Question 1

When the demand for a currency permanently increases, that nationʹs central bank can maintain its fixed exchange rate indefinitely.

Accepted Answer

A) True 
 B)False

Question 2

What factors can change expectations about the exchange rate?

Accepted Answer

A)  interest rate parity 
B)  purchasing power parity 
C)  real GDP parity 
D)  Both answers A and B are correct. 
A)  interest rate parity 
B)  purchasing power parity 
C)  real GDP parity 
D)  Both answers A and B are correct.

Question 3

-In the figure above, illustrate the effect of an increase in the U.S. interest rate. What is the effect on the exchange rate?

Accepted Answer

@#IMG-DLM& The figure above shows the effect of th

Question 4

Suppose a deposit in New York earns 6 percent a year and a deposit in London earns 4 percent a year. Interest rate parity holds if the

Accepted Answer

A)  U.K. pound depreciates by 2 percent a year. 
B)  U.S. dollar depreciates by 2 percent a year. 
C)  U.S. dollar appreciates by 2 percent a year. 
D)  None of the above answers is correct because interest rate parity requires that the interest rates be the same in both countries. 
A)  U.K. pound depreciates by 2 percent a year. 
B)  U.S. dollar depreciates by 2 percent a year. 
C)  U.S. dollar appreciates by 2 percent a year. 
D)  None of the above answers is correct because interest rate parity requires that the interest rates be the same in both countries.

Question 5

$$\begin{array} { | l | l | l | } 
\hline \text { Currency } & \begin{array} { l } 
2007 \text { exchange rate } \
\text { (per U } \mathcal { S } \text {. dollar) }
\end{array} & \begin{array} { l } 
2008 \text { exchange rate } \
\text { (per U.S. dollar) }
\end{array} \
\hline \text { Euro } & 0.9954 & 1.0747 \
\hline \begin{array} { l } 
\text { Japanese } \
\text { yen }
\end{array} & 102.20 & 114.90 \
\hline \begin{array} { l } 
\text { Canadian } \
\text { dollar }
\end{array} & 1.44 & 1.50 \
\hline
\end{array}$$
-The table above shows the exchange rates between various currencies and the U.S. dollar. Between 2007 and 2008, the Japanese yen _________against the U.S dollar and the euro _________against the
u.S. dollar.

Accepted Answer

A)  depreciated; depreciated 
B)  depreciated; appreciated 
C)  appreciated; depreciated 
D)  appreciated; appreciated 
A)  depreciated; depreciated 
B)  depreciated; appreciated 
C)  appreciated; depreciated 
D)  appreciated; appreciated

Question 6

The current account is

Accepted Answer

A)  the amount of money the government keeps on hand to pay its bills taking account of the interest payments on its debt. 
B)  is the total amount of interest payments that the U.S. owes to foreign countries. 
C)  the difference between exports and imports, also taking into account interest payments to and from the rest of the world. 
D)  is the amount of tax revenue that the government expects to collect. 
A)  the amount of money the government keeps on hand to pay its bills taking account of the interest payments on its debt. 
B)  is the total amount of interest payments that the U.S. owes to foreign countries. 
C)  the difference between exports and imports, also taking into account interest payments to and from the rest of the world. 
D)  is the amount of tax revenue that the government expects to collect.

Question 7

$\begin{array}{|l|l|}
\hline \text { Item } & \text { Billions of buns } \
\hline \text { Imports of goods and services } & 600 \
\hline \text { Exports of goods and services } & 700 \
\hline \text { Foreign investment in Exland } & 350 \
\hline \text { Exland's investment abroad } & 430 \\hline \begin{array}{l}
\text { Increase in the official } \
\text { holdings } \
\text { of foreign currency }
\end{array} & 20 \
\hline
\end{array}$
-The citizens of Exland, whose currency is the bun, conduct the transactions outlined in the table above.
a) What is Exlandʹs current account balance?
b) What is Exlandʹs capital account balance?
c) What is Exlandʹs official settlement balance?
d) What is Exlandʹs net foreign borrowing?

Accepted Answer

a) The current account balance equals ex

Question 8

Initially the nominal exchange rate between the South Korean won and the U.S. dollar is 950 won per dollar. If the nominal exchange rate increases to 1000 won per dollar and the U.S and Korean price levels do not change, the real exchange rate

Accepted Answer

A)  is the same as before. 
B)  is less than before. 
C)  is greater than before. 
D)  More information is needed to answer the question. 
A)  is the same as before. 
B)  is less than before. 
C)  is greater than before. 
D)  More information is needed to answer the question.

Question 9

A rise in the exchange rate leads to a decrease in the quantity of dollars demanded.

Accepted Answer

A) True 
 B)False

Question 10

Looking at the U.S. balance of payments for the last two decades, how have the current account and the capital account changed?

Accepted Answer

Since the early 1980s and onward, the U.

