Question 1

In the U.S. balance of payments account for a certain year, a positive number in the financial account means a

Accepted Answer

A)  net buildup of assets held by the U.S.
B)  net reduction in the ownership of assets by U.S. interests.
C)  buildup of total foreign debt.
D)  reduction of total foreign debt.E) A) and B)
F) A) and C)

Question 2

In international financial transactions, what are the only two things that individuals and firms can exchange?

Accepted Answer

A)  currency and real assets
B)  services and manufactured goods
C)  assets and currently produced goods and services
D)  currency and currently produced goods and servicesE) C) and D)
F) A) and D)

Question 3

The Bretton Woods system of exchange rates relied on

Accepted Answer

A)  freely floating exchange rates.
B)  fixed exchange rates with no mechanism for changing them.
C)  fixed or pegged exchange rates, with occasional orderly adjustments to the rates.
D)  the United States to set and periodically review worldwide exchange rates.E) All of the above
F) None of the above

Question 4

The idea that floating exchange rates will equate the buying power of national currencies is called

Accepted Answer

A)  the equation of exchange.
B)  the balance of payments.
C)  Say's Law.
D)  purchasing power parity theory.E) All of the above
F) B) and C)

Question 5

In equilibrium, if $1 = 0.5 pound sterling and 1 pound sterling = 40 Swiss francs, the exchange rate between dollar and franc will be

Accepted Answer

A)  1 franc = $0.10.
B)  1 franc = $0.20.
C)  $1 = 80 francs.
D)  $1 = 20 francs.E) C) and D)
F) None of the above

Question 6

A currency depreciation in the foreign exchange market will

Accepted Answer

A)  encourage imports into the country whose currency has depreciated.
B)  discourage imports into the country whose currency has depreciated.
C)  discourage exports from the country whose currency has depreciated.
D)  encourage foreign travel by the citizens of the country whose currency has depreciated.E) B) and C)
F) A) and C)

Question 7

The table contains balance of payments data for the hypothetical nation of Econland. All figures are in billions of dollars. Econland's balance of trade in goods and services shows a

Accepted Answer

A)  net inflow of payments of $109 billion.
B)  net outflow of payments of $109 billion.
C)  net inflow of payments of $108 billion.
D)  net outflow of payments of $108 billion.E) None of the above
F) B) and C)

Question 8

Which of the following would call for outflows of money from the United States?

Accepted Answer

A)  The United States exports computer software.
B)  The United States purchases assets abroad.
C)  Foreigners purchase assets in the United States.
D)  Foreign tourists spend money in the United States.E) All of the above
F) A) and C)

Question 9

If the rate of exchange for one pound is $2, the rate of exchange for the dollar is

Accepted Answer

A)  1/2 pound.
B)  2 pounds.
C)  $0.50.
D)  $1.00.E) B) and D)
F) C) and D)

Question 10

If the exchange rate is $1 = 0.7841 euro, then a box of French truffles priced at 20 euros would cost an American buyer (excluding taxes and other fees)

Accepted Answer

A)  $15.68.
B)  $20.78.
C)  $25.51.
D)  $27.84.E) C) and D)
F) A) and D)

Question 11

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

Question 12

In recent years, the United States has had large

Accepted Answer

A)  current account surpluses.
B)  current account deficits.
C)  balance of trade surpluses.
D)  balance of payments surpluses.E) B) and C)
F) A) and D)

Question 13

If the United States and France are both on the international gold standard and U.S. exports to France exceed United States imports from France, gold will flow from the United States to France.

