Question 1

Depreciation of the dollar will

Accepted Answer

A)   decrease the prices of both U.S. imports and exports.
B)   increase the prices of both U.S. imports and exports.
C)   decrease the prices of U.S. imports but increase the prices to foreigners of U.S. exports.
D)   increase the prices of U.S. imports but decrease the prices to foreigners of U.S. exports.E) A) and C)
F) All of the above

Question 2

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

Question 3

In a nation's balance of payments, which one of the following items is always recorded as a positive entry?

Accepted Answer

A)   goods imports
B)   balance on capital account
C)   U.S. purchases of assets abroad
D)   exports of servicesE) B) and C)
F) A) and D)

Question 4

When the exchange rate between pounds and dollars moves from $2 = 1 pound to $1 = 1 pound, we say that the dollar has

Accepted Answer

A)   depreciated.
B)   appreciated.
C)   inflated.
D)   deflated.E) A) and C)
F) B) and C)

Question 5

Fixed exchange rates are often maintained by using all of the following tools except

Accepted Answer

A)   open speculation by individual traders in foreign currency markets.
B)   international monetary reserves held by central banks.
C)   controls on imports and exports, such as tariffs and quotas.
D)   domestic macroeconomic adjustments using monetary and fiscal policies.E) A) and C)
F) All of the above

Question 6

Comparing what the United States owes to other nations against what other nations owe to the United States, the United States is currently a(n)

Accepted Answer

A)   net creditor.
B)   net debtor.
C)   international banking asset.
D)   international banking liability.E) B) and D)
F) B) and C)

Question 7

Which of the following would call for inpayments to the United States?

Accepted Answer

A)   Gold flows into the United States.
B)   U.S. firms sell insurance to Brazilian shippers.
C)   The United States sends foreign aid to developing countries.
D)   The United States imports German automobiles.E) B) and C)
F) B) and D)

Question 8

Faster economic growth in the United States relative to other nations tends to worsen the U.S. trade deficit.

Accepted Answer

A) True 
 B)False

Question 9

When it is reported that a nation is experiencing a "balance of payments deficit," this is best interpreted to mean that the nation is experiencing

Accepted Answer

A)   an increase in foreign exchange reserves.
B)   a decrease in foreign exchange reserves.
C)   an imbalance between its current account and its capital and financial account.
D)   a situation where it is importing more goods than it is exporting.E) None of the above
F) All of the above

Question 10

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)   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) A) and D)

Question 11

If Japanese autos surge in popularity in the United States, then this event is most likely to cause the Japanese yen to

Accepted Answer

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

Question 12

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

Question 13

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

Question 14

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

Question 15

If the U.S. dollar depreciates relative to the Russian ruble, the ruble

Accepted Answer

A)   will be less expensive to Americans.
B)   may either appreciate or depreciate relative to the dollar.
C)   will appreciate relative to the dollar.
D)   will depreciate relative to the dollar.E) C) and D)
F) All of the above

Question 16

Consider the currency market for British pounds and U.S. dollars. An increase in the demand for British pounds results in

Accepted Answer

A)   an appreciation of the pound and a depreciation of the dollar.
B)   a depreciation of the pound and a depreciation of the dollar.
C)   an appreciation of the pound and an appreciation of the dollar.
D)   a depreciation of the pound and an appreciation of the dollar.E) B) and C)
F) None of the above

Question 17

In 1985, the exchange rate between the U.S. dollar and the Japanese yen was $1 = 262 yen; in 2003, the rate was $1 = 110 yen. Which one of the following might be a plausible explanation for the change in the dollar-yen exchange rate from 1985 to 2003?

Accepted Answer

A)   Japan exported much more to the United States during this period than it imported from the United States.
B)   Japan greatly increased its purchases of military equipment from the United States during this period.
C)   Japan's economy grew far faster than the U.S. economy during this period.
D)   Japan's government devalued the yen during this period.E) All of the above
F) A) and B)

Question 18

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

Accepted Answer

A) True 
 B)False

Question 19

Assume that Japan and the United States are engaged in a system of flexible exchange rates. If more people in the United States decide to purchase Japanese cars, what effect will this have on the market for yen?

Accepted Answer

A)   The price of yen will increase.
B)   The price of yen will decrease.
C)   The supply of yen will increase.
D)   The supply of yen will decrease.E) A) and B)
F) A) and C)

Question 20

The exchange rate system currently used by the industrially advanced nations is

Accepted Answer

A)   the gold standard.
B)   the Bretton Woods system.
C)   the managed float.
D)   a fixed rate system.E) A) and D)
F) C) and D)

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

If Japanese autos surge in popularity in the United States, then this event is most likely to cause the Japanese yen to

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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 depreciates relative to the Russian ruble, the ruble

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When it is reported that a nation is experiencing a "balance of payments deficit," this is best interpreted to mean that the nation is experiencing

Correct AnswerverifiedShow Answer

Consider the currency market for British pounds and U.S. dollars. An increase in the demand for British pounds results in

Correct AnswerverifiedShow Answer

Faster economic growth in the United States relative to other nations tends to worsen the U.S. trade deficit.

Correct AnswerverifiedShow Answer

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

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In a nation's balance of payments, which one of the following items is always recorded as a positive entry?

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

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Which of the following would call for inpayments to the United States?

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Depreciation of the dollar will

Correct AnswerverifiedShow Answer

Comparing what the United States owes to other nations against what other nations owe to the United States, the United States is currently a(n)

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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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When the exchange rate between pounds and dollars moves from $2 = 1 pound to $1 = 1 pound, we say that the dollar has

Correct AnswerverifiedShow Answer

The exchange rate system currently used by the industrially advanced nations is

Correct AnswerverifiedShow Answer

In 1985, the exchange rate between the U.S. dollar and the Japanese yen was $1 = 262 yen; in 2003, the rate was $1 = 110 yen. Which one of the following might be a plausible explanation for the change in the dollar-yen exchange rate from 1985 to 2003?

Correct AnswerverifiedShow Answer

Fixed exchange rates are often maintained by using all of the following tools except

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Assume that Japan and the United States are engaged in a system of flexible exchange rates. If more people in the United States decide to purchase Japanese cars, what effect will this have on the market for yen?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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