Question 1

To keep the exchange rate constant, an increase in the demand for a country's currency should be matched by a corresponding increase in supply to be administered by the government.

Accepted Answer

A) True 
 B)False

Question 2

When the nation's FX reserves are rising, some would call it a "balance of payments surplus." This could happen as a result of any of the following except

Accepted Answer

A)  the nation giving up assets to other nations.
B)  the nation sending more products abroad than it brought in.
C)  the economy becoming tremendously fortunate and strong.
D)  other nations investing more in this nation than this nation is investing in others.E) A) and C)
F) B) and C)

Question 3

Describe how changes in tastes affect the value of a nation's currency.

Accepted Answer

Any change in consumer tastes or prefere...

Question 4

The table contains hypothetical data for the U.S. balance of payments. All figures are in billions of dollars. The U.S. balance on goods and services is a

Accepted Answer

A)  $10 billion deficit.
B)  $20 billion deficit.
C)  $30 billion surplus.
D)  $30 billion deficit.E) B) and C)
F) A) and D)

Question 5

The table contains balance of payments data (+ and −) for the hypothetical nation of Zabella. All figures are in billions of dollars. Zabella's balance on the capital and financial account shows a

Accepted Answer

A)  deficit of $5 billion.
B)  surplus of $10 billion.
C)  deficit of $10 billion.
D)  surplus of $5 billion.E) A) and C)
F) A) and D)

Question 6

What are the major components of the current account in the balance of payments? How is the current account balance determined?

Accepted Answer

The current account summarizes United St...

Question 7

Other things being equal, an increase in the U.S. rate of inflation is likely to cause an increase in the

Accepted Answer

A)  quantity of U.S. exports.
B)  quantity of U.S. imports.
C)  demand for U.S. dollars.
D)  international value of the U.S. dollar.E) A) and B)
F) B) and D)

Question 8

Refer to the graph, which shows the supply and demand for British pounds. D₁ and S₁ represent the initial demand and supply curves. What will be the new market equilibrium point as indicated in the graph if there is an increase in consumer spending by the British for American products and a decrease in consumer spending by Americans for British products?

Accepted Answer

A)  A
B)  C
C)  H
D)  JE) A) and B)
F) A) and C)

Question 9

When a U.S. agribusiness company sells 10,000 units of cow vaccine to a company in France, this transaction will represent a(n)

Accepted Answer

A)  inflow of money on the current account of the U.S. balance of payments.
B)  outflow of money 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) C) and D)
F) None of the above

Question 10

If a U.S. importer can purchase 10,000 British pounds for $30,000, the rate of exchange is

Accepted Answer

A)  $3 = 1 British pound in the United States.
B)  $1 = 3 British pounds in the United States.
C)  $0.33 = 1 British pound in Great Britain.
D)  $1 = 0.33 British pound in Great Britain.E) B) and D)
F) C) and D)

Question 11

Explain the basic difference in a fixed (or pegged)exchange rate policy as opposed to a flexible exchange rate policy.

Accepted Answer

With a fixed exchange rate policy, the g...

Question 12

The expectations of speculators in the United States are that the exchange rate for the euro will fall in the future, will increase the supply of euros in the foreign exchange market, and decrease the exchange rate for the euros.

Accepted Answer

A) True 
 B)False

Question 13

Suppose the balance on the financial account is +$200 billion and the balance on the capital account is +$2 billion. The size of the current account is

Accepted Answer

A)  +$200 billion.
B)  −$202 billion.
C)  −$198 billion.
D)  +$2 billion.E) B) and C)
F) A) and C)

Question 14

The accompanying table contains hypothetical data for the U.S. balance of payments in a year. All figures are in billions of dollars. The balance of trade in goods and services was a(n)

Accepted Answer

A)  $92 billion deficit.
B)  $107 billion surplus.
C)  $15 billion deficit.
D)  $38 billion surplus.E) A) and D)
F) A) and C)

Question 15

The graph shows the supply and demand curves for dollars in the pound/dollar market. Assume that D₁ and S₁ are the initial demand for and supply of dollars. The exchange rate will be

