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Exam 21: The Balance of Payments, Exchange Rates, and Trade Deficits

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Question 61

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A declining amount of foreign-exchange reserves resulting from maintaining a pegged exchange rate would have which of the following effects?

A) a decrease in domestic money supply
B) a negative item entry in the balance of payments statement
C) rising inflationary pressure
D) an increase in the supply of local currency coming from this nation's central bank

E) A) and D)
F) All of the above

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Question 62

Multiple Choice

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

A) 2006.
B) 2007.
C) 2009.
D) 2015.

E) A) and D)
F) None of the above

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Question 63

Multiple Choice

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In 1985, the exchange rate between the U.S. dollar and the Japanese yen was $1 = 262 yen; in 2003, the rate was $1 = 110 yen. Which one of the following might be a plausible explanation for the Change in the dollar-yen exchange rate from 1985 to 2003?

Suppose the balance on the current account is +$50 billion and the balance on the capital account is +$1 billion. The balance on the financial account is

$\begin{array} { | l | c | } \hline \text { (1) Goods Exports } & + \$ 15 \\\hline \text { (2) Goods Imports } & - 17 \\\hline \text { (3) Service Exports } & + 5 \\\hline \text { (4) Service Imports } & - 2 \\\hline \text { (5) Net Investment Income } & - 5 \\\hline \text { (6) Net Transfers } & + 4 \\\hline \text { (7) Foreign Purchases of Assets } & + 5 \\\hline \text { (8) Purchases of Foreign Assets } & - 11 \\\hline \text { (9) Balance on Capital Account } & + 1 \\\hline\end{array}$ The table shows a balance of payments statement for Transylvania. All ?gures are in billions of dollars. Transylvania realized a ?nancial and capital account de?cit for the year.

If Japanese autos surge in popularity in the United States, then this event is most likely to cause the Japanese yen to

The U.S. demand for euros is

List the six determinants of exchange rates.

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

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

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

Define the two "pure" types of exchange-rate systems.

Improved economic growth in the major trading partners of the United States would reduce its trade deficit.

Which system would be accompanied by occasional currency interventions by central banks to stabilize or alter rates to avoid persistent balance of payments deficits or surpluses?

$\begin{array} { | l | c | } \hline \text { (1) Goods Exports } & + \$ 15 \\\hline \text { (2) Goods Imports } & - 17 \\\hline \text { (3) Service Exports } & + 5 \\\hline \text { (4) Service Imports } & - 2 \\\hline \text { (5) Net Investment Income } & - 5 \\\hline \text { (6) Net Transfers } & + 4 \\\hline \text { (7) Foreign Purchases of Assets } & + 5 \\\hline \text { (8) Purchases of Foreign Assets } & - 11 \\\hline \text { (9) Balance on Capital Account } & + 1 \\\hline\end{array}$ The table shows a balance of payments statement for Transylvania. All ?gures are in billions of dollars. Transylvania had a $2 billion balance of trade (goods) surplus in this particular year.

Under an international gold standard,

Faster economic growth in the United States relative to other nations tends to worsen the U.S. trade deficit.

To maintain a fixed exchange rate, the government can use the following tools, except

In the balance of payments of the United States, inflows of money to the United States are recorded as

Refer to the graph, which shows the supply and demand for British pounds. $D _ { 1 }$ and $S _ { 1 }$ 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?