Question 11

A countryʹs balance of payments accounts record

Accepted Answer

A)  the flow of human and nonhuman resources between it and its trading partners. 
B)  the countryʹs net indebtedness to foreigners. 
C)  only its official transactions with other governments. 
D)  its international trading, borrowing, and lending. 
A)  the flow of human and nonhuman resources between it and its trading partners. 
B)  the countryʹs net indebtedness to foreigners. 
C)  only its official transactions with other governments. 
D)  its international trading, borrowing, and lending.

Question 12

The official settlements account of a country measures

Accepted Answer

A)  the receipts from goods and services bought and sold, and transfers to and from foreigners. 
B)  net transfer payments between the countryʹs citizens and foreigners. 
C)  borrowing and lending between the countryʹs residents and foreigners. 
D)  the net increase or decrease in the countryʹs official reserves. 
A)  the receipts from goods and services bought and sold, and transfers to and from foreigners. 
B)  net transfer payments between the countryʹs citizens and foreigners. 
C)  borrowing and lending between the countryʹs residents and foreigners. 
D)  the net increase or decrease in the countryʹs official reserves.

Question 13

$\begin{array}{|l|l|}
\hline \text { Item } & \text { Billions of dollars } \
\hline \text { Exports of goods } & 1000 \
\hline \text { Imports of goods } & -665 \
\hline \text { Exp orts of services } & 410 \
\hline \text { Imports of services } & -590 \
\hline \text { Net interest income } & 0 \
\hline \text { Net transfers } & -15 \
\hline \text { U } S \text {. investment abroad } & -600 \
\hline \text { Foreign investment in } & 400 \
\text { the United States}\\hline \begin{array}{l}
\text { Official settlements } \
\text { account }
\end{array} & 60 \
\hline
\end{array}$
-The data in the table above are the U.S. balance of payments. The data show that

Accepted Answer

A)  the United States has a current account surplus. 
B)  The United States loaned $400 billion to the rest of the world. 
C)  the United States has a capital and financial account surplus. 
D)  Both answers A and B are correct. 
A)  the United States has a current account surplus. 
B)  The United States loaned $400 billion to the rest of the world. 
C)  the United States has a capital and financial account surplus. 
D)  Both answers A and B are correct.

Question 14

In 2010, the U.S. capital and financial account had a

Accepted Answer

A)  surplus of $439 billion. 
B)  surplus of $115 billion. 
C)  deficit of $439 billion. 
D)  deficit of $115 billion. 
A)  surplus of $439 billion. 
B)  surplus of $115 billion. 
C)  deficit of $439 billion. 
D)  deficit of $115 billion.

Question 15

Today the U.S. dollar is worth 1.5 Canadian dollars. Because of changes in economic conditions, people come to believe that by the end of the month the U.S. dollar will be worth 1.2 Canadian dollars. This belief

Accepted Answer

A)  decreases the value of exports to Canada. 
B)  decreases the demand for U.S. dollars. 
C)  increases the demand for U.S. dollars. 
D)  decreases the demand for Canadian dollars. 
A)  decreases the value of exports to Canada. 
B)  decreases the demand for U.S. dollars. 
C)  increases the demand for U.S. dollars. 
D)  decreases the demand for Canadian dollars.

Question 16

Hyundai is a large South Korean company that produces finished steel products. Hyundai plans to buy raw steel from U.S. Steel. As a result, the

Accepted Answer

A)  demand curve for South Korean won shifts rightward. 
B)  demand curve for U.S. dollars shifts leftward. 
C)  demand curve for U.S. dollars shifts rightward. 
D)  demand curve for South Korean won shifts leftward. 
A)  demand curve for South Korean won shifts rightward. 
B)  demand curve for U.S. dollars shifts leftward. 
C)  demand curve for U.S. dollars shifts rightward. 
D)  demand curve for South Korean won shifts leftward.

Question 17

In 2007, Japan reported that its overseas assets totalled more than $4.6 trillion. This implies that Japan

Accepted Answer

A)  is a creditor nation. 
B)  has a capital account deficit. 
C)  is debtor nation. 
D)  has a current account deficit. 
A)  is a creditor nation. 
B)  has a capital account deficit. 
C)  is debtor nation. 
D)  has a current account deficit.

Question 18

The interest rate in Canada rises while the interest rate in the United States does not change. The

Accepted Answer

A)  demand curve for U.S. dollars will shift rightward. 
B)  demand curves Canadian and U.S. dollars will remain unchanged. 
C)  demand curve for Canadian dollars will shift leftward. 
D)  demand curve for Canadian dollars will shift rightward. 
A)  demand curve for U.S. dollars will shift rightward. 
B)  demand curves Canadian and U.S. dollars will remain unchanged. 
C)  demand curve for Canadian dollars will shift leftward. 
D)  demand curve for Canadian dollars will shift rightward.

