Question 1

Suppose that the Mexican government decides to fix or peg the dollar-peso exchange rate at P20 = $1. If foreign-exchange traders on one day want to exchange P40 million for dollars, to enforce the peg the Mexican government will need to come up with

Accepted Answer

A)  $40 million.
B)  $800 million.
C)  $2 million.
D)  $0.5 million.E) A) and C)
F) A) and B)

Question 2

There must always be a balance of a nation's

Accepted Answer

A)  goods exports and gold imports.
B)  total international payments.
C)  imports and exports of goods and services.
D)  net transfers and net investment income.E) None of the above
F) C) and D)

Question 3

Depreciation of the dollar will

Accepted Answer

A)  decrease the prices of both U.S. imports and exports.
B)  increase the prices of both U.S. imports and exports.
C)  decrease the prices of U.S. imports but increase the prices to foreigners of U.S. exports.
D)  increase the prices of U.S. imports but decrease the prices to foreigners of U.S. exports.E) All of the above
F) A) and D)

Question 4

A current account deficit will reduce U.S. foreign indebtedness.

Accepted Answer

A) True 
 B)False

Question 5

The United States' current account deficit reached a record high in

Accepted Answer

A)  2006.
B)  2007.
C)  2009.
D)  2015.E) A) and B)
F) B) and C)

Question 6

Explain how the exchange rate gets determined in a flexible exchange rate system.

Accepted Answer

If the foreign excha...

Question 7

What are the implications of persistent U.S. trade deficits?

Accepted Answer

Most economists see both benefits and co...

Question 8

If currency speculators believe South Korea will have much lower inflation in the future than the United States, then this event is most likely to cause the South Korean won to

Accepted Answer

A)  depreciate and the U.S. dollar to depreciate.
B)  depreciate and the U.S. dollar to appreciate.
C)  appreciate and the U.S. dollar to appreciate.
D)  appreciate and the U.S. dollar to depreciate.E) C) and D)
F) All of the above

Question 9

Which of the following is not a condition of the international gold standard?

Accepted Answer

A)  A nation must be willing to accept very wide fluctuations in its exchange rate.
B)  A nation must allow gold to be freely exported and imported.
C)  A nation must be willing to convert gold into paper money and vice versa at a stipulated rate.
D)  A nation must define its monetary unit in terms of a certain quantity of gold.E) A) and B)
F) A) and C)

Question 10

The large trade deficit that the United States has with China persists in part because

Accepted Answer

A)  the U.S. economy has grown slowly in recent years.
B)  China has fixed its exchange rate to a basket of currencies that includes the dollar, and has not allowed the yuan to appreciate relative to the U.S. dollar.
C)  China has experienced rapid economic growth over the past decade.
D)  China has recently imposed or increased tariffs on most goods imported from the United States.E) A) and C)
F) C) and D)

Question 11

Official reserves used to achieve a balance of payments between nations engaging in international trade are held by

Accepted Answer

A)  private businesses engaging in trade.
B)  central banks of the nations engaged in trade.
C)  commercial banks, which make loans to businesses engaging in trade.
D)  commercial banks, which make loans to governments that engage in trade.E) A) and D)
F) None of the above

Question 12

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 13

The plus items in the table are "export-type" entries and the minus items are "import-type" entries in the balance of payments for the hypothetical country of Zippo. Zippo has

Accepted Answer

A)  a current account surplus.
B)  a financial account deficit.
C)  a trade surplus on goods and services.
D)  neither a balance of payments deficit nor a surplus.E) B) and C)
F) A) and C)

Question 14

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

Accepted Answer

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

Question 15

If there is a recession in the United Kingdom and a reduction in British imports, and an economic boom in the United States and an increase in U.S. imports, then these events are most likely to cause the British pound to

Accepted Answer

A)  appreciate and the U.S. dollar to appreciate.
B)  depreciate and the U.S. dollar to depreciate.
C)  appreciate and the U.S. dollar to depreciate.
D)  depreciate and the U.S. dollar to appreciate.E) A) and B)
F) A) and C)

Question 16

In saying that the present system of floating exchange rates is managed, we mean that

Accepted Answer

A)  countries that allow their exchange rate to move freely will lose their borrowing privileges with the IMF.
B)  the value of any IMF member's currency can only vary 2 percent from its par value.
C)  IMF officials determine exchange rates on a day-to-day basis.
D)  the central banks of various countries sometimes buy and sell foreign exchange to alter undesirable trends in exchange rates.E) A) and C)
F) C) and D)

Question 17

The accompanying table contains hypothetical data for the U.S. balance of payments in a year. All figures are in billions of dollars. What does the figure for net investment income indicate?

