Question 1

During the period 2002-2009, U.S. trade deﬁcits

Accepted Answer

A)   increased from 2002 to 2006 and increased even faster in the recession of 2007-2009.
B)   initially decreased, but then increased signiﬁcantly in the recession of 2007-2009.
C)   increased from 2002 to 2006, but then decreased in the recession of 2007-2009.
D)   decreased throughout the entire decade.E) All of the above
F) A) and B)

Question 2

Under an international gold standard,

Accepted Answer

A)   a nation's exchange rate is virtually ﬁxed.
B)   domestic output and the price level will fall in those nations receiving international gold ﬂows.
C)   a nation's balance of payments surplus will be corrected by an outﬂow of gold.
D)   a nation's balance of payments deﬁcit will be corrected by an inﬂow of gold.E) B) and D)
F) B) and C)

Question 3

Which is not a serious disadvantage associated with freely ﬂuctuating exchange rates?

Accepted Answer

A)   uncertainty which tends to diminish trade
B)   greater instability in unemployment levels
C)   longer lags in eliminating balance of payments surpluses or deﬁcits
D)   swings in the terms of trade related to currency appreciation or depreciationE) None of the above
F) B) and C)

Question 4

U.S. goods exports +$793 U.S. goods imports −1,573 U.S. exports of service +280 U.S. imports of services −222 Net investment income +5 Net transfers −81 Capital account −5 Foreign purchases of assets in the U.S. +1,198 U.S. purchases of foreign assets −395\begin{array} { | l | r | } \hline 	ext { U.S. goods exports } & + \$ 793 \\hline 	ext { U.S. goods imports } & - 1,573 \\hline 	ext { U.S. exports of service } & + 280 \\hline 	ext { U.S. imports of services } & - 222 \\hline 	ext { Net investment income } & + 5 \\hline 	ext { Net transfers } & - 81 \\hline 	ext { Capital account } & - 5 \\hline 	ext { Foreign purchases of assets in the U.S. } & + 1,198 \\hline 	ext { U.S. purchases of foreign assets } & - 395 \\hline\end{array} U.S. goods exports  U.S. goods imports  U.S. exports of service  U.S. imports of services  Net investment income  Net transfers  Capital account  Foreign purchases of assets in the U.S.  U.S. purchases of foreign assets ​+$793−1,573+280−222+5−81−5+1,198−395​​  The table contains data for the U.S. balance of payments in a prior year. All ?gures are in billions of dollars. The data indicate that Americans

Accepted Answer

A)   bought foreign assets abroad more than foreigners bought assets in the U.S.
B)   invested abroad more than foreigners invested in America.
C)   earned more from their investments abroad than foreigners earned from their investments in America.
D)   sold more products to buyers abroad than what foreign producers sold to buyers in America. E) A) and B)
F) B) and C)

Question 5

What is a managed ﬂoating exchange rate? What year did the United States begin using the
managed-ﬂoat system?

Accepted Answer

A managed ﬂoating exchange rate is an ex...

Question 6

(1)  US Goods Exports +$100 (2)  US Goods Imports −80 (3)  US Service Exports +40 (4)  US Service Imports −90 (5)  Net Investment Income +20 (6)  Net Transfers −15 (7)  Foreign Purchases of Assets in the United States +30 (8)  US Purchases of Foreign Assets Abroad −10 (9)  Balance on Capital Account +5\begin{array} { | l | c | } \hline 	ext { (1)  US Goods Exports } & + \$ 100 \\hline 	ext { (2)  US Goods Imports } & - 80 \\hline 	ext { (3)  US Service Exports } & + 40 \\hline 	ext { (4)  US Service Imports } & - 90 \\hline 	ext { (5)  Net Investment Income } & + 20 \\hline 	ext { (6)  Net Transfers } & - 15 \\hline 	ext { (7)  Foreign Purchases of Assets in the United States } & + 30 \\hline 	ext { (8)  US Purchases of Foreign Assets Abroad } & - 10 \\hline 	ext { (9)  Balance on Capital Account } & + 5 \\hline\end{array} (1)  US Goods Exports  (2)  US Goods Imports  (3)  US Service Exports  (4)  US Service Imports  (5)  Net Investment Income  (6)  Net Transfers  (7)  Foreign Purchases of Assets in the United States  (8)  US Purchases of Foreign Assets Abroad  (9)  Balance on Capital Account ​+$100−80+40−90+20−15+30−10+5​​  The table contains hypothetical data for the U.S. balance of payments. All ?gures are in billions of dollars. The United States' balance on ?nancial account is a

Accepted Answer

A)   $20 billion surplus.
B)   $15 billion surplus.
C)   $30 billion de?cit.
D)   $20 billion de?cit. E) C) and D)
F) B) and D)

Question 7

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

Question 8

A nation's annual balance of payments statement must always balance because

Accepted Answer

A)   a nation's imports are limited to the value of its exports.
B)   a nation's exports and imports are always paid with dollars.
C)   all international transactions must be settled in one way or another.
D)   a trade deﬁcit must be matched by an equal surplus of investment income.E) C) and D)
F) A) and C)

Question 9

What are the major components of the capital and ﬁnancial account?

Accepted Answer

The capital and ﬁnancial account consist...