Question 19

Which of the following are included in the U.S. current account balance?
I. exports to Japan
II. interest payments made to Canada
III. transfer payments made to Israel

Accepted Answer

A)  I only 
B)  I and III 
C)  I and II 
D)  I, II and III 
A)  I only 
B)  I and III 
C)  I and II 
D)  I, II and III

Question 20

-The figure above shows the demand and supply of dollars in the foreign exchange market. At a price of 2.40 Brazilian reals per dollar,

Accepted Answer

A)  $40 billion dollars will be demanded. 
B)  there will be a surplus of dollars. 
C)  $40 billion dollars will be supplied. 
D)  there will be a shortage of dollars. 
A)  $40 billion dollars will be demanded. 
B)  there will be a surplus of dollars. 
C)  $40 billion dollars will be supplied. 
D)  there will be a shortage of dollars.

When the demand for a currency permanently increases, that nationʹs central bank can maintain its fixed exchange rate indefinitely.

What factors can change expectations about the exchange rate?

-In the figure above, illustrate the effect of an increase in the U.S. interest rate. What is the effect on the exchange rate?

Suppose a deposit in New York earns 6 percent a year and a deposit in London earns 4 percent a year. Interest rate parity holds if the

The current account is

Initially the nominal exchange rate between the South Korean won and the U.S. dollar is 950 won per dollar. If the nominal exchange rate increases to 1000 won per dollar and the U.S and Korean price levels do not change, the real exchange rate

A rise in the exchange rate leads to a decrease in the quantity of dollars demanded.

Looking at the U.S. balance of payments for the last two decades, how have the current account and the capital account changed?

A countryʹs balance of payments accounts record

The official settlements account of a country measures

In 2010, the U.S. capital and financial account had a

Today the U.S. dollar is worth 1.5 Canadian dollars. Because of changes in economic conditions, people come to believe that by the end of the month the U.S. dollar will be worth 1.2 Canadian dollars. This belief

Hyundai is a large South Korean company that produces finished steel products. Hyundai plans to buy raw steel from U.S. Steel. As a result, the

In 2007, Japan reported that its overseas assets totalled more than $4.6 trillion. This implies that Japan

The interest rate in Canada rises while the interest rate in the United States does not change. The

Which of the following are included in the U.S. current account balance? I. exports to Japan II. interest payments made to Canada III. transfer payments made to Israel

-The figure above shows the demand and supply of dollars in the foreign exchange market. At a price of 2.40 Brazilian reals per dollar,

What Is Economics

The Economic Problem

Demand and Supply

Measuring Gdp and Economic Growth

Monitoring Jobs and Inflation

Economic Growth

Finance, Saving, and Investment

Money, the Price Level, and Inflation

Aggregate Supply and Aggregate Demand

Expenditure Multipliers: the Keynesian Model

U.S Inflation, Unemployment, and Business Cycle

Fiscal Policy

Monetary Policy

International Trade Policy

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Exam 9: The Exchange Rate and the Balance of Payments

When the demand for a currency permanently increases, that nationʹs central bank can maintain its fixed exchange rate indefinitely.

What factors can change expectations about the exchange rate?

-In the figure above, illustrate the effect of an increase in the U.S. interest rate. What is the effect on the exchange rate?

Suppose a deposit in New York earns 6 percent a year and a deposit in London earns 4 percent a year. Interest rate parity holds if the

The current account is

Initially the nominal exchange rate between the South Korean won and the U.S. dollar is 950 won per dollar. If the nominal exchange rate increases to 1000 won per dollar and the U.S and Korean price levels do not change, the real exchange rate

A rise in the exchange rate leads to a decrease in the quantity of dollars demanded.

Looking at the U.S. balance of payments for the last two decades, how have the current account and the capital account changed?

A countryʹs balance of payments accounts record

The official settlements account of a country measures

In 2010, the U.S. capital and financial account had a

Today the U.S. dollar is worth 1.5 Canadian dollars. Because of changes in economic conditions, people come to believe that by the end of the month the U.S. dollar will be worth 1.2 Canadian dollars. This belief

Hyundai is a large South Korean company that produces finished steel products. Hyundai plans to buy raw steel from U.S. Steel. As a result, the

In 2007, Japan reported that its overseas assets totalled more than $4.6 trillion. This implies that Japan

The interest rate in Canada rises while the interest rate in the United States does not change. The

Which of the following are included in the U.S. current account balance? I. exports to Japan II. interest payments made to Canada III. transfer payments made to Israel

-The figure above shows the demand and supply of dollars in the foreign exchange market. At a price of 2.40 Brazilian reals per dollar,

What Is Economics

The Economic Problem

Demand and Supply

Measuring Gdp and Economic Growth

Monitoring Jobs and Inflation

Economic Growth

Finance, Saving, and Investment

Money, the Price Level, and Inflation

Aggregate Supply and Aggregate Demand

Expenditure Multipliers: the Keynesian Model

U.S Inflation, Unemployment, and Business Cycle

Fiscal Policy

Monetary Policy

International Trade Policy

Review

Filters