Question 1

Explain the major causes of the large trade deficits in the United States.

Accepted Answer

The large and rising trade deficits in t...

Question 2

A government may be able to reduce the international value of its currency by

Accepted Answer

A)  selling its currency in the foreign exchange market.
B)  buying its currency in the foreign exchange market.
C)  selling foreign currencies in the foreign exchange market.
D)  increasing its domestic interest rates.E) A) and D)
F) B) and C)

Question 3

The plus items in the table are "export-type" entries and the minus items are "import-type" entries in the balance of payments for the hypothetical country of Zippo. The financial account items for Zippo are

Accepted Answer

A)  1, 2, 3, and 4.
B)  1, 3, 4, 5, 7, and 9.
C)  6 and 8.
D)  1, 2, 4, 7, and 9.E) A) and D)
F) None of the above

Question 4

The plus items in the table are "export-type" entries and the minus items are "import-type" entries in the balance of payments for the hypothetical country of Zippo. The current account items for Zippo are

Accepted Answer

A)  1, 2, 3, and 4.
B)  1, 3, 4, 5, 7, and 9.
C)  6 and 8.
D)  1, 2, 4, 7, and 9.E) B) and C)
F) A) and C)

Question 5

The current account section in a nation's balance of payments includes

Accepted Answer

A)  its goods exports and imports and its services exports and imports.
B)  foreign purchases of domestic assets.
C)  purchases of foreign assets.
D)  all of these.E) B) and D)
F) A) and D)

Question 6

The table shows the supply and demand schedules for the European euro. Under a flexible exchange-rate system, what will be the rate of exchange for one euro?

Accepted Answer

A)  $0.80
B)  $0.90
C)  $1.00
D)  $1.10E) A) and B)
F) None of the above

Question 7

A nation's capital and financial account

Accepted Answer

A)  contains inflows of money but not outflows of money.
B)  includes service exports and service imports.
C)  includes both inflows of money and outflows of money.
D)  includes net investment income and net transfers.E) B) and D)
F) A) and B)

Question 8

Critics of the managed floating exchange rate system argue that it

Accepted Answer

A)  is dominated by G-8 nations.
B)  is a "nonsystem" with unclear rules.
C)  increased the growth in world trade at too fast a rate.
D)  puts too much reliance on the adjustable-peg mechanism for stabilizing exchange rates.E) A) and B)
F) A) and C)

Question 9

When a U.S. company purchases a factory in Singapore, this will be a

Accepted Answer

A)  credit on the current account of the U.S. balance of payments.
B)  debit on the current account of the U.S. balance of payments.
C)  an inflow of money on the financial account of the U.S. balance of payments.
D)  an outflow of money on the financial account of the U.S. balance of payments.E) B) and C)
F) All of the above

Question 10

In considering euros and dollars, the exchange rates for the euro and the dollar

Accepted Answer

A)  are directly related.
B)  are inversely related.
C)  are unrelated.
D)  move in the same direction.E) A) and B)
F) C) and D)

Question 11

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

Accepted Answer

A)  surplus of $5.
B)  deficit of $10.
C)  surplus of $25.
D)  deficit of $5.E) A) and B)
F) B) and D)

Question 12

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

Accepted Answer

The flexible exchange rate (or floating ...

Question 13

Refer to the graph. Higher inflation in the United States relative to that in Canada, ceteris paribus, will cause a(n)

Accepted Answer

A)  decrease in the supply of U.S. dollars.
B)  increase in the demand for U.S. dollars.
C)  decrease in the value of the U.S. dollar in terms of the Canadian dollar.
D)  increase in the value of the U.S. dollar in terms of the Canadian dollar.E) A) and B)
F) A) and C)

Question 14

If China maintains a pegged exchange rate with the U.S. dollar, and the consequence is rising inflation, then the pegged value of the Chinese yuan must be

Accepted Answer

A)  above the equilibrium $/yuan value.
B)  discouraging Chinese exports in the world markets.
C)  causing China to accumulate FX reserves.
D)  exposing Chinese exporters and investors to the vagaries of the foreign exchange markets.E) B) and C)
F) C) and D)

Question 15

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) All of the above

Question 16

What are the pros and cons of the managed float system of exchange rates?

