Question 1

Define a nation's balance of payments. Identify the major accounts of a country's balance of payments and explain their relationship.

Accepted Answer

A nation's balance of payments is the re

Question 2

Recall Application 2, "World Savings and the U.S. Current Account Deficits," to answer the following questions:
-According to the application, Japan has a low investment rate because:

Accepted Answer

A)  they cautious in making domestic investment following rapid economic growth. 
B)  they do not need to use investment to make money. 
C)  they do not know how to use investment to make money. 
D)  they are cautious in making domestic investment following a slow economic growth. 
A)  they cautious in making domestic investment following rapid economic growth. 
B)  they do not need to use investment to make money. 
C)  they do not know how to use investment to make money. 
D)  they are cautious in making domestic investment following a slow economic growth.

Question 3

Purchasing power parity implies that a unit of any given currency should be able to buy the same quantity of goods and services in any country.

Accepted Answer

A) True 
 B)False

Question 4

Figure 19.3
-Refer to Figure 19.3. The market for yen is currently at Point A. An increase in the U.S. interest rates causes the equilibrium to move to point _______ and the U.S. dollar will _______.

Accepted Answer

A)  C; appreciate 
B)  B; depreciate 
C)  D; appreciate 
D)  A; appreciate 
A)  C; appreciate 
B)  B; depreciate 
C)  D; appreciate 
D)  A; appreciate

Question 5

The Asian financial crisis of 1997 was due to the fact:

Accepted Answer

A)  that the U.S. continuously raised its interest rates. 
B)  that loss of confidence in several economies resulted in the massive selling of their currencies. 
C)  that Asian countries experienced increasingly larger trade deficits. 
D)  that Asian inflation rates were out of control. 
A)  that the U.S. continuously raised its interest rates. 
B)  that loss of confidence in several economies resulted in the massive selling of their currencies. 
C)  that Asian countries experienced increasingly larger trade deficits. 
D)  that Asian inflation rates were out of control.

Question 6

The current account is the sum of:

Accepted Answer

A)  net income from abroad + net transfer payments from abroad. 
B)  exports + imports. 
C)  net exports + net transfer payments from abroad. 
D)  net exports + net income from abroad + net transfer payments from abroad. 
A)  net income from abroad + net transfer payments from abroad. 
B)  exports + imports. 
C)  net exports + net transfer payments from abroad. 
D)  net exports + net income from abroad + net transfer payments from abroad.

Question 7

Which of the following causes the dollar to depreciate relative to the British pound?

Accepted Answer

A)  an increase in the demand for pounds 
B)  an increase in the supply of pounds 
C)  a decrease in the demand for dollars 
D)  a decrease in the supply of dollars 
A)  an increase in the demand for pounds 
B)  an increase in the supply of pounds 
C)  a decrease in the demand for dollars 
D)  a decrease in the supply of dollars

Question 8

Recall Application 4, "The Argentine Financial Crisis," to answer the question below:
-The main reason Argentina had pegged its currency to the U.S. dollar prior to the 2002 crisis was:

Accepted Answer

A)  to balance its current account. 
B)  to avoid chronic hyperinflation. 
C)  to prevent capital flight. 
D)  none of the above 
A)  to balance its current account. 
B)  to avoid chronic hyperinflation. 
C)  to prevent capital flight. 
D)  none of the above

Question 9

Fixed exchange rates are exposed to sudden devaluations or revaluations.

Accepted Answer

A) True 
 B)False

Question 10

Recall Application 1, "The Chinese Yuan and Big Macs," to answer the following questions:
-According to the application, the dollar price of a Big Mac in the US is lower than the dollar price of the Big Mac in:

Accepted Answer

A)  the United Kingdom. 
B)  China. 
C)  Switzerland. 
D)  Mexico. 
A)  the United Kingdom. 
B)  China. 
C)  Switzerland. 
D)  Mexico.

Question 11

When the economy experiences a balance of payments surplus, the central bank must _______ to maintain the exchange rate.

Accepted Answer

A)  buy foreign currency 
B)  sell foreign currency 
C)  sell bonds 
D)  buy home currency 
A)  buy foreign currency 
B)  sell foreign currency 
C)  sell bonds 
D)  buy home currency

Question 12

When the country is experiencing a balance of payments deficit, it must devalue its currency.

