Question 1

If there is a small surplus in the combined current account plus capital and financial account for a certain year, then to make the two accounts balance, there will be

Accepted Answer

A)  an increase in the exchange rate.
B)  a decrease in the exchange rate.
C)  an increase in official reserve holdings.
D)  a decrease in official reserve holdings.E) None of the above
F) All of the above

Question 2

Relatively rapid U.S.growth between 2002 and 2006 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) A) and B)
F) A) and C)

Question 3

If the dollar depreciates, U.S.exports will eventually rise and U.S.imports will eventually fall.

Accepted Answer

A) True 
 B)False

Question 4

Which of the following transactions represents a credit on the financial account of the U.S.balance of payments?

Accepted Answer

A)  Oil is imported from Venezuela.
B)  United States firms pay dividends to foreigners.
C)  United States citizens purchase foreign securities.
D)  A Canadian firm increases its direct investment in its U.S.branch.E) A) and D)
F) A) and C)

Question 5

Under a fixed exchange-rate system, if the equilibrium exchange rate is continually and substantially below the fixed rate, that means that the local currency is overvalued relative to equilibrium.In this case, which of the following will not be a result of the central bank's actions to maintain the peg?

Accepted Answer

A)  The nation's FX reserves will increase.
B)  Domestic money supply will increase.
C)  Inflationary pressure will increase.
D)  The value of the local currency is artificially forced down.E) B) and D)
F) None of the above

Question 6

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

Question 7

In the dollar-euro market, an increased demand for European products among U.S.buyers will create an increase in

Accepted Answer

A)  supply of euros.
B)  demand for dollars.
C)  demand for euros.
D)  shortage of dollars.E) All of the above
F) C) and D)

Question 8

If the exchange rate changes so that more Mexican pesos are required to buy a dollar, then

Accepted Answer

A)  the peso has appreciated in value.
B)  Americans will buy more Mexican goods and services.
C)  more U.S.goods and services will be demanded by the Mexicans.
D)  the dollar has depreciated in value.E) A) and B)
F) A) and C)

Question 9

In considering euros and dollars, the rates of exchange for the euro and the dollar

Accepted Answer

A)  are directly related.
B)  are inversely related.
C)  are unrelated.
D)  move in the same direction.E) A) and B)
F) A) and C)

Question 10

Under the international gold standard, exchange rates fluctuate without restraint to correct any international disequilibrium by affecting the relative attractiveness of domestic and foreign goods.

Accepted Answer

A) True 
 B)False

Question 11

Assume that, under a system of floating exchange rates, Mexicans decide to increase their investments in the United States.As a result,

Accepted Answer

A)  the peso and the dollar will both depreciate.
B)  the peso and the dollar will both appreciate.
C)  the peso will depreciate and the dollar will appreciate.
D)  the peso will appreciate and the dollar will depreciate.E) A) and B)
F) A) and C)

Question 12

If the Canadian dollar price of United States dollars increases from C$0.80 to C$1.00, it can be concluded that

Accepted Answer

A)  both countries are on the international gold standard.
B)  the Canadian dollar has appreciated in value relative to the United States dollar.
C)  the United States dollar has depreciated in value relative to the Canadian dollar.
D)  the Canadian dollar has depreciated in value relative to the United States dollar.E) A) and B)
F) All of the above

Question 13

Which of the following lists of exchange-rate systems is arranged in proper historical order, from earliest to most current?

Accepted Answer

A)  Bretton Woods system, gold standard, managed float
B)  gold standard, managed float, Bretton Woods system
C)  managed float, Bretton Woods system, gold standard
D)  gold standard, Bretton Woods system, managed floatE) None of the above
F) A) and B)

Question 14

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

Accepted Answer

A)  trade in services.
B)  net international transfers.
C)  financial accounts.
D)  capital accounts.E) A) and B)
F) B) and D)

Question 15

Suppose that Econland has a fixed exchange-rate system.Econland's government (its central bank)  will exchange as much local currency (say pesos)  for foreign currency (say dollars)  and as much foreign currency (say dollars)  for local currency (say pesos)  as is necessary to maintain the peg.Which of the following statements is not true?

Accepted Answer

A)  Satisfying requests by people to get local pesos in exchange for foreign dollars is easy for the central bank to do.
B)  The central bank has a restricted capacity to satisfy requests by people to get foreign dollars in exchange for local pesos.
C)  Being the central bank, it has an equal capacity to satisfy requests to exchange dollars for pesos, and pesos for dollars.
D)  The central bank needs to stockpile some foreign-exchange reserves in order to maintain the peg.E) C) and D)
F) All of the above

Question 16

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) All of the above
F) B) and D)

Question 17

If the U.S.dollar appreciates relative to the British pound, then

Accepted Answer

A)  the pound will appreciate relative to the U.S.dollar.
B)  the pound will depreciate relative to the U.S.dollar.
C)  British goods will be more expensive for Americans.
D)  American goods will be less expensive for the British.E) A) and C)
F) All of the above

Question 18

Under a gold standard, a balance of payments disequilibrium would be corrected automatically by

Accepted Answer

A)  the depreciation of that country's currency.
B)  an increase in the gold content of that nation's monetary unit.
C)  the appreciation of that country's currency.
D)  an outflow or inflow of gold.E) A) and C)
F) B) and D)

Question 19

One of the causes of the rising trade deficits of the past decade has been a declining saving rate in the United States.