Accepted Answer

Proponents of the managed-float system s...

Question 17

Which one of the following is part of the financial account on the U.S. balance of payments?

Accepted Answer

A)  net transfers
B)  net investment income
C)  U.S. goods exports
D)  U.S. purchases of assets abroadE) A) and B)
F) None of the above

Question 18

The Bretton Woods system of exchange rates

Accepted Answer

A)  is also known as the gold standard and met its demise in the 1930s.
B)  relied heavily on floating exchange rates determined in the market for foreign exchange.
C)  was abandoned in the 1930s.
D)  was a system of fixed or pegged exchange rates, which occasionally could be adjusted.E) C) and D)
F) A) and C)

Question 19

Suppose that Econland adopts a fixed exchange-rate system and pegs the value of its peso to the U.S. dollar. Which of the following statements is true?

Accepted Answer

A)  Econland's government will have a limited capacity to maintain the peg at the current level if the supply of dollars in the foreign exchange market is continually rising.
B)  Econland's government will have a limited capacity to maintain the peg at the current level if the demand for pesos in the foreign exchange market is continually falling.
C)  Econland's government will have a limited capacity to maintain the peg at the current level if the demand for Econland's products in the world market is strongly rising.
D)  Econland's government will have a limited capacity to maintain the peg at the current level if the demand for U.S. products in Econland is sharply falling.E) B) and D)
F) A) and D)

Question 20

Explain what foreign exchange reserves are and how they are used when a country implements a fixed exchange rate policy.

Accepted Answer

Foreign exchange reserves (FX reserves)a...

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

The plus items in the table are "export-type" entries and the minus items are "import-type" entries in the balance of payments for the hypothetical country of Zippo. The financial account items for Zippo are

Correct AnswerverifiedShow Answer

Which one of the following is part of the financial account on the U.S. balance of payments?

Correct AnswerverifiedShow Answer

A government may be able to reduce the international value of its currency by

Correct AnswerverifiedShow Answer

What are the pros and cons of the managed float system of exchange rates?

Correct AnswerverifiedProponents of the managed-float system s...View AnswerShow Answer

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

Correct AnswerverifiedShow Answer

Explain the major causes of the large trade deficits in the United States.

Correct AnswerverifiedThe large and rising trade deficits in t...View AnswerShow Answer

A nation's capital and financial account

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedThe flexible exchange rate (or floating ...View AnswerShow Answer

The Bretton Woods system of exchange rates

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

In considering euros and dollars, the exchange rates for the euro and the dollar

Correct AnswerverifiedShow Answer

Suppose that Econland adopts a fixed exchange-rate system and pegs the value of its peso to the U.S. dollar. Which of the following statements is true?

Correct AnswerverifiedShow Answer

The plus items in the table are "export-type" entries and the minus items are "import-type" entries in the balance of payments for the hypothetical country of Zippo. The current account items for Zippo are

Correct AnswerverifiedShow Answer

The current account section in a nation's balance of payments includes

Correct AnswerverifiedShow Answer

Explain what foreign exchange reserves are and how they are used when a country implements a fixed exchange rate policy.

Correct AnswerverifiedForeign exchange reserves (FX reserves)a...View AnswerShow Answer

Refer to the graph. Higher inflation in the United States relative to that in Canada, ceteris paribus, will cause a(n)

Correct AnswerverifiedShow Answer

Critics of the managed floating exchange rate system argue that it

Correct AnswerverifiedShow Answer

When a U.S. company purchases a factory in Singapore, this will be a

Correct AnswerverifiedShow Answer

If China maintains a pegged exchange rate with the U.S. dollar, and the consequence is rising inflation, then the pegged value of the Chinese yuan must be

Correct AnswerverifiedShow Answer

The table shows the supply and demand schedules for the European euro. Under a flexible exchange-rate system, what will be the rate of exchange for one euro?

Correct AnswerverifiedShow Answer

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Proponents of the managed-float system s...
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The large and rising trade deficits in t...
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Correct Answer
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The flexible exchange rate (or floating ...
View Answer

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Foreign exchange reserves (FX reserves)a...
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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