Question 1

Suppose the balance on the financial account is +$200 billion and the balance on the capital account is +$2 billion. The size of the current account is

Accepted Answer

A)   +$200 billion.
B)   −$202 billion.
C)   −$198 billion.
D)   +$2 billion.E) A) and C)
F) A) and B)

Question 2

Which of the following statements is most accurate about the U.S. current account since the Great Recession (the period covering 2009-2015) ?

Accepted Answer

A)   The current account has remained the same in absolute terms, but fallen as a percentage of GDP.
B)   The current account has gone from a deficit to a surplus.
C)   The current account deficit has grown in absolute terms, but remained relatively constant as a percentage of GDP.
D)   The current account deficit has grown in both absolute terms, and as a percentage of GDP.E) B) and C)
F) All of the above

Question 3

What are the effects on U.S. imports and exports when the U.S. experiences economic growth stronger than its major trading partners?

Accepted Answer

A)   U.S. imports will increase more than U.S. exports.
B)   U.S. exports will increase more than U.S. imports.
C)   U.S. imports will decrease, but U.S. exports will increase.
D)   There will be no effect on U.S. imports and exports.E) A) and D)
F) A) and B)

Question 4

When a U.S. agribusiness company sells 10,000 units of cow vaccine to a company in France, this transaction will represent 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)   credit on the financial account of the U.S. balance of payments.
D)   debit on the financial account of the U.S. balance of payments.E) A) and B)
F) B) and D)

Question 5

Under the gold standard,

Accepted Answer

A)   nations can protect their domestic price and employment levels from changes in the volume and direction of world trade.
B)   exchange rates are virtually fixed.
C)   differences in exports and imports will be precisely balanced by capital account flows, excluding gold.
D)   exchange rates fluctuate freely in response to changes in the supply of, and demand for, foreign currencies.E) A) and D)
F) A) and B)

Question 6

U.S. exports to Japan create a supply of dollars and a demand for yen in the foreign exchange market.

Accepted Answer

A) True 
 B)False

Question 7

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

Accepted Answer

A) True 
 B)False

Question 8

Which of the following is not included in the current account of a nation's balance of payments?

Accepted Answer

A)   its goods exports
B)   its goods imports
C)   its net investment income
D)   its purchases of real assets abroad.E) B) and D)
F) A) and D)

Question 9

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) None of the above
F) B) and C)

Question 10

Under an international gold standard,

Accepted Answer

A)   a nation sacrifices an independent monetary policy.
B)   gold flows between nations would always promote macroeconomic stability.
C)   exchange rates would fluctuate with changes in demand and supply.
D)   balance of payments imbalances would be magnified.E) A) and B)
F) A) and C)

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) A) and C)

Question 12

The world's largest debtor nation in terms of debt owed to foreign citizens and governments is

Accepted Answer

A)   Russia.
B)   Argentina.
C)   Japan.
D)   the United States.E) A) and C)
F) B) and C)

Question 13

According to the purchasing power parity theory, exchange rates will eventually adjust such that they equalize the various

Accepted Answer

A)   currencies' values in terms of goods and services.
B)   inflation rates in the trading nations.
C)   interest rates in the trading nations.
D)   levels of supply and demand in the foreign exchange markets.E) A) and D)
F) All of the above

Question 14

Assume that Switzerland and Britain have floating exchange rates. Other things unchanged, if a tight money policy raises interest rates in Britain as compared to Switzerland,

Accepted Answer

A)   gold bullion will flow into Switzerland.
B)   the Swiss franc will depreciate.
C)   the pound will depreciate.
D)   the Swiss franc will appreciate.E) B) and C)
F) A) and D)

Question 15

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 16

A central bank engaging in sterilization is attempting to

Accepted Answer

A)   counteract the efforts of foreign central banks that fix exchange rates to gain an advantage in international trade.
B)   depreciate its currency relative to foreign currencies.
C)   appreciate its currency relative to foreign currencies.
D)   offset domestic money supply changes that result from fixing its exchange rate against other currencies.E) All of the above
F) A) and D)

Question 17

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) C) and D)
F) None of the above

Question 18

(Consider This)  Which of the following statements is most accurate about China's pegging of its currency against the U.S. dollar in the 2000s?

