Question 1

The merchandise trade balance measures

Accepted Answer

A) the value of goods and services exported 
B) the value of all goods and services exported minus the value of all goods and services imported 
C) the value of all goods and services exported minus the value of all goods and services imported, and transactions to finance the difference 
D) the value of all tangible products exported minus the value of all tangible products imported 
E) the value of all tangible products exported minus the value of all tangible products imported, and transactions to finance the difference 
A) the value of goods and services exported 
B) the value of all goods and services exported minus the value of all goods and services imported 
C) the value of all goods and services exported minus the value of all goods and services imported, and transactions to finance the difference 
D) the value of all tangible products exported minus the value of all tangible products imported 
E) the value of all tangible products exported minus the value of all tangible products imported, and transactions to finance the difference

Question 2

A floating exchange rate

Accepted Answer

A) is determined by the national governments involved 
B) remains extremely stable over long periods of time 
C) is determined by the actions of central banks 
D) is allowed to vary only within a narrow range 
E) adjusts in response to market forces 
A) is determined by the national governments involved 
B) remains extremely stable over long periods of time 
C) is determined by the actions of central banks 
D) is allowed to vary only within a narrow range 
E) adjusts in response to market forces

Question 3

If a foreign currency becomes more expensive in United States dollars, we would expect

Accepted Answer

A) U.S.exports to increase 
B) U.S.imports to increase 
C) U.S.exports to remain constant 
D) U.S.exports to decrease 
E) the quantity of foreign currency demanded in the United States to rise 
A) U.S.exports to increase 
B) U.S.imports to increase 
C) U.S.exports to remain constant 
D) U.S.exports to decrease 
E) the quantity of foreign currency demanded in the United States to rise

Question 4

Which of the following is not classified as a service in the current account?

Accepted Answer

A) transportation 
B) insurance 
C) tourist expenditures 
D) income earned from foreign investments 
E) unilateral transfers 
A) transportation 
B) insurance 
C) tourist expenditures 
D) income earned from foreign investments 
E) unilateral transfers

Question 5

Exhibit 20-2   Given the data in Exhibit 20-2, what is the inflow of foreign capital into the United States?

Accepted Answer

A) $340 
B) -$590 
C) -$230 
D) $280 
E) $490 
A) $340 
B) -$590 
C) -$230 
D) $280 
E) $490

Question 6

Exhibit 20-3   In Exhibit 20-3, all of the following except one would cause the demand for pesos to shift from D to D', except one.Which is the exception?

Accepted Answer

A) an increase in income in the United States 
B) inflation in the United States 
C) a fall in income in the United States 
D) inflation in Central America 
E) an increase in wealth in the United States 
A) an increase in income in the United States 
B) inflation in the United States 
C) a fall in income in the United States 
D) inflation in Central America 
E) an increase in wealth in the United States

Question 7

Under the Bretton Woods agreement,

Accepted Answer

A) nations could not adjust their exchange rates relative to the dollar for any reason 
B) exchange rates were based on a market basket of European currencies plus the dollar 
C) the United States stood ready to convert foreign holdings of dollars into gold at a fixed rate of $35 per ounce 
D) the international monetary system operated exactly like the gold standard of pre-World War II years 
E) gold played no role in the international monetary system 
A) nations could not adjust their exchange rates relative to the dollar for any reason 
B) exchange rates were based on a market basket of European currencies plus the dollar 
C) the United States stood ready to convert foreign holdings of dollars into gold at a fixed rate of $35 per ounce 
D) the international monetary system operated exactly like the gold standard of pre-World War II years 
E) gold played no role in the international monetary system

Question 8

United States net unilateral transfers have been

Accepted Answer

A) positive every year since 1950 
B) negative every year since 1950 
C) positive every year since 1950 except 1991, during the Persian Gulf War 
D) negative every year since 1950 except 1991, during the Persian Gulf War 
E) positive about half the time and negative about half the time since 1950 
A) positive every year since 1950 
B) negative every year since 1950 
C) positive every year since 1950 except 1991, during the Persian Gulf War 
D) negative every year since 1950 except 1991, during the Persian Gulf War 
E) positive about half the time and negative about half the time since 1950