Accepted Answer

A) True 
 B)False

Question 14

In terms of individual nations, the largest U.S. trade deficit is with

Accepted Answer

A)  Japan.
B)  Mexico.
C)  China.
D)  Canada.E) A) and D)
F) A) and C)

Question 15

In a graph showing the market supply and demand for British pounds in terms of U.S. dollars, the supply-of-pounds curve is upsloping because

Accepted Answer

A)  fewer British pounds can be purchased per dollar if U.S. dollars become more expensive.
B)  fewer U.S. dollars can be purchased per pound if the British pounds become less expensive.
C)  the British will purchase more U.S. goods or services when the dollar price of pounds rises.
D)  the British will purchase more U.S. goods or services when the dollar price of pounds falls.E) None of the above
F) A) and B)

Question 16

The financial account balance is a nation's

Accepted Answer

A)  net investment income minus its net transfers.
B)  exports of goods and services minus its imports of goods and services.
C)  sale of real and financial assets to people living abroad minus its purchases of real and financial assets from foreigners.
D)  domestic investment spending minus domestic saving.E) B) and C)
F) A) and B)

Question 17

Nations belonging to a common currency

Accepted Answer

A)  lose the ability to maintain competitiveness by making external adjustments to their current account balances.
B)  reduce their exchange-rate risk and costs of currency conversion.
C)  realize all of these things.
D)  sacrifice independent monetary policy.E) All of the above
F) C) and D)

Question 18

The basis for the Bretton Woods international monetary system was

Accepted Answer

A)  a completely fixed system of exchange rates.
B)  an adjustable peg system of exchange rates.
C)  the gold standard.
D)  a freely flexible system of exchange rates.E) C) and D)
F) All of the above

Question 19

The table indicates the dollar price of libras, the currency used in the hypothetical nation of Libra. Assume that a system of flexible exchange rates is in place. The equilibrium dollar price of libras is

Accepted Answer

A)  $5.
B)  $4.
C)  $3.
D)  $2.E) A) and B)
F) A) and D)

Question 20

When a Japanese company buys a U.S. software company, this transaction will be a(n)

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)  inflow of money on the financial account of the U.S. balance of payments.
D)  outflow of money on the financial account of the U.S. balance of payments.E) B) and C)
F) A) and C)

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

Nations belonging to a common currency

Correct AnswerverifiedShow Answer

The table indicates the dollar price of libras, the currency used in the hypothetical nation of Libra. Assume that a system of flexible exchange rates is in place. The equilibrium dollar price of libras is

Correct AnswerverifiedShow Answer

Which of the following would call for outflows of money from the United States?

Correct AnswerverifiedShow Answer

If the exchange rate is $1 = 0.7841 euro, then a box of French truffles priced at 20 euros would cost an American buyer (excluding taxes and other fees)

Correct AnswerverifiedShow Answer

In equilibrium, if $1 = 0.5 pound sterling and 1 pound sterling = 40 Swiss francs, the exchange rate between dollar and franc will be

Correct AnswerverifiedShow Answer

In terms of individual nations, the largest U.S. trade deficit is with

Correct AnswerverifiedShow Answer

The idea that floating exchange rates will equate the buying power of national currencies is called

Correct AnswerverifiedShow Answer

When a Japanese company buys a U.S. software company, this transaction will be a(n)

Correct AnswerverifiedShow Answer

The Bretton Woods system of exchange rates relied on

Correct AnswerverifiedShow Answer

The basis for the Bretton Woods international monetary system was

Correct AnswerverifiedShow Answer

If the United States and France are both on the international gold standard and U.S. exports to France exceed United States imports from France, gold will flow from the United States to France.

Correct AnswerverifiedShow Answer

Under an international gold standard,

Correct AnswerverifiedShow Answer

In recent years, the United States has had large

Correct AnswerverifiedShow Answer

If the rate of exchange for one pound is $2, the rate of exchange for the dollar is

Correct AnswerverifiedShow Answer

The financial account balance is a nation's

Correct AnswerverifiedShow Answer

In international financial transactions, what are the only two things that individuals and firms can exchange?

Correct AnswerverifiedShow Answer

A currency depreciation in the foreign exchange market will

Correct AnswerverifiedShow Answer

In a graph showing the market supply and demand for British pounds in terms of U.S. dollars, the supply-of-pounds curve is upsloping because

Correct AnswerverifiedShow Answer

The table contains balance of payments data for the hypothetical nation of Econland. All figures are in billions of dollars. Econland's balance of trade in goods and services shows a

Correct AnswerverifiedShow Answer

In the U.S. balance of payments account for a certain year, a positive number in the financial account means a

Correct AnswerverifiedShow Answer

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