Question 10

Under an international gold standard, a ﬂow of gold from country A into country B would be halted by

Accepted Answer

A)   a rise in the price of B's currency measured in terms of A's currency.
B)   government export controls on gold.
C)   rising prices and incomes in B and falling prices and incomes in A.
D)   rising prices and incomes in A and falling prices and incomes in B.E) None of the above
F) A) and B)

Question 11

Several countries in the world today peg their currencies to the U.S. dollar, causing those
currencies' values to ﬂuctuate as the U.S. dollar ﬂuctuates.

Accepted Answer

A) True 
 B)False

Question 12

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 C)
F) A) and C)

Question 13

If foreign-exchange traders on one day want to exchange P40 million for dollars, to enforce the peg the Mexican government will need to come up with

Accepted Answer

A)   $40 million.
B)   $800 million.
C)   $2 million.
D)   $0.5 million.E) All of the above
F) B) and D)

Question 14

Relatively rapid U.S. growth between 2002 and 2007 contributed to large U.S. trade deﬁcits by

Accepted Answer

A)   increasing U.S. national income, which decreased U.S. exports.
B)   reducing real interest rates in the United States.
C)   increasing U.S. tax revenues and reducing the federal budget deﬁcit.
D)   increasing U.S. national income, which increased U.S. imports.E) C) and D)
F) All of the above

Question 15

(1)   (2)   (3)   Quantity of Libras  Demanded (Billions)   Dollar Price  of Libras  Quantity of Libras  Supplied (Billions)  100$532520042003003100400275\begin{array} { | c | c | c | } \hline 	ext { (1)  } & 	ext { (2)  } & 	ext { (3)  } \\hline \begin{array} { c } 	ext { Quantity of Libras } \	ext { Demanded (Billions)  }\end{array} & \begin{array} { c } 	ext { Dollar Price } \	ext { of Libras }\end{array} & \begin{array} { c } 	ext { Quantity of Libras } \	ext { Supplied (Billions)  }\end{array} \\hline 100 & \$ 5 & 325 \\hline 200 & 4 & 200 \\hline 300 & 3 & 100 \\hline 400 & 2 & 75 \\hline\end{array} (1)   Quantity of Libras  Demanded (Billions)  ​100200300400​ (2)   Dollar Price  of Libras ​$5432​ (3)   Quantity of Libras  Supplied (Billions)  ​32520010075​​  The table indicates the dollar price of libras, the currency used in the hypothetical nation of Libra. Assume that a system of ?exible exchange rates is in place. The exchange rate is

Accepted Answer

A)   4 libras for one dollar.
B)   0.25 libra for one dollar.
C)   0.40 libra for one dollar.
D)   3 libras for one dollar. E) None of the above
F) A) and D)

Exam 21: The Balance of Payments, Exchange Rates, and Trade Deficits

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 Answer
verified

Correct Answer
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Which is not a serious disadvantage associated with freely ﬂuctuating exchange rates?

Correct Answer
verified

A nation's annual balance of payments statement must always balance because

Correct Answer
verified

If foreign-exchange traders on one day want to exchange P40 million for dollars, to enforce the peg the Mexican government will need to come up with

Correct Answer
verified

Correct Answer
verified

What is a managed ﬂoating exchange rate? What year did the United States begin using the managed-ﬂoat system?

Correct Answer
verified
A managed ﬂoating exchange rate is an ex...
View Answer

Under an international gold standard, a ﬂow of gold from country A into country B would be halted by

Correct Answer
verified

Correct Answer
verified

Under an international gold standard,

Correct Answer
verified

Relatively rapid U.S. growth between 2002 and 2007 contributed to large U.S. trade deﬁcits by

Correct Answer
verified

During the period 2002-2009, U.S. trade deﬁcits

Correct Answer
verified

Several countries in the world today peg their currencies to the U.S. dollar, causing those currencies' values to ﬂuctuate as the U.S. dollar ﬂuctuates.

Correct Answer
verified

What are the major components of the capital and ﬁnancial account?

Correct Answer
verified
The capital and ﬁnancial account consist...
View Answer

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

Correct Answer
verified

Exam 21: The Balance of Payments, Exchange Rates, and Trade Deficits

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

Correct AnswerverifiedShow Answer

Which is not a serious disadvantage associated with freely ﬂuctuating exchange rates?

Correct AnswerverifiedShow Answer

A nation's annual balance of payments statement must always balance because

Correct AnswerverifiedShow Answer

If foreign-exchange traders on one day want to exchange P40 million for dollars, to enforce the peg the Mexican government will need to come up with

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

What is a managed ﬂoating exchange rate? What year did the United States begin using the managed-ﬂoat system?

Correct AnswerverifiedA managed ﬂoating exchange rate is an ex...View AnswerShow Answer

Under an international gold standard, a ﬂow of gold from country A into country B would be halted by

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Under an international gold standard,

Correct AnswerverifiedShow Answer

Relatively rapid U.S. growth between 2002 and 2007 contributed to large U.S. trade deﬁcits by

Correct AnswerverifiedShow Answer

During the period 2002-2009, U.S. trade deﬁcits

Correct AnswerverifiedShow Answer

Several countries in the world today peg their currencies to the U.S. dollar, causing those currencies' values to ﬂuctuate as the U.S. dollar ﬂuctuates.

Correct AnswerverifiedShow Answer

What are the major components of the capital and ﬁnancial account?

Correct AnswerverifiedThe capital and ﬁnancial account consist...View AnswerShow Answer

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

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
A managed ﬂoating exchange rate is an ex...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
The capital and ﬁnancial account consist...
View Answer

Correct Answer
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