Question 9

An increase in the U.S.demand for foreign exchange will cause a(n)

Accepted Answer

A) increase in the price of foreign exchange, which is a depreciation of the U.S.dollar, making foreign goods cheaper to U.S.residents 
B) increase in the price of foreign exchange, which is a depreciation of the U.S.dollar, making foreign goods more expensive to U.S.residents 
C) decrease in the price of the U.S.dollar, which is an appreciation of the U.S.dollar 
D) increase in the price of foreign exchange, which is an appreciation of the U.S.dollar 
E) decrease in the price of foreign exchange, which is an appreciation of the U.S.dollar 
A) increase in the price of foreign exchange, which is a depreciation of the U.S.dollar, making foreign goods cheaper to U.S.residents 
B) increase in the price of foreign exchange, which is a depreciation of the U.S.dollar, making foreign goods more expensive to U.S.residents 
C) decrease in the price of the U.S.dollar, which is an appreciation of the U.S.dollar 
D) increase in the price of foreign exchange, which is an appreciation of the U.S.dollar 
E) decrease in the price of foreign exchange, which is an appreciation of the U.S.dollar

Question 10

The Bretton Woods system fixed all exchange rates in terms of the U.S.dollar.

Accepted Answer

A) True 
 B)False

Question 11

The breakdown of the Bretton Woods system occurred because

Accepted Answer

A) the world economy was basically unhealthy 
B) the collapse of world gold production undermined the operation of the system 
C) the gold value of the dollar exceeded the exchange value, causing an outflow of the gold 
D) the dollar was undervalued 
E) of the greed of the highly industrialized and wealthy countries of the world 
A) the world economy was basically unhealthy 
B) the collapse of world gold production undermined the operation of the system 
C) the gold value of the dollar exceeded the exchange value, causing an outflow of the gold 
D) the dollar was undervalued 
E) of the greed of the highly industrialized and wealthy countries of the world

Question 12

Which of the following is not true of the statistical discrepancy in the balance of payments?

Accepted Answer

A) It is residual. 
B) It is a measure of net error in the balance of payments data. 
C) It is necessary because some transactions go unreported. 
D) An excess of credits in all other accounts must be offset by equivalent debits in the statistical discrepancy account. 
E) A difference between credits and debits is taken care of by changes in the official reserve transaction account. 
A) It is residual. 
B) It is a measure of net error in the balance of payments data. 
C) It is necessary because some transactions go unreported. 
D) An excess of credits in all other accounts must be offset by equivalent debits in the statistical discrepancy account. 
E) A difference between credits and debits is taken care of by changes in the official reserve transaction account.

Question 13

When is a balance of payments account out of balance?

Accepted Answer

A) only when exports are greater than imports 
B) only when imports are greater than exports 
C) when exports are either greater or less than imports 
D) only when exports are greater or less than imports over a sustained period 
E) never 
A) only when exports are greater than imports 
B) only when imports are greater than exports 
C) when exports are either greater or less than imports 
D) only when exports are greater or less than imports over a sustained period 
E) never

Question 14

A leftward shift of the Japanese demand curve for foreign exchange will

Accepted Answer

A) increase the price of foreign exchange in Japan 
B) decrease the value of the yen 
C) make foreign goods more expensive in terms of yen 
D) make foreign goods less expensive in terms of yen 
E) make Japanese goods less expensive in terms of foreign exchange 
A) increase the price of foreign exchange in Japan 
B) decrease the value of the yen 
C) make foreign goods more expensive in terms of yen 
D) make foreign goods less expensive in terms of yen 
E) make Japanese goods less expensive in terms of foreign exchange

Question 15

If a country runs a deficit in its current account, it is because

Accepted Answer

A) exports exceed imports 
B) imports exceed exports 
C) net unilateral transfers are negative 
D) foreign currency received from exports and transfers exceeds the foreign exchange needed to pay for imports and to make unilateral transfers 
E) foreign currency received from exports and transfers is less than the foreign exchange needed to pay for imports and to make unilateral transfers 
A) exports exceed imports 
B) imports exceed exports 
C) net unilateral transfers are negative 
D) foreign currency received from exports and transfers exceeds the foreign exchange needed to pay for imports and to make unilateral transfers 
E) foreign currency received from exports and transfers is less than the foreign exchange needed to pay for imports and to make unilateral transfers

Question 16

The statistical discrepancy in the balance of payments

Accepted Answer

A) is always positive 
B) is always negative 
C) is always zero 
D) is either positive, negative, or zero 
E) is indeterminate 
A) is always positive 
B) is always negative 
C) is always zero 
D) is either positive, negative, or zero 
E) is indeterminate

Question 17

The balance of payments always balances, because each of the specific accounts must, by definition, be in balance.

Accepted Answer

A) True 
 B)False

Question 18

The international financial system operated under a gold standard

Accepted Answer

A) from the 1500s through the present 
B) from 1879 through the present 
C) from 1879 to 1914 
D) from 1914 to 1939 
E) never 
A) from the 1500s through the present 
B) from 1879 through the present 
C) from 1879 to 1914 
D) from 1914 to 1939 
E) never

Question 19

Which of the following is not a reason why residents of other countries desire to acquire dollars?

Accepted Answer

A) foreigners need dollars to purchase U.S.goods and services 
B) dollars can be used as a safe way of storing value when the foreigner's own currency is unstable 
C) dollars are accepted as an international medium of exchange 
D) dollars can be used for cash gifts from foreigners to U.S.friends and relatives 
E) dollars are the only currency accepted in international transactions 
A) foreigners need dollars to purchase U.S.goods and services 
B) dollars can be used as a safe way of storing value when the foreigner's own currency is unstable 
C) dollars are accepted as an international medium of exchange 
D) dollars can be used for cash gifts from foreigners to U.S.friends and relatives 
E) dollars are the only currency accepted in international transactions

Question 20

Under a floating rate system, exchange rates are determined by supply and demand in the foreign exchange market without government intervention.

Accepted Answer

A) True 
 B)False

Exam 20: International Finance

The merchandise trade balance measures

A floating exchange rate

If a foreign currency becomes more expensive in United States dollars, we would expect

Which of the following is not classified as a service in the current account?

Exhibit 20-2 Given the data in Exhibit 20-2, what is the inflow of foreign capital into the United States?

Exhibit 20-3 In Exhibit 20-3, all of the following except one would cause the demand for pesos to shift from D to D', except one.Which is the exception?

Under the Bretton Woods agreement,

United States net unilateral transfers have been

An increase in the U.S.demand for foreign exchange will cause a(n)

The Bretton Woods system fixed all exchange rates in terms of the U.S.dollar.

The breakdown of the Bretton Woods system occurred because

Which of the following is not true of the statistical discrepancy in the balance of payments?

When is a balance of payments account out of balance?

A leftward shift of the Japanese demand curve for foreign exchange will

If a country runs a deficit in its current account, it is because

The statistical discrepancy in the balance of payments

The balance of payments always balances, because each of the specific accounts must, by definition, be in balance.

The international financial system operated under a gold standard

Which of the following is not a reason why residents of other countries desire to acquire dollars?

Under a floating rate system, exchange rates are determined by supply and demand in the foreign exchange market without government intervention.

The Art and Science of Economic Analysis

Appendix--Understanding Graphs

Economic Tools and Economics Systems

Economic Decision Makers

Demand, Supply, and Markets

Elasticity of Demand and Supply

Appendix--Price Elasticity and Tax Incidence

Consumer Choice and Demand

Appendix--Indifference Curves and Utility Maximization

Production and Cost in the Firm

A--Perfect Competition

B--Perfect Competition

A--Monopoly

B--Monopoly

Monopolistic Competition and Oligopoly

Resource Markets

Labor Markets and Labor Unions

Capital, Interest, and Corporate Finance

Transaction Costs, Imperfect Information, and Behavioral Economics

Economic Regulation and Antitrust Policy

Public Goods and Public Choice

Externalities and the Environment

Income Distribution and Poverty

International Trade

Economic Development

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