Question 1

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 B)
F) All of the above

Question 2

The Bretton Woods system of exchange rates

Accepted Answer

A)   is also known as the gold standard and met its demise in the 1930s.
B)   relied heavily on floating exchange rates determined in the market for foreign exchange.
C)   was abandoned in the 1930s.
D)   was a system of fixed or pegged exchange rates, which occasionally could be adjusted.E) None of the above
F) B) and C)

Question 3

In the dollar-euro market, an increased demand for European products among U.S. buyers will create an increase in

Accepted Answer

A)   supply of euros.
B)   demand for dollars.
C)   demand for euros.
D)   shortage of dollars.E) B) and C)
F) All of the above

Question 4

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) C) and D)
F) All of the above

Question 5

U.S. exports represent two flows,

Accepted Answer

A)   an outflow of goods or services and an outflow of payments.
B)   an inflow of goods or services and an outflow of payments.
C)   an outflow of goods or services and an inflow of payments.
D)   an inflow of goods or services and an inflow of payments.E) None of the above
F) C) and D)

Question 6

A deficit on the current account

Accepted Answer

A)   normally causes a surplus on the capital and financial account.
B)   normally causes a deficit on the capital and financial account.
C)   has no relationship to the capital and financial account.
D)   means that a nation is making international transfers.E) B) and C)
F) A) and B)

Question 7

If the exchange rate between the U.S. dollar and the Japanese yen is $1 = 200 yen, then the dollar price of yen is

Accepted Answer

A)   $0.005.
B)   $0.05.
C)   $0.50.
D)   $5.E) None of the above
F) A) and B)

Question 8

In 2015, the United States' balance on goods was about

Accepted Answer

A)   −$760 billion.
B)   +$710 billion.
C)   −$486 billion.
D)   +$1,513 billion.E) A) and D)
F) A) and C)

Question 9

If a U.S. importer can purchase 10,000 British pounds for $20,000, the rate of exchange is

Accepted Answer

A)   $1 = 2 British pounds in the United States.
B)   $2 = 1 British pound in the United States.
C)   $1 = 2 British pounds in Great Britain.
D)   $0.5 = 1 British pound in Great Britain.E) None of the above
F) A) and B)

Question 10

Consider the currency market for British pounds and U.S. dollars. An increase in the supply of British pounds

Accepted Answer

A)   results in an appreciation of the pound and a depreciation of the dollar.
B)   results in a depreciation of the pound and a depreciation of the dollar.
C)   is equivalent to an increase in the demand for the U.S. dollar.
D)   Is equivalent to a decrease in the demand for the U.S. dollar.E) A) and D)
F) B) and C)

Question 11

If several nations decide to adopt and use a common currency, then each of these nations would lose the following, except

Accepted Answer

A)   the ability to set its own interest rates.
B)   the ability to set its own tax rates.
C)   control of its own exchange rate.
D)   the use of "external adjustment" tools to deal with current-account balance problems.E) A) and B)
F) A) and C)

Question 12

When the U.S. dollar decreases in value relative to foreign currencies, the

Accepted Answer

A)   demand for U.S. exports will decrease.
B)   supply of U.S. exports will decrease.
C)   demand for U.S. exports will increase.
D)   supply of U.S. exports will remain constant.E) A) and B)
F) A) and C)

Question 13

If the equilibrium exchange rate changes so that fewer dollars are needed to buy a South Korean won, then

Accepted Answer

A)   Americans will buy fewer Korean goods and services.
B)   the won has appreciated in value.
C)   fewer U.S. goods and services will be demanded by the South Koreans.
D)   the dollar has depreciated in value.E) B) and C)
F) A) and D)

Question 14

The financial account balance is a nation's

Accepted Answer

A)   net investment income minus its net transfers.
B)   exports of goods and services minus its imports of goods and services.
C)   sale of real and financial assets to people living abroad minus its purchases of real and financial assets from foreigners.
D)   domestic investment spending minus domestic saving.E) A) and B)
F) None of the above

Question 15

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 16

A nation's balance of trade on goods is equal to its exports of goods less its imports of

Accepted Answer

A)   goods.
B)   capital.
C)   financial assets.
D)   official reserves.E) A) and C)
F) All of the above

Question 17

In international financial transactions, what are the only two things that individuals and firms can exchange?

Accepted Answer

A)   currency and real assets
B)   services and manufactured goods
C)   assets and currently produced goods and services
D)   currency and currently produced goods and servicesE) A) and B)
F) C) and D)

Question 18

The basis for the Bretton Woods international monetary system was

Accepted Answer

A)   a completely fixed system of exchange rates.
B)   an adjustable peg system of exchange rates.
C)   the gold standard.
D)   a freely flexible system of exchange rates.E) A) and D)
F) C) and D)

Question 19

Remittances of Mexican workers in the U.S. to their families in Mexico are included in the U.S. balance of payments as a debit in the section on

Accepted Answer

A)   trade in services.
B)   net international transfers.
C)   financial accounts.
D)   capital accounts.E) B) and D)
F) A) and B)

Question 20

(Last Word)  Nations belonging to a common currency

Accepted Answer

A)   lose the ability to maintain competitiveness by making external adjustments to their current account balances.
B)   reduce their exchange-rate risk and costs of currency conversion.
C)   realize all of these things.
D)   sacrifice independent monetary policy.E) A) and C)
F) A) and D)

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

If the equilibrium exchange rate changes so that fewer dollars are needed to buy a South Korean won, then

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In international financial transactions, what are the only two things that individuals and firms can exchange?

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

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The Bretton Woods system of exchange rates

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The basis for the Bretton Woods international monetary system was

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If the exchange rate between the U.S. dollar and the Japanese yen is $1 = 200 yen, then the dollar price of yen is

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Remittances of Mexican workers in the U.S. to their families in Mexico are included in the U.S. balance of payments as a debit in the section on

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Consider the currency market for British pounds and U.S. dollars. An increase in the supply of British pounds

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In 2015, the United States' balance on goods was about

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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.

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If a U.S. importer can purchase 10,000 British pounds for $20,000, the rate of exchange is

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(Last Word) Nations belonging to a common currency

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A nation's balance of trade on goods is equal to its exports of goods less its imports of

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A deficit on the current account

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If several nations decide to adopt and use a common currency, then each of these nations would lose the following, except

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When the U.S. dollar decreases in value relative to foreign currencies, the

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In the dollar-euro market, an increased demand for European products among U.S. buyers will create an increase in

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

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U.S. exports represent two flows,

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The financial account balance is a nation's

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