

Question 10

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) A) and C)
F) C) and D)

Question 11

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) A) and B)
F) B) and D)

Question 12

In the dollar-euro market, an increased demand for European products among U.S. buyers will create an increase in

Accepted Answer

A)  supply of euros.
B)  demand for dollars.
C)  demand for euros.
D)  shortage of dollars.E) B) and D)
F) B) and C)

Question 13

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

Question 14

In 2018, the capital and financial account in the U.S. balance of payments was in

Accepted Answer

A)  deficit, and smaller than the current account deficit.
B)  surplus, and equal to the current account deficit.
C)  balance, with no deficit or surplus.
D)  surplus, and smaller than the current account deficit.E) None of the above
F) A) and C)

Question 15

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

Accepted Answer

A) True 
 B)False

Question 16

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 goods and services shows a

Accepted Answer

A)  $5 billion deficit.
B)  $5 billion surplus.
C)  $10 billion surplus.
D)  $15 billion deficit.E) None of the above
F) A) and B)

Question 17

U.S. businesses are demanders of foreign currencies because they need them to

Accepted Answer

A)  sell goods and services exported to foreign countries.
B)  pay for goods and services imported from foreign countries.
C)  receive interest payments from foreign governments.
D)  receive interest payments from foreign businesses.E) A) and C)
F) A) and D)

Question 18

The accompanying table contains hypothetical data for the U.S. balance of payments in a year. All figures are in billions of dollars. The data indicate that there was a trade

Accepted Answer

A)  deficit in goods and also a trade deficit in services.
B)  surplus in goods and also a trade surplus in services.
C)  deficit in goods and a trade surplus in services.
D)  surplus in goods and a trade deficit in services.E) A) and D)
F) All of the above

Question 19

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 = +$20 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 = −$50 billion.E) All of the above
F) B) and C)

Question 20

The U.S. often has a significant surplus in services trade, even though it has a deficit in goods trade.

Accepted Answer

A) True 
 B)False

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

In 2018, the capital and financial account in the U.S. balance of payments was in

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

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 goods and services shows a

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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

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 data indicate that there was a trade

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 current account was a

Correct AnswerverifiedShow Answer

In the dollar-euro market, an increased demand for European products among U.S. buyers will create an increase in

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

If a U.S. importer can purchase 10,000 British pounds for $20,000, the rate of exchange is

Correct AnswerverifiedShow Answer

A trade deficit for the United States is generally financed by

Correct AnswerverifiedShow Answer

If the exchange rate between the U.S. dollar and the Japanese yen is $1 = 250 yen, then the dollar price of yen is

Correct AnswerverifiedShow Answer

The purchase of a foreign hotel by a U.S. company is recorded as an inflow of money in the financial account of the U.S. balance-of-payments statement.

Correct AnswerverifiedShow Answer

Suppose that the United States fixes the dollar-pound exchange rate. In the process of maintaining the fixed exchange rate, the U.S. central bank regularly finds itself in a position of having to increase its reserves of pounds. Based on this, we could conclude that

Correct AnswerverifiedShow Answer

Under the managed floating system of exchange rates,

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

U.S. businesses are demanders of foreign currencies because they need them to

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

The U.S. often has a significant surplus in services trade, even though it has a deficit in goods trade.

Correct AnswerverifiedShow Answer

Mainly because of large current account deficits, the United States

Correct AnswerverifiedShow Answer

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