Accepted Answer

A)  $5 equals 1 pound.
B)  $4 equals 1 pound.
C)  $1 equals 5 pounds.
D)  $0.20 equals 1 pound.E) A) and B)
F) None of the above

Question 16

Assume that Japan and the United States are engaged in a system of flexible exchange rates. Refer to the graph. An increase in the supply of yen will result in

Accepted Answer

A)  an appreciation of the yen.
B)  an appreciation of the U.S. dollar.
C)  a depreciation of the U.S. dollar.
D)  an increase in the dollar price of yen.E) B) and D)
F) A) and B)

Question 17

With flexible exchange rates, an increase in U.S. interest rates can be expected to

Accepted Answer

A)  adversely affect U.S. exporters.
B)  encourage investment spending by U.S. firms.
C)  lower the foreign exchange value of the dollar.
D)  cause a net outflow of foreign capital from the United States.E) B) and C)
F) All of the above

Question 18

The following are hypothetical exchange rates: 2 euros = 1 pound; $1 = 2 pounds. We can conclude that

Accepted Answer

A)  $1 = 4 euros.
B)  $1 = 0.5 euro.
C)  1 euro = $0.50.
D)  1 euro = $2.E) B) and D)
F) All of the above

Question 19

Which of the following statements is most accurate about the U.S. current account since the Great Recession (the period covering 2009-2015) ?

Accepted Answer

A)  The current account has remained the same in absolute terms, but fallen as a percentage of GDP.
B)  The current account has gone from a deficit to a surplus.
C)  The current account deficit has grown in absolute terms, but remained relatively constant as a percentage of GDP.
D)  The current account deficit has grown in both absolute terms, and as a percentage of GDP.E) C) and D)
F) B) and C)

Question 20

Which of the following would call for inflows of money to the United States?

Accepted Answer

A)  Gold flows into the United States.
B)  U.S. firms sell insurance to Brazilian shippers.
C)  The United States sends foreign aid to developing countries.
D)  The United States imports German automobiles.E) B) and C)
F) All of the above

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

Which of the following would call for inflows of money to the United States?

Correct Answer
verified

The following are hypothetical exchange rates: 2 euros = 1 pound; $1 = 2 pounds. We can conclude that

Correct Answer
verified

The graph shows the supply and demand curves for dollars in the pound/dollar market. Assume that D₁ and S₁ are the initial demand for and supply of dollars. The exchange rate will be

Correct Answer
verified

When the nation's FX reserves are rising, some would call it a "balance of payments surplus." This could happen as a result of any of the following except

Correct Answer
verified

Other things being equal, an increase in the U.S. rate of inflation is likely to cause an increase in the

Correct Answer
verified

Correct Answer
verified

The table contains hypothetical data for the U.S. balance of payments. All figures are in billions of dollars. The U.S. balance on goods and services is a

Correct Answer
verified

Assume that Japan and the United States are engaged in a system of flexible exchange rates. Refer to the graph. An increase in the supply of yen will result in

Correct Answer
verified

What are the major components of the current account in the balance of payments? How is the current account balance determined?

Correct Answer
verified
The current account summarizes United St...
View Answer

Explain the basic difference in a fixed (or pegged)exchange rate policy as opposed to a flexible exchange rate policy.

Correct Answer
verified
With a fixed exchange rate policy, the g...
View Answer

The expectations of speculators in the United States are that the exchange rate for the euro will fall in the future, will increase the supply of euros in the foreign exchange market, and decrease the exchange rate for the euros.

Correct Answer
verified

To keep the exchange rate constant, an increase in the demand for a country's currency should be matched by a corresponding increase in supply to be administered by the government.

Correct Answer
verified

Suppose the balance on the financial account is +$200 billion and the balance on the capital account is +$2 billion. The size of the current account is

Correct Answer
verified

When a U.S. agribusiness company sells 10,000 units of cow vaccine to a company in France, this transaction will represent a(n)

Correct Answer
verified

With flexible exchange rates, an increase in U.S. interest rates can be expected to

Correct Answer
verified

The accompanying table contains hypothetical data for the U.S. balance of payments in a year. All figures are in billions of dollars. The balance of trade in goods and services was a(n)

Correct Answer
verified

Describe how changes in tastes affect the value of a nation's currency.