Accepted Answer

A)   China has consistently kept the yuan price of a dollar lower than what the free market equilibrium exchange rate would be.
B)   China has consistently kept the yuan price of a dollar higher than what the free market equilibrium exchange rate would be.
C)   China has regularly adjusted the peg so as to sometimes set the yuan price of a dollar too high and other times set it too low.
D)   China has seen a rapid decline in its reserves of dollars.E) B) and D)
F) A) and B)

Question 19

Under a fixed exchange-rate system, if the equilibrium exchange rate is continually and substantially below the fixed rate, that means that the local currency is overvalued relative to equilibrium. In this case, the central bank's FX reserves will rise, and in response it has the following options, except

Accepted Answer

A)   reset the peg lower.
B)   abandon the peg altogether.
C)   counterbalance the inflationary effects with sterilization operations.
D)   allow and wait for the value of the local currency to rise.E) C) and D)
F) A) and B)

Question 20

French and German farmers wanting to buy equipment from an American manufacturer based in the U.S. will be

Accepted Answer

A)   supplying dollars and also supplying euros in the foreign exchange market.
B)   demanding dollars and also demanding euros in the foreign exchange market.
C)   supplying dollars and demanding euros in the foreign exchange market.
D)   supplying euros and demanding dollars in the foreign exchange market.E) None of the above
F) A) and D)

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

Correct Answer
verified

French and German farmers wanting to buy equipment from an American manufacturer based in the U.S. will be

Correct Answer
verified

The world's largest debtor nation in terms of debt owed to foreign citizens and governments is

Correct Answer
verified

U.S. exports to Japan create a supply of dollars and a demand for yen in the foreign exchange market.

Correct Answer
verified

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

Correct Answer
verified

Under the gold standard,

Correct Answer
verified

What are the effects on U.S. imports and exports when the U.S. experiences economic growth stronger than its major trading partners?

Correct Answer
verified

When a U.S. agribusiness company sells 10,000 units of cow vaccine to a company in France, this transaction will represent a

Correct Answer
verified

(Consider This) Which of the following statements is most accurate about China's pegging of its currency against the U.S. dollar in the 2000s?

Correct Answer
verified

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

Correct Answer
verified

If the Canadian dollar price of United States dollars increases from C$0.80 to C$1.00, it can be concluded that

Correct Answer
verified

Under an international gold standard,

Correct Answer
verified

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

Correct Answer
verified

Which of the following statements is most accurate about the U.S. current account since the Great Recession (the period covering 2009-2015) ?

Correct Answer
verified

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

Correct Answer
verified

According to the purchasing power parity theory, exchange rates will eventually adjust such that they equalize the various

Correct Answer
verified

Assume that Switzerland and Britain have floating exchange rates. Other things unchanged, if a tight money policy raises interest rates in Britain as compared to Switzerland,

Correct Answer
verified

A central bank engaging in sterilization is attempting to

Correct Answer
verified

Suppose the balance on the financial account is +$200 billion and the balance on the capital account is +$2 billion. The size of the current account is

Correct Answer
verified

Which of the following is not included in the current account of a nation's balance of payments?

Correct Answer
verified

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

Correct AnswerverifiedShow Answer

French and German farmers wanting to buy equipment from an American manufacturer based in the U.S. will be

Correct AnswerverifiedShow Answer

The world's largest debtor nation in terms of debt owed to foreign citizens and governments is

Correct AnswerverifiedShow Answer

U.S. exports to Japan create a supply of dollars and a demand for yen in the foreign exchange market.

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

Under the gold standard,

Correct AnswerverifiedShow Answer

What are the effects on U.S. imports and exports when the U.S. experiences economic growth stronger than its major trading partners?

Correct AnswerverifiedShow Answer

When a U.S. agribusiness company sells 10,000 units of cow vaccine to a company in France, this transaction will represent a

Correct AnswerverifiedShow Answer

(Consider This) Which of the following statements is most accurate about China's pegging of its currency against the U.S. dollar in the 2000s?

Correct AnswerverifiedShow Answer

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

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

Under an international gold standard,

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Which of the following statements is most accurate about the U.S. current account since the Great Recession (the period covering 2009-2015) ?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

According to the purchasing power parity theory, exchange rates will eventually adjust such that they equalize the various

Correct AnswerverifiedShow Answer

Assume that Switzerland and Britain have floating exchange rates. Other things unchanged, if a tight money policy raises interest rates in Britain as compared to Switzerland,

Correct AnswerverifiedShow Answer

A central bank engaging in sterilization is attempting to

Correct AnswerverifiedShow Answer

Suppose the balance on the financial account is +$200 billion and the balance on the capital account is +$2 billion. The size of the current account is

Correct AnswerverifiedShow Answer

Which of the following is not included in the current account of a nation's balance of payments?

Correct AnswerverifiedShow Answer

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