Question 1

Suppose that Econland adopts a fixed exchange-rate system and pegs the value of its peso to the U.S. dollar. If Econlanders' demand for dollars increases in the foreign exchange markets, then Econland's foreign-exchange reserves will

Accepted Answer

A)   increase.
B)   decrease.
C)   stay the same.
D)   equal the trade balance.E) All of the above
F) B) and D)

Question 2

Fixed exchange rates usually provide more certainty to those engaged in international trade.

Accepted Answer

A) True 
 B)False

Question 3

Two of the implications of large U.S. trade deficits for the United States are

Accepted Answer

A)   decreased current consumption and decreased indebtedness to foreigners.
B)   reduced budget deficits and decreased indebtedness to foreigners.
C)   reduced current consumption and higher saving.
D)   increased current consumption and increased indebtedness to foreigners.E) A) and D)
F) A) and C)

Question 4

As a result of the 2007-2009 recession,

Accepted Answer

A)   declining imports created a trade surplus for the United States.
B)   the U.S. trade deficit grew significantly.
C)   declining imports reduced the size of the U.S. trade deficit.
D)   roughly equivalent declines in both exports and imports left the U.S. trade balance unchanged.E) C) and D)
F) All of the above

Question 5

What are two major outcomes from the large U.S. trade deficits?

Accepted Answer

A)   an increase in domestic consumption and U.S. indebtedness
B)   a decrease in domestic consumption and U.S. indebtedness
C)   an increase in domestic consumption and a decrease in U.S. indebtedness
D)   a decrease in domestic consumption and an increase in U.S. indebtednessE) A) and B)
F) B) and C)

Question 6

Which of the following is an item in the current account balance of the United States?

Accepted Answer

A)   the purchase of a U.S. company by a foreign company
B)   the purchase of stock in a foreign corporation by a U.S. company
C)   the purchase of insurance in the United States by a foreign company
D)   the purchase of a United States Treasury bond by a wealthy foreignerE) A) and B)
F) C) and D)

Question 7

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 8

If the United States has full employment and the dollar dramatically depreciates in value, we can expect (other things equal)

Accepted Answer

A)   both U.S. imports and U.S. exports to rise.
B)   both U.S. imports and U.S. exports to fall.
C)   U.S. exports to fall and U.S. imports to increase.
D)   inflation to occur.E) C) and D)
F) None of the above

Question 9

(Consider This)  Which of the following has been a consequence of China pegging its currency against the U.S. dollar throughout the 2000s?

Accepted Answer

A)   China has experienced a loss of dollar reserves.
B)   China has experienced strong inflationary pressure, despite sterilization efforts.
C)   China has experienced a large trade deficit in goods with the United States.
D)   The United States has actively intervened in the foreign exchange market to bring the yuan to a free exchange market equilibrium value.E) A) and B)
F) None of the above

Question 10

The official reserves of a nation's central bank include

Accepted Answer

A)   foreign currencies only.
B)   foreign currencies, bonds issued by foreign governments, gold reserves, and special reserves held at the International Monetary Fund.
C)   its stock of domestic and foreign currencies.
D)   all domestic and foreign financial assets held by the central bank, including gold reserves.E) A) and D)
F) A) and C)

Question 11

An increase in the dollar price of the British pound will

Accepted Answer

A)   increase the pound price of dollars.
B)   decrease the pound price of dollars.
C)   leave the pound price of dollars unchanged.
D)   cause Britain's terms of trade with the United States to deteriorate.E) B) and D)
F) A) and D)

Question 12

If the rate of exchange for a pound is $4, the rate of exchange for the dollar is
A) ¼ pound.
B) 4 pounds.
C) $0.25.
D) $1.00.

Accepted Answer

The answer of If the rate of exchange for a...

Question 13

Consider the currency market for British pounds and U.S. dollars. A decrease in the supply of 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) A) and B)
F) A) and C)

Question 14

Critics of the managed floating exchange rate system argue that it

Accepted Answer

A)   is dominated by G-8 nations.
B)   is a "nonsystem" with unclear rules.
C)   increased the growth in world trade at too fast a rate.
D)   puts too much reliance on the adjustable-peg mechanism for stabilizing exchange rates.E) A) and B)
F) All of the above

Question 15

Which system would be accompanied by occasional currency interventions by central banks to stabilize or alter rates to avoid persistent balance of payments deficits or surpluses?

Accepted Answer

A)   the gold standard
B)   fixed exchange rates
C)   flexible exchange rates
D)   managed floating exchange ratesE) B) and C)
F) A) and D)

Question 16

Which one of the following, other things equal, will directly alter the U.S. balance of trade?

Accepted Answer

A)   an increase in the balance on capital account
B)   a decrease in U.S. goods exports
C)   an increase in net transfers
D)   a decrease in U.S. purchases of assets abroadE) None of the above
F) All of the above

Question 17

U.S. exports increase and U.S. imports decrease the supplies of foreign monies owned by U.S. banks.

Accepted Answer

A) True 
 B)False

Question 18

When a Japanese company buys a U.S. software company, this transaction 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 19

A declining amount of foreign-exchange reserves resulting from maintaining a pegged exchange rate would have which of the following effects?

Accepted Answer

A)   a decrease in domestic money supply
B)   a negative item entry in the balance of payments statement
C)   rising inflationary pressure
D)   an increase in the supply of local currency coming from this nation's central bankE) C) and D)
F) A) and B)

Question 20

Suppose the balance on the current account is +$100 billion and the balance on the capital account is −$1 billion. The balance on the financial account is

Accepted Answer

A)   +$101 billion.
B)   −$100 billion.
C)   −$99 billion.
D)   −$101 billion.E) B) and C)
F) A) and D)

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

What are two major outcomes from the large U.S. trade deficits?

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As a result of the 2007-2009 recession,

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Which system would be accompanied by occasional currency interventions by central banks to stabilize or alter rates to avoid persistent balance of payments deficits or surpluses?

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Which of the following is an item in the current account balance of the United States?

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

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Suppose the balance on the current account is +$100 billion and the balance on the capital account is −$1 billion. The balance on the financial account is

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If the United States has full employment and the dollar dramatically depreciates in value, we can expect (other things equal)

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A declining amount of foreign-exchange reserves resulting from maintaining a pegged exchange rate would have which of the following effects?

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The official reserves of a nation's central bank include

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.

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U.S. exports increase and U.S. imports decrease the supplies of foreign monies owned by U.S. banks.

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(Consider This) Which of the following has been a consequence of China pegging its currency against the U.S. dollar throughout the 2000s?

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An increase in the dollar price of the British pound will

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Critics of the managed floating exchange rate system argue that it

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Fixed exchange rates usually provide more certainty to those engaged in international trade.

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If the rate of exchange for a pound is $4, the rate of exchange for the dollar is A) ¼ pound. B) 4 pounds. C) $0.25. D) $1.00.

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Which one of the following, other things equal, will directly alter the U.S. balance of trade?

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Suppose that Econland adopts a fixed exchange-rate system and pegs the value of its peso to the U.S. dollar. If Econlanders' demand for dollars increases in the foreign exchange markets, then Econland's foreign-exchange reserves will

Correct AnswerverifiedShow Answer

Consider the currency market for British pounds and U.S. dollars. A decrease in the supply of British pounds results in

Correct AnswerverifiedShow Answer

Two of the implications of large U.S. trade deficits for the United States are

Correct AnswerverifiedShow Answer

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