Question 1

All of the following are true regarding flexible exchange rates except

Accepted Answer

A) Speculators typically push exchange rates away from the long-term equilibrium. 
B) The quantity of foreign exchange demanded equals the quantity supplied. 
C) Exchange rate movements alter relative prices and may disrupt import and export flows. 
D) Some people are hurt while others are helped by exchange rate movements. 
A) Speculators typically push exchange rates away from the long-term equilibrium. 
B) The quantity of foreign exchange demanded equals the quantity supplied. 
C) Exchange rate movements alter relative prices and may disrupt import and export flows. 
D) Some people are hurt while others are helped by exchange rate movements.

Question 2

An excess demand for domestic currency at current exchange rates is known as a

Accepted Answer

A) Balance-of-payments deficit. 
B) Trade deficit. 
C) Balance-of-payments surplus. 
D) Trade surplus. 
A) Balance-of-payments deficit. 
B) Trade deficit. 
C) Balance-of-payments surplus. 
D) Trade surplus.

Question 3

Suppose a bottle of wine produced in France sells for 35 euros.If the exchange rate between euros and dollars is €1 = $1.30,how much will an American pay for the bottle of wine in America?

Accepted Answer

A) $130.00. 
B) $35.00. 
C) $45.50. 
D) $26.92. 
A) $130.00. 
B) $35.00. 
C) $45.50. 
D) $26.92.

Question 4

In foreign exchange markets,the supply of U.S.dollars is determined by all of the following except

Accepted Answer

A) Foreign demand for American exports. 
B) American demand for imports. 
C) American investments in foreign nations. 
D) Speculation. 
A) Foreign demand for American exports. 
B) American demand for imports. 
C) American investments in foreign nations. 
D) Speculation.

Question 5

In a floating exchange rate system,the capital account balance equals the negative of the current account balance.

Accepted Answer

A) True 
 B)False

Question 6

The current account balance is equal to

Accepted Answer

A) Trade balance + services balance - capital account balance. 
B) Trade balance + services balance + capital account balance. 
C) Trade balance + unilateral transfers + net investment income. 
D) Total payments made by residents of the United States to foreigners plus total payments made by foreigners to residents of the United States. 
A) Trade balance + services balance - capital account balance. 
B) Trade balance + services balance + capital account balance. 
C) Trade balance + unilateral transfers + net investment income. 
D) Total payments made by residents of the United States to foreigners plus total payments made by foreigners to residents of the United States.

Question 7

The fact that the United States has become a net debtor nation is an indication that

Accepted Answer

A) The U.S.economy is in a long-term decline compared to other major economies. 
B) As undesirable as they are,trade restrictions are becoming a necessity. 
C) The United States should never have abandoned the gold standard. 
D) The U.S.economy is highly regarded by world investors. 
A) The U.S.economy is in a long-term decline compared to other major economies. 
B) As undesirable as they are,trade restrictions are becoming a necessity. 
C) The United States should never have abandoned the gold standard. 
D) The U.S.economy is highly regarded by world investors.

Question 8

If the exchange rate between the U.S.dollar and Japanese yen changes from $1 = 100 yen to $1 = 90 yen,then

Accepted Answer

A) All Japanese producers and consumers will lose. 
B) U.S.auto producers and autoworkers will lose. 
C) U.S.consumers of Japanese TV sets will benefit. 
D) Japanese tourists visiting the United States will benefit. 
A) All Japanese producers and consumers will lose. 
B) U.S.auto producers and autoworkers will lose. 
C) U.S.consumers of Japanese TV sets will benefit. 
D) Japanese tourists visiting the United States will benefit.

Question 9

An increase in the U.S.trade deficit could be caused by

Accepted Answer

A) An increase in the rate of inflation in other countries. 
B) An appreciation of the dollar. 
C) The imposition of a tariff on imported goods. 
D) A depreciation of the dollar. 
A) An increase in the rate of inflation in other countries. 
B) An appreciation of the dollar. 
C) The imposition of a tariff on imported goods. 
D) A depreciation of the dollar.

Question 10

Foreign exchange reserves are

Accepted Answer

A) Held illegally by many countries. 
B) Holdings of foreign exchange by official government agencies. 
C) Holdings of foreign exchange by individual citizens. 
D) Used by the Federal Reserve in open market operations. 
A) Held illegally by many countries. 
B) Holdings of foreign exchange by official government agencies. 
C) Holdings of foreign exchange by individual citizens. 
D) Used by the Federal Reserve in open market operations.

Question 11

Explain what economists mean when they say that the United States is a net debtor nation.Identify a potential problem and a positive aspect associated with this status.

Accepted Answer

The United States is a net debtor nation

Question 12

The excess supply of dollars created by a balance-of-trade deficit must be offset by outflows of capital.

Accepted Answer

A) True 
 B)False

Question 13

Exchange rates change because of relative

Accepted Answer

A) Income changes but not relative price changes. 
B) Price changes but not relative interest rate changes. 
C) Interest rate changes but not relative income changes. 
D) Income,relative price,and relative interest rates of countries. 
A) Income changes but not relative price changes. 
B) Price changes but not relative interest rate changes. 
C) Interest rate changes but not relative income changes. 
D) Income,relative price,and relative interest rates of countries.