Accepted Answer

A)  Americans invested more abroad than the amount foreigners invested in the U.S.
B)  the size of the net inflow of foreign investment to the United States in that year
C)  the net amount Americans received as interest and dividends on existing American investments abroad
D)  the net amount Americans paid as interest and dividends on existing foreign investments in the United StatesE) All of the above
F) A) and B)

Question 18

If nations adopt a gold standard where various countries' money supply is tied to gold, then there will in effect be a fixed exchange-rate system.

Accepted Answer

A) True 
 B)False

Question 19

Under a fixed exchange-rate system, which of the following will not occur if the demand for the local currency rises?

Accepted Answer

A)  The central bank will accumulate foreign-exchange reserves.
B)  The domestic money supply will increase.
C)  As a result of the central bank's actions to maintain the peg, a positive item appears in the balance-of-payments statement.
D)  The economy will experience an increase in inflationary pressure.E) A) and B)
F) All of the above

Question 20

In 2018, the capital account in the U.S. balance of payments was in

Accepted Answer

A)  deficit, and larger than the current account deficit.
B)  surplus, and larger than the current account surplus.
C)  deficit, and smaller than the current account deficit.
D)  balance, with no deficit or surplus.E) All of the above
F) None of the above

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

Depreciation of the dollar will

Correct AnswerverifiedShow Answer

The plus items in the table are "export-type" entries and the minus items are "import-type" entries in the balance of payments for the hypothetical country of Zippo. Zippo has

Correct AnswerverifiedShow Answer

If there is a recession in the United Kingdom and a reduction in British imports, and an economic boom in the United States and an increase in U.S. imports, then these events are most likely to cause the British pound to

Correct AnswerverifiedShow Answer

The United States' current account deficit reached a record high in

Correct AnswerverifiedShow Answer

The large trade deficit that the United States has with China persists in part because

Correct AnswerverifiedShow Answer

In saying that the present system of floating exchange rates is managed, we mean that

Correct AnswerverifiedShow Answer

If nations adopt a gold standard where various countries' money supply is tied to gold, then there will in effect be a fixed exchange-rate system.

Correct AnswerverifiedShow Answer

Official reserves used to achieve a balance of payments between nations engaging in international trade are held by

Correct AnswerverifiedShow Answer

There must always be a balance of a nation's

Correct AnswerverifiedShow Answer

In 2018, the capital account in the U.S. balance of payments was in

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 demand for yen will result in

Correct AnswerverifiedShow Answer

Explain how the exchange rate gets determined in a flexible exchange rate system.

Correct Answerverified<b> </b>If the foreign excha...View AnswerShow Answer

Which of the following is not a condition of the international gold standard?

Correct AnswerverifiedShow Answer

Under a fixed exchange-rate system, which of the following will not occur if the demand for the local currency rises?

Correct AnswerverifiedShow Answer

Suppose that the Mexican government decides to fix or peg the dollar-peso exchange rate at P20 = $1. If foreign-exchange traders on one day want to exchange P40 million for dollars, to enforce the peg the Mexican government will need to come up with

Correct AnswerverifiedShow Answer

If currency speculators believe South Korea will have much lower inflation in the future than the United States, then this event is most likely to cause the South Korean won to

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

The accompanying table contains hypothetical data for the U.S. balance of payments in a year. All figures are in billions of dollars. What does the figure for net investment income indicate?

Correct AnswerverifiedShow Answer

A current account deficit will reduce U.S. foreign indebtedness.

Correct AnswerverifiedShow Answer

What are the implications of persistent U.S. trade deficits?

Correct AnswerverifiedMost economists see both benefits and co...View AnswerShow Answer

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Most economists see both benefits and co...
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