Question 1

Which of the following would tend to raise the value of the U.S. dollar in foreign exchange markets?

Accepted Answer

A)  a rise in U.S. interest rates
B)  an easy monetary policy in the United States
C)  a contractionary fiscal policy in the United States
D)  an increase in the U.S. demand for foreign oilE) A) and B)
F) C) and D)

Question 2

Which nations stand to lose the most from belonging to a common currency?

Accepted Answer

A)  those whose macroeconomic conditions differ significantly from the rest of the nations in the currency area
B)  those who engage in the largest amount of foreign trade
C)  those with the largest economies of the nations in the currency area
D)  those with the least restrictive laws and lowest production costsE) All of the above
F) C) and D)

Question 3

Remittances of Mexican workers in the U.S. to their families in Mexico are included in the U.S. balance of payments in the section on

Accepted Answer

A)  trade in services.
B)  net transfers.
C)  financial accounts.
D)  capital accounts.E) None of the above
F) C) and D)

Question 4

The U.S. demand for British pounds is

Accepted Answer

A)  downsloping because a higher dollar price of pounds means British goods are cheaper to Americans.
B)  downsloping because a lower dollar price of pounds means British goods are more expensive to Americans.
C)  upsloping because a lower dollar price of pounds means British goods are cheaper to Americans.
D)  downsloping because a lower dollar price of pounds means British goods are cheaper to Americans.E) C) and D)
F) A) and B)

Question 5

Suppose the balance on the current account is +$50 billion and the balance on the capital account is +$1 billion. The balance on the financial account is

Accepted Answer

A)  −$51 billion.
B)  −$50 billion.
C)  −$49 billion.
D)  +$51 billion.E) A) and C)
F) C) and D)

Question 6

A trade deficit means a net

Accepted Answer

A)  inflow of payments for goods and services.
B)  outflow of goods and services.
C)  inflow of goods and services.
D)  excess of exports over imports.E) A) and B)
F) None of the above

Question 7

The purchase of a British Rolls-Royce by a U.S. citizen would result in all the following except a(n)

Accepted Answer

A)  supply of payments to England.
B)  sale of dollars and the purchase of British pounds.
C)  increase in imports to the United States.
D)  gain of foreign exchange for the United States.E) C) and D)
F) B) and C)

Question 8

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

Question 9

Under an international gold standard,

Accepted Answer

A)  exchange rates would fluctuate inversely with the domestic interest rates of the participating countries.
B)  each nation must agree to depreciate its currency in direct proportion to the growth of its real GDP.
C)  gold would flow into a nation experiencing a balance of payments surplus.
D)  exchange rates would fluctuate directly with the domestic price levels of the various trading countries.E) None of the above
F) All of the above

Question 10

Refer to the graph, which shows a change in the demand for pounds from D to D'. Under a system of flexible exchange rates, the

Accepted Answer

A)  price of a pound will increase to $3.
B)  price of a dollar will increase to 3 pounds.
C)  shortage equal to ab would be met using international monetary reserves.
D)  payment deficit will cause changes in domestic price and income levels, shifting demand to the left and supply to the right, and reestablishing the original exchange rate.E) B) and C)
F) A) and B)

Question 11

Foreign exchange rates refer to the

Accepted Answer

A)  price at which purchases and sales of foreign goods take place.
B)  rate of exchange of goods and services between two trading nations.
C)  price of one nation's currency in terms of another nation's currency.
D)  difference between exports and imports of a particular nation with another.E) A) and C)
F) B) and C)

Question 12

The trade deficit has had the effect of

Accepted Answer

A)  decreasing the Federal budget deficit.
B)  increasing economic growth in less-developed nations.
C)  increasing direct foreign investment in the United States.
D)  decreasing protectionist pressure among U.S. businesses.E) A) and C)
F) A) and D)

Question 13

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

Accepted Answer

A)  0.95 euro
B)  1.00 euros
C)  1.11 euros
D)  1.23 eurosE) A) and D)
F) B) and C)

Question 14

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 D)
F) A) and B)

Question 15

All of the following would add to the demand for U.S. dollars except

Accepted Answer

A)  long-term capital inflows.
B)  foreign travel by United States citizens.
C)  exports of commodities from the United States.
D)  travel by foreigners on United States airlines.E) A) and C)
F) A) and D)

Question 16

To maintain a fixed exchange rate under a shortage of FX reserves, the government has the following options, except

Accepted Answer

A)  encourage foreign investment inflows, and restrict foreign investment outflows.
B)  encourage imports, and discourage exports.
C)  impose exchange controls or capital controls.
D)  use monetary or fiscal policies to reduce domestic spending.E) A) and B)
F) A) and C)

Question 17

U.S. exports represent two flows,

Accepted Answer

A)  an outflow of goods or services and an outflow of payments.
B)  an inflow of goods or services and an outflow of payments.
C)  an outflow of goods or services and an inflow of payments.
D)  an inflow of goods or services and an inflow of payments.E) C) and D)
F) A) and D)

Question 18

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) None of the above
F) All of the above

Question 19

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. Between 1985 and 2003, the

Accepted Answer

A)  dollar appreciated in value relative to the yen.
B)  yen appreciated in value relative to the dollar.
C)  dollar price of yen fell.
D)  yen price of dollars rose.E) B) and D)
F) A) and B)

Question 20

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

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

To maintain a fixed exchange rate under a shortage of FX reserves, the government has the following options, except

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

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Suppose the balance on the current account is +$50 billion and the balance on the capital account is +$1 billion. The balance on the financial account is

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All of the following would add to the demand for U.S. dollars except

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

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

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U.S. exports represent two flows,

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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. Between 1985 and 2003, the

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Remittances of Mexican workers in the U.S. to their families in Mexico are included in the U.S. balance of payments in the section on

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Which of the following would tend to raise the value of the U.S. dollar in foreign exchange markets?

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

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The purchase of a British Rolls-Royce by a U.S. citizen would result in all the following except a(n)

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Which nations stand to lose the most from belonging to a common currency?

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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

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Foreign exchange rates refer to the

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The trade deficit has had the effect of

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The U.S. demand for British pounds is

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A trade deficit means a net

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Under an international gold standard,

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Refer to the graph, which shows a change in the demand for pounds from D to D'. Under a system of flexible exchange rates, the

Correct AnswerverifiedShow Answer

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