Accepted Answer

A) True 
 B)False

Question 13

Recall Application 2, "World Savings and the U.S. Current Account Deficits," to answer the following questions:
-According to the application, the U.S. can continue having current account deficits only because:

Accepted Answer

A)  other countries choose to buy U.S. patents. 
B)  other countries choose to sell foreign patents. 
C)  other countries choose to purchase U.S. assets. 
D)  other countries choose to sell foreign assets. 
A)  other countries choose to buy U.S. patents. 
B)  other countries choose to sell foreign patents. 
C)  other countries choose to purchase U.S. assets. 
D)  other countries choose to sell foreign assets.

Question 14

Which of the following countries were severely affected during the Asian Financial Crisis in 1997- 1998?

Accepted Answer

A)  Thailand 
B)  Indonesia 
C)  South Korea 
D)  All of the above are correct. 
A)  Thailand 
B)  Indonesia 
C)  South Korea 
D)  All of the above are correct.

Question 15

Suppose the exchange rate between the United States and Russia changed from $1 = 5 rubles to $1 = 4 rubles, which of the following statements is true?

Accepted Answer

A)  The price of rubles in dollars decreased. 
B)  The dollar appreciated. 
C)  The dollar depreciated. 
D)  The ruble depreciated. 
A)  The price of rubles in dollars decreased. 
B)  The dollar appreciated. 
C)  The dollar depreciated. 
D)  The ruble depreciated.

Question 16

Which of the following is not included in the U.S. current account?

Accepted Answer

A)  net investment income 
B)  exports of services 
C)  imports of goods 
D)  change in foreign private assets held in the United States 
A)  net investment income 
B)  exports of services 
C)  imports of goods 
D)  change in foreign private assets held in the United States

Question 17

_______ is the situation where the central bank buys or sells foreign currencies to affect the country's exchange rate.

Accepted Answer

A)  Capital flight 
B)  Foreign exchange market intervention 
C)  Expansionary monetary policy 
D)  Revaluation 
A)  Capital flight 
B)  Foreign exchange market intervention 
C)  Expansionary monetary policy 
D)  Revaluation

Question 18

Figure 19.5
-From Figure 19.5 above, if the U.S. fixes the exchange rate at $1.25 per euro, then the U.S experiences:

Accepted Answer

A)  capital account surplus. 
B)  capital account deficit. 
C)  a balance of payments deficit. 
D)  a balance of payments surplus. 
A)  capital account surplus. 
B)  capital account deficit. 
C)  a balance of payments deficit. 
D)  a balance of payments surplus.

Question 19

Recall Application 1, "The Chinese Yuan and Big Macs," to answer the following questions:
-According to the application, because the actual dollar- yuan exchange rate was 6.8 yuan per U.S. dollar and the predicted purchasing power exchange rate (using the Big Mac) in China is 3.49 yuan, then:

Accepted Answer

A)  the dollar is undervalued and the Big Mac is overvalued. 
B)  the dollar is undervalued. 
C)  the Big Mac is overvalued. 
D)  the yuan is undervalued. 
A)  the dollar is undervalued and the Big Mac is overvalued. 
B)  the dollar is undervalued. 
C)  the Big Mac is overvalued. 
D)  the yuan is undervalued.

Question 20

All other things equal, an appreciation of the U.S. real exchange rate causes:

Accepted Answer

A)  a decrease in imports and an increase in exports. 
B)  an increase in imports and an increase in exports. 
C)  an increase in imports and a decrease in exports. 
D)  a decrease in imports and a decrease in exports. 
A)  a decrease in imports and an increase in exports. 
B)  an increase in imports and an increase in exports. 
C)  an increase in imports and a decrease in exports. 
D)  a decrease in imports and a decrease in exports.

Define a nation's balance of payments. Identify the major accounts of a country's balance of payments and explain their relationship.

Recall Application 2, "World Savings and the U.S. Current Account Deficits," to answer the following questions: -According to the application, Japan has a low investment rate because:

Purchasing power parity implies that a unit of any given currency should be able to buy the same quantity of goods and services in any country.

Figure 19.3 -Refer to Figure 19.3. The market for yen is currently at Point A. An increase in the U.S. interest rates causes the equilibrium to move to point _ and the U.S. dollar will _.

The Asian financial crisis of 1997 was due to the fact:

The current account is the sum of:

Which of the following causes the dollar to depreciate relative to the British pound?

Recall Application 4, "The Argentine Financial Crisis," to answer the question below: -The main reason Argentina had pegged its currency to the U.S. dollar prior to the 2