Accepted Answer

A) True 
 B)False

Question 20

Other things being equal, the international value of foreign currencies will increase against the U.S.dollar if

Accepted Answer

A)  U.S.citizens reduce spending on imports.
B)  the U.S.Federal Reserve raises real interest rates.
C)  the number of foreign tourists in the United States increases.
D)  foreigners withdraw funds from U.S.money markets.E) A) and B)
F) All of the above

Exam 41: The Balance of Payments, Exchange Rates, and Trade Deficits

In considering euros and dollars, the rates of exchange for the euro and the dollar

Correct Answer
verified

Other things being equal, the international value of foreign currencies will increase against the U.S.dollar if

Correct Answer
verified

Assume that, under a system of floating exchange rates, Mexicans decide to increase their investments in the United States.As a result,

Correct Answer
verified

Which of the following transactions represents a credit on the financial account of the U.S.balance of payments?

Correct Answer
verified

Which of the following lists of exchange-rate systems is arranged in proper historical order, from earliest to most current?

Correct Answer
verified

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

Correct Answer
verified

If the U.S.dollar appreciates relative to the British pound, then

Correct Answer
verified

In the dollar-euro market, an increased demand for European products among U.S.buyers will create an increase in

Correct Answer
verified

Under the international gold standard, exchange rates fluctuate without restraint to correct any international disequilibrium by affecting the relative attractiveness of domestic and foreign goods.

Correct Answer
verified

Correct Answer
verified

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

Correct Answer
verified

One of the causes of the rising trade deficits of the past decade has been a declining saving rate in the United States.

Correct Answer
verified

Relatively rapid U.S.growth between 2002 and 2006 contributed to large U.S.trade deficits by

Correct Answer
verified

Under a gold standard, a balance of payments disequilibrium would be corrected automatically by

Correct Answer
verified

Correct Answer
verified

If the exchange rate changes so that more Mexican pesos are required to buy a dollar, then

Correct Answer
verified

If the dollar depreciates, U.S.exports will eventually rise and U.S.imports will eventually fall.

Correct Answer
verified

If there is a small surplus in the combined current account plus capital and financial account for a certain year, then to make the two accounts balance, there will be

Correct Answer
verified

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 Answer
verified

If the Canadian dollar price of United States dollars increases from C$0.80 to C$1.00, it can be concluded that

Correct Answer
verified

Exam 41: The Balance of Payments, Exchange Rates, and Trade Deficits

In considering euros and dollars, the rates of exchange for the euro and the dollar

Correct AnswerverifiedShow Answer

Other things being equal, the international value of foreign currencies will increase against the U.S.dollar if

Correct AnswerverifiedShow Answer

Assume that, under a system of floating exchange rates, Mexicans decide to increase their investments in the United States.As a result,

Correct AnswerverifiedShow Answer

Which of the following transactions represents a credit on the financial account of the U.S.balance of payments?

Correct AnswerverifiedShow Answer

Which of the following lists of exchange-rate systems is arranged in proper historical order, from earliest to most current?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

If the U.S.dollar appreciates relative to the British pound, then

Correct AnswerverifiedShow Answer

In the dollar-euro market, an increased demand for European products among U.S.buyers will create an increase in

Correct AnswerverifiedShow Answer

Under the international gold standard, exchange rates fluctuate without restraint to correct any international disequilibrium by affecting the relative attractiveness of domestic and foreign goods.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

One of the causes of the rising trade deficits of the past decade has been a declining saving rate in the United States.

Correct AnswerverifiedShow Answer

Relatively rapid U.S.growth between 2002 and 2006 contributed to large U.S.trade deficits by

Correct AnswerverifiedShow Answer

Under a gold standard, a balance of payments disequilibrium would be corrected automatically by

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

If the exchange rate changes so that more Mexican pesos are required to buy a dollar, then

Correct AnswerverifiedShow Answer

If the dollar depreciates, U.S.exports will eventually rise and U.S.imports will eventually fall.

Correct AnswerverifiedShow Answer

If there is a small surplus in the combined current account plus capital and financial account for a certain year, then to make the two accounts balance, there will be

Correct AnswerverifiedShow Answer

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

If the Canadian dollar price of United States dollars increases from C$0.80 to C$1.00, it can be concluded that

Correct AnswerverifiedShow Answer

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