Question 1

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 2

In 2015, the capital and financial account in the U.S. balance of payments was in

Accepted Answer

A)   deficit, and smaller than the current account deficit.
B)   surplus, and equal to the current account deficit.
C)   balance, with no deficit or surplus.
D)   surplus, and smaller than the current account deficit.E) A) and B)
F) C) and D)

Question 3

Suppose that the economically largest nations collectively decided that the dollar is too strong (high in value)  relative to the yen. These nations might

Accepted Answer

A)   use foreign exchange reserves of yen to buy dollars.
B)   use foreign exchange reserves of dollars to buy yen.
C)   encourage Japan to print more yen.
D)   encourage the United States to increase interest rates.E) A) and D)
F) B) and C)

Question 4

In equilibrium, if $1 = 0.5 pound sterling and 1 pound sterling = 40 Swiss francs, the exchange rate between dollar and franc will be

Accepted Answer

A)   1 franc = $0.10.
B)   1 franc = $0.20.
C)   $1 = 80 francs.
D)   $1 = 20 francs.E) All of the above
F) B) and D)

Question 5

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 B)
F) None of the above

Question 6

The equilibrium exchange rate between two currencies is determined by the supply and demand in the

Accepted Answer

A)   traded goods markets.
B)   stock exchange markets.
C)   foreign exchange markets.
D)   money markets.E) B) and C)
F) A) and D)

Question 7

A system of fixed exchange rates is more likely to result in exchange controls than is a system of flexible (floating) exchange rates.

Accepted Answer

A) True 
 B)False

Question 8

Which one of the following is not a major factor that contributed to large trade deficits in the United States in the period 2002-2007?

Accepted Answer

A)   a declining saving rate coupled with a rising investment rate in the U.S.
B)   a U.S. economy growing faster than its trading partners
C)   large trade deficits with OPEC economies
D)   flexible exchange rate between the U.S. dollar and the Chinese yuanE) B) and C)
F) A) and B)

Question 9

Under a system of flexible exchange rates, an increase in the international value of a nation's currency will

Accepted Answer

A)   cause an international surplus of its currency.
B)   contribute to disequilibrium in its balance of payments.
C)   cause gold to flow into that country.
D)   cause its imports to rise.E) A) and C)
F) B) and D) D

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 B)
F) C) and D)

Question 11

Assume that Brazil and Mexico have floating exchange rates. Other things unchanged, if the price level is stable in Mexico, but Brazil experiences rapid inflation,

Accepted Answer

A)   gold bullion will flow into Brazil.
B)   the Brazilian real will depreciate.
C)   the Mexican peso will depreciate.
D)   the Brazilian real will appreciate.E) A) and D)
F) A) and C) B

Question 12

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 B)
F) B) and C)

Question 13

If real interest rates rise in the United Kingdom relative to the United States, then this event is most likely to cause the British pound 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) A) and B)
F) A) and C)

Question 14

The purchasing-power-parity theory holds that exchange rates should equalize the inflation rates among the trading nations.

Accepted Answer

A) True 
 B)False  False

Question 15

According to the purchasing power parity theory of exchange rates,

Accepted Answer

A)   a dollar, when converted to other currencies at the prevailing floating exchange rate, has the same purchasing power in various countries.
B)   in equilibrium, national currencies have equal value in terms of gold.
C)   the higher a nation's price level in terms of its own currency, the greater is the amount of foreign exchange it can obtain for a unit of its currency.
D)   nominal currency values will tend to equalize (become 1 = 1)  in the long run.E) B) and D)
F) B) and C)

Question 16

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) None of the above
F) B) and C)

Question 17

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

Accepted Answer

A) True 
 B)False

Question 18

The current account portion of a nation's balance of payments statement includes net investment income.

Accepted Answer

A) True 
 B)False

Question 19

The flow of payments for purchases and sale of financial assets is included in the current account balance of a nation.

Accepted Answer

A) True 
 B)False

Question 20

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

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

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

In 2015, the capital and financial account in the U.S. balance of payments was in

Correct AnswerverifiedShow Answer

Suppose that the economically largest nations collectively decided that the dollar is too strong (high in value) relative to the yen. These nations might

Correct AnswerverifiedShow Answer

In equilibrium, if $1 = 0.5 pound sterling and 1 pound sterling = 40 Swiss francs, the exchange rate between dollar and franc will be

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

The equilibrium exchange rate between two currencies is determined by the supply and demand in the

Correct AnswerverifiedShow Answer

A system of fixed exchange rates is more likely to result in exchange controls than is a system of flexible (floating) exchange rates.

Correct AnswerverifiedShow Answer

Which one of the following is not a major factor that contributed to large trade deficits in the United States in the period 2002-2007?

Correct AnswerverifiedShow Answer

Under a system of flexible exchange rates, an increase in the international value of a nation's currency will

Correct AnswerverifiedD

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

Correct AnswerverifiedShow Answer

Assume that Brazil and Mexico have floating exchange rates. Other things unchanged, if the price level is stable in Mexico, but Brazil experiences rapid inflation,

Correct AnswerverifiedB

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

If real interest rates rise in the United Kingdom relative to the United States, then this event is most likely to cause the British pound to

Correct AnswerverifiedShow Answer

The purchasing-power-parity theory holds that exchange rates should equalize the inflation rates among the trading nations.

Correct AnswerverifiedFalse

According to the purchasing power parity theory of exchange rates,

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

The current account portion of a nation's balance of payments statement includes net investment income.

Correct AnswerverifiedShow Answer

The flow of payments for purchases and sale of financial assets is included in the current account balance of a nation.

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

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D

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B

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False

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