Correct Answer
verified
Any change in consumer tastes or prefere...
View Answer

If a U.S. importer can purchase 10,000 British pounds for $30,000, the rate of exchange is

Correct Answer
verified

The table contains balance of payments data (+ and −) for the hypothetical nation of Zabella. All figures are in billions of dollars. Zabella's balance on the capital and financial account shows a

Correct Answer
verified

Which of the following statements is most accurate about the U.S. current account since the Great Recession (the period covering 2009-2015) ?

Correct Answer
verified

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

Which of the following would call for inflows of money to the United States?

Correct AnswerverifiedShow Answer

The following are hypothetical exchange rates: 2 euros = 1 pound; $1 = 2 pounds. We can conclude that

Correct AnswerverifiedShow Answer

The graph shows the supply and demand curves for dollars in the pound/dollar market. Assume that D₁ and S₁ are the initial demand for and supply of dollars. The exchange rate will be

Correct AnswerverifiedShow Answer

When the nation's FX reserves are rising, some would call it a "balance of payments surplus." This could happen as a result of any of the following except

Correct AnswerverifiedShow Answer

Other things being equal, an increase in the U.S. rate of inflation is likely to cause an increase in the

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

The table contains hypothetical data for the U.S. balance of payments. All figures are in billions of dollars. The U.S. balance on goods and services is a

Correct AnswerverifiedShow Answer

Assume that Japan and the United States are engaged in a system of flexible exchange rates. Refer to the graph. An increase in the supply of yen will result in

Correct AnswerverifiedShow Answer

What are the major components of the current account in the balance of payments? How is the current account balance determined?

Correct AnswerverifiedThe current account summarizes United St...View AnswerShow Answer

Explain the basic difference in a fixed (or pegged)exchange rate policy as opposed to a flexible exchange rate policy.

Correct AnswerverifiedWith a fixed exchange rate policy, the g...View AnswerShow Answer

The expectations of speculators in the United States are that the exchange rate for the euro will fall in the future, will increase the supply of euros in the foreign exchange market, and decrease the exchange rate for the euros.

Correct AnswerverifiedShow Answer

To keep the exchange rate constant, an increase in the demand for a country's currency should be matched by a corresponding increase in supply to be administered by the government.

Correct AnswerverifiedShow Answer

Suppose the balance on the financial account is +$200 billion and the balance on the capital account is +$2 billion. The size of the current account is

Correct AnswerverifiedShow Answer

When a U.S. agribusiness company sells 10,000 units of cow vaccine to a company in France, this transaction will represent a(n)

Correct AnswerverifiedShow Answer

With flexible exchange rates, an increase in U.S. interest rates can be expected to

Correct AnswerverifiedShow Answer

The accompanying table contains hypothetical data for the U.S. balance of payments in a year. All figures are in billions of dollars. The balance of trade in goods and services was a(n)

Correct AnswerverifiedShow Answer

Describe how changes in tastes affect the value of a nation's currency.

Correct AnswerverifiedAny change in consumer tastes or prefere...View AnswerShow Answer

If a U.S. importer can purchase 10,000 British pounds for $30,000, the rate of exchange is

Correct AnswerverifiedShow Answer

The table contains balance of payments data (+ and −) for the hypothetical nation of Zabella. All figures are in billions of dollars. Zabella's balance on the capital and financial account shows a

Correct AnswerverifiedShow Answer

Which of the following statements is most accurate about the U.S. current account since the Great Recession (the period covering 2009-2015) ?

Correct AnswerverifiedShow Answer

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
The current account summarizes United St...
View Answer

Correct Answer
verified
With a fixed exchange rate policy, the g...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
Any change in consumer tastes or prefere...
View Answer

Correct Answer
verified

Correct Answer
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Correct Answer
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