Question 1

When a U.S. importer buys 100,000 pairs of pants from a Hong Kong company, 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) A) and B)
F) B) and C)

Question 2

Under flexible (floating)exchange rates, if the dollar price of pounds rises, the pound price of dollars will fall.

Accepted Answer

A) True 
 B)False

Question 3

An increase in the income of country A relative to the income of country B will usually lead to an increase in country

Accepted Answer

A)  A's exports to country B.
B)  B's imports from country A.
C)  A's demand for the currency of country B.
D)  B's demand for the currency of country A.E) A) and B)
F) A) and D)

Question 4

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) C) and D)
F) A) and C)

Question 5

A nation's current account balance is equal to its exports less its imports of

Accepted Answer

A)  goods and services.
B)  goods and services, minus U.S. purchases of assets abroad.
C)  goods and services, plus net investment income and net transfers.
D)  goods and services, plus foreign purchases of assets in the United States.E) A) and D)
F) A) and B)

Question 6

Other things being equal, which of the following is a necessary consequence of a depreciation of the U.S. dollar against other currencies?

Accepted Answer

A)  The terms of trade will move in favor of the United States.
B)  The United States will experience an increase in the volume of imports.
C)  International speculators will buy U.S. dollars and sell other currencies.
D)  U.S. exports will become cheaper relative to other nations' products.E) C) and D)
F) All of the above

Question 7

The following are hypothetical exchange rates: $1 = 140 yen; 1 Swiss franc = $0.10. We can conclude that

Accepted Answer

A)  1 yen = 280 Swiss francs.
B)  1 yen = 14 Swiss francs.
C)  1 Swiss franc = 28 yen.
D)  1 Swiss franc = 14 yen.E) None of the above
F) A) and C)

Question 8

List the six determinants of exchange rates.

Accepted Answer

The six determinants of exchange rates a...

Question 9

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 financial account shows a

Accepted Answer

A)  deficit of $10 billion.
B)  surplus of $5 billion.
C)  deficit of $28 billion.
D)  surplus of $13 billion.E) A) and B)
F) A) and C)

Question 10

In considering the market for yen and dollars, when the dollar depreciates,

Accepted Answer

A)  the yen appreciates.
B)  the yen will also depreciate.
C)  the yen may either appreciate or depreciate.
D)  U.S. net exports to Japan will fall.E) C) and D)
F) A) and B)

Question 11

The table contains data for the U.S. balance of payments in a prior year. All figures are in billions of dollars. The data indicate that Americans

Accepted Answer

A)  bought foreign assets abroad more than foreigners bought assets in the U.S.
B)  invested abroad more than foreigners invested in America.
C)  earned more from their investments abroad than foreigners earned from their investments in America.
D)  sold more products to buyers abroad than what foreign producers sold to buyers in America.E) B) and D)
F) A) and B)

Question 12

Define international asset transactions, and then give an example.

Accepted Answer

International asset transactions are the...

Question 13

If the U.S. national income grows much faster than that of Canada, this would tend to make the U.S. dollar

Accepted Answer

A)  appreciate against the Canadian dollar.
B)  depreciate against the Canadian dollar.
C)  become worth more in terms of Canadian dollars.
D)  become a fixed-rate against the Canadian dollar.E) C) and D)
F) B) and C)

Question 14

People will have to exchange their currency for another only when they do exporting or importing.

Accepted Answer

A) True 
 B)False

Question 15

In the U.S. balance of payments, U.S. purchases of assets abroad are a(n)

Accepted Answer

A)  money outflow.
B)  money inflow.
C)  current account item.
D)  inpayment.E) All of the above
F) A) and D)

Question 16

Refer to the diagram. The initial demand for and supply of pesos are shown by D₁ and S₁. Suppose the United States reduces its imports of Mexican goods, shifting its demand for pesos from D₁ to D₂. If the United States and Mexico were both on the international gold standard,

Accepted Answer

A)  gold would flow from Mexico to the United States.
B)  the exchange rate would rise from B dollars equals 1 peso to C dollars equals 1 peso.
C)  gold would flow from the United States to Mexico.
D)  the exchange rate would fall from B dollars equals 1 peso to A dollars equals 1 peso.E) All of the above
F) A) and C)

Question 17

The current monetary system for conducting international trade is usually described as a system of

Accepted Answer

A)  fixed exchange rates.
B)  freely floating exchange rates.
C)  a managed gold standard.
D)  managed floating exchange rates.E) A) and D)
F) B) and D)

Question 18

In the balance of payments of the United States, U.S. goods imports are recorded as a

Accepted Answer

A)  positive entry.
B)  capital account entry.
C)  current account entry.
D)  financial account entry.E) A) and B)
F) A) and C)

Question 19

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

Accepted Answer

A) True 
 B)False

Question 20

Under the gold standard,

Accepted Answer

A)  nations can protect their domestic price and employment levels from changes in the volume and direction of world trade.
B)  exchange rates are virtually fixed.
C)  differences in exports and imports will be precisely balanced by capital account flows, excluding gold.
D)  exchange rates fluctuate freely in response to changes in the supply of, and demand for, foreign currencies.E) A) and B)
F) C) and D)

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

In the U.S. balance of payments, U.S. purchases of assets abroad are a(n)

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

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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 financial account shows a

Correct AnswerverifiedShow Answer

The current monetary system for conducting international trade is usually described as a system of

Correct AnswerverifiedShow Answer

Refer to the diagram. The initial demand for and supply of pesos are shown by D₁ and S₁. Suppose the United States reduces its imports of Mexican goods, shifting its demand for pesos from D₁ to D₂. If the United States and Mexico were both on the international gold standard,

Correct AnswerverifiedShow Answer

People will have to exchange their currency for another only when they do exporting or importing.

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A nation's current account balance is equal to its exports less its imports of

Correct AnswerverifiedShow Answer

In considering the market for yen and dollars, when the dollar depreciates,

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When a U.S. importer buys 100,000 pairs of pants from a Hong Kong company, this transaction will represent a(n)

Correct AnswerverifiedShow Answer

An increase in the income of country A relative to the income of country B will usually lead to an increase in country

Correct AnswerverifiedShow Answer

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

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If the U.S. national income grows much faster than that of Canada, this would tend to make the U.S. dollar

Correct AnswerverifiedShow Answer

In the balance of payments of the United States, U.S. goods imports are recorded as a

Correct AnswerverifiedShow Answer

The following are hypothetical exchange rates: $1 = 140 yen; 1 Swiss franc = $0.10. We can conclude that

Correct AnswerverifiedShow Answer

The table contains data for the U.S. balance of payments in a prior year. All figures are in billions of dollars. The data indicate that Americans

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List the six determinants of exchange rates.

Correct AnswerverifiedThe six determinants of exchange rates a...View AnswerShow Answer

Define international asset transactions, and then give an example.

Correct AnswerverifiedInternational asset transactions are the...View AnswerShow Answer

Under the gold standard,

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Under flexible (floating)exchange rates, if the dollar price of pounds rises, the pound price of dollars will fall.

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Other things being equal, which of the following is a necessary consequence of a depreciation of the U.S. dollar against other currencies?

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The six determinants of exchange rates a...
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International asset transactions are the...
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