Question 14

Generally speaking,a country whose currency appreciates will experience,as a result,

Accepted Answer

A) Reduced aggregate demand as a result of a decrease in exports. 
B) Inflationary pressure from higher import prices. 
C) Increasing interest rates from capital inflow. 
D) Increased exports. 
A) Reduced aggregate demand as a result of a decrease in exports. 
B) Inflationary pressure from higher import prices. 
C) Increasing interest rates from capital inflow. 
D) Increased exports.

Question 15

Choose the letter of the diagram in Figure 36.2 that represents the shift in the foreign exchange market for dollars given the following situation,ceteris paribus: The president of the United States decides to support the dollar by purchasing dollars with U.S.holdings of foreign currencies.

Accepted Answer

A) a. 
B) b. 
C) c. 
D) d. 
A) a. 
B) b. 
C) c. 
D) d.

Question 16

When Americans buy Mercedes-Benz automobiles made in Germany,they are generating a

Accepted Answer

A) Supply of U.S.dollars and a supply of a foreign currency. 
B) Supply of U.S.dollars and a demand for a foreign currency. 
C) Demand for U.S.dollars and a supply of a foreign currency. 
D) Demand for U.S.dollars and a demand for a foreign currency. 
A) Supply of U.S.dollars and a supply of a foreign currency. 
B) Supply of U.S.dollars and a demand for a foreign currency. 
C) Demand for U.S.dollars and a supply of a foreign currency. 
D) Demand for U.S.dollars and a demand for a foreign currency.

Question 17

A mechanism for fixing exchange rates is the

Accepted Answer

A) Flexible exchange standard. 
B) WTO agreement. 
C) Gold standard. 
D) International Monetary Fund. 
A) Flexible exchange standard. 
B) WTO agreement. 
C) Gold standard. 
D) International Monetary Fund.

Question 18

A "dirty float" is a system

Accepted Answer

A) Of fixed exchange rates. 
B) Of managed exchange rates. 
C) Based on the gold standard. 
D) Of free-floating exchange rates. 
A) Of fixed exchange rates. 
B) Of managed exchange rates. 
C) Based on the gold standard. 
D) Of free-floating exchange rates.

Question 19

Suppose the supply of dollars increased from S1 to S2 in Figure 36.3.As a result of this change,

Accepted Answer

A) Swiss chocolate imports to the United States will be lower-priced. 
B) U.S.computer exports to Switzerland will be lower-priced. 
C) A trade surplus will be created in Switzerland. 
D) The Swiss franc will lose value worldwide. 
A) Swiss chocolate imports to the United States will be lower-priced. 
B) U.S.computer exports to Switzerland will be lower-priced. 
C) A trade surplus will be created in Switzerland. 
D) The Swiss franc will lose value worldwide.

Question 20

If income in the United States rises relative to income in Japan,the yen should appreciate against the dollar,ceteris paribus.

Accepted Answer

A) True 
 B)False

Exam 36: International Finance

All of the following are true regarding flexible exchange rates except

An excess demand for domestic currency at current exchange rates is known as a

Suppose a bottle of wine produced in France sells for 35 euros.If the exchange rate between euros and dollars is €1 = $1.30,how much will an American pay for the bottle of wine in America?

In foreign exchange markets,the supply of U.S.dollars is determined by all of the following except

In a floating exchange rate system,the capital account balance equals the negative of the current account balance.

The current account balance is equal to

The fact that the United States has become a net debtor nation is an indication that

If the exchange rate between the U.S.dollar and Japanese yen changes from $1 = 100 yen to $1 = 90 yen,then

An increase in the U.S.trade deficit could be caused by

Foreign exchange reserves are

Explain what economists mean when they say that the United States is a net debtor nation.Identify a potential problem and a positive aspect associated with this status.

The excess supply of dollars created by a balance-of-trade deficit must be offset by outflows of capital.

Exchange rates change because of relative

Generally speaking,a country whose currency appreciates will experience,as a result,

Choose the letter of the diagram in Figure 36.2 that represents the shift in the foreign exchange market for dollars given the following situation,ceteris paribus: The president of the United States decides to support the dollar by purchasing dollars with U.S.holdings of foreign currencies.

When Americans buy Mercedes-Benz automobiles made in Germany,they are generating a

A mechanism for fixing exchange rates is the

A "dirty float" is a system

Suppose the supply of dollars increased from S1 to S2 in Figure 36.3.As a result of this change,

If income in the United States rises relative to income in Japan,the yen should appreciate against the dollar,ceteris paribus.

Economics: the Core Issues

The Useconomy: a Global View

Supply and Demand

The Role of Government

National Income Accounting

Unemployment

Inflation

The Business Cycle

Aggregate Demand

Self-Adjustment or Instability

Fiscal Policy

Deficits and Debt

Money and Banks

The Federal Reserve System

Monetary Policy

Supply-Side Policy: Short-Run Options

Growth and Productivity: Long-Run Possibilities

Theory Versus Reality

Consumer Choice

Elasticity

The Costs of Production

The Competitive Firm

Competitive Markets

Monopoly

Oligopoly

Monopolistic Competition

Natural Monopolies: Deregulation

Environmental Protection

The Farm Problem

The Labor Market

Labor Unions

Financial Markets

Taxes: Equity Versus Efficiency

Transfer Payments: Welfare and Social Security

International Trade

Global Poverty

Filters

Suppose the supply of dollars increased from S₁ to S₂ in Figure 36.3.As a result of this change,