Question 1

International transactions fall into what two broad categories?

Accepted Answer

A)  manufacturing trade and services trade
B)  international trade and international asset transactions
C)  currency transactions and services trade
D)  newly created assets and preexisting assetsE) A) and B)
F) C) and D)

Question 2

United States exports, international tourism in the United States, and foreign capital inflow into the United States all give rise to

Accepted Answer

A)  depreciation of the U.S.dollar.
B)  a supply of foreign currencies to the United States.
C)  a demand for foreign currencies in the United States.
D)  decreased foreign-exchange reserves in the United States.E) A) and B)
F) C) and D)

Question 3

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) None of the above

Question 4

The idea that freely floating exchange rates equate the buying power of national currencies is called

Accepted Answer

A)  the equation of exchange.
B)  the balance of payments.
C)  Say's Law.
D)  the purchasing power parity theory.E) A) and B)
F) B) and C)

Question 5

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

Question 6

Two of the implications of large U.S.trade deficits for the United States are

Accepted Answer

A)  decreased current consumption and decreased indebtedness to foreigners.
B)  reduced budget deficits and decreased indebtedness to foreigners.
C)  reduced current consumption and higher saving.
D)  increased current consumption and increased indebtedness to foreigners.E) A) and B)
F) A) and C)

Question 7

When a nation is experiencing a balance-of-payments deficit, its treasury or central bank will engage in a net sale of its official reserves.

Accepted Answer

A) True 
 B)False

Question 8

Which one of the following, other things equal, will directly alter the U.S.balance of trade?

Accepted Answer

A)  an increase in the balance on capital account
B)  a decrease in U.S.goods exports
C)  an increase in net transfers
D)  a decrease in U.S.purchases of assets abroadE) A) and B)
F) None of the above

Question 9

Which of the following would be an indication that a nation has a balance of payments deficit?

Accepted Answer

A)  It is buying gold abroad.
B)  Its imports exceed its exports.
C)  Its holdings of official reserves are declining.
D)  It is borrowing abroad to finance capital investments.E) C) and D)
F) None of the above

Question 10

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

Accepted Answer

A)  credit on the current account of the U.S.balance of payments.
B)  debit 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 C)
F) A) and B)

Question 11

The U.S.often has a significant surplus in services trade, even though it has a deficit in goods trade.

Accepted Answer

A) True 
 B)False

Question 12

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 D)
F) A) 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) B) and D)
F) A) and B)

Question 14

Critics of the managed floating exchange rate system argue that it

Accepted Answer

A)  is dominated by G-8 nations.
B)  is a "nonsystem" with unclear rules.
C)  increased the growth in world trade at too fast a rate.
D)  puts too much reliance on the adjustable-peg mechanism for stabilizing exchange rates.E) A) and B)
F) C) and D)

Question 15

With which of the following countries does the United States have its largest goods and services deficit?

Accepted Answer

A)  Canada
B)  Germany
C)  Japan
D)  ChinaE) A) and B)
F) B) and C)

Question 16

Present consumption supported by large trade deficits may come at the expense of

Accepted Answer

A)  permanent debt to foreign interests.
B)  permanent foreign ownership of formerly U.S.-owned assets.
C)  large sacrifices of future consumption.
D)  all of these.E) A) and D)
F) None of the above

Question 17

A market basket of goods costs $350 in the United States and 200 pounds in the United Kingdom.According to the purchasing power parity theory, the exchange rate should move toward

Accepted Answer

A)  $0.67 per British pound.
B)  $1.50 per British pound.
C)  $0.57 per British pound.
D)  $1.75 per British pound.E) B) and D)
F) A) and B)

Question 18

In recent years, the United States has had large

Accepted Answer

A)  current account surpluses.
B)  capital and financial account deficits.
C)  balance of trade deficits.
D)  balance of payments surpluses.E) C) and D)
F) None of the above

Question 19

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) C) and D)

Question 20

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

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

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

Correct AnswerverifiedShow Answer

Critics of the managed floating exchange rate system argue that it

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

The U.S.often has a significant surplus in services trade, even though it has a deficit in goods trade.

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

United States exports, international tourism in the United States, and foreign capital inflow into the United States all give rise to

Correct AnswerverifiedShow Answer

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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International transactions fall into what two broad categories?

Correct AnswerverifiedShow Answer

When a nation is experiencing a balance-of-payments deficit, its treasury or central bank will engage in a net sale of its official reserves.

Correct AnswerverifiedShow Answer

Under the gold standard,

Correct AnswerverifiedShow Answer

Two of the implications of large U.S.trade deficits for the United States are

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With which of the following countries does the United States have its largest goods and services deficit?

Correct AnswerverifiedShow Answer

In recent years, the United States has had large

Correct AnswerverifiedShow Answer

Which one of the following, other things equal, will directly alter the U.S.balance of trade?

Correct AnswerverifiedShow Answer

Present consumption supported by large trade deficits may come at the expense of

Correct AnswerverifiedShow Answer

A market basket of goods costs $350 in the United States and 200 pounds in the United Kingdom.According to the purchasing power parity theory, the exchange rate should move toward

Correct AnswerverifiedShow Answer

The idea that freely floating exchange rates equate the buying power of national currencies is called

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

Which of the following would be an indication that a nation has a balance of payments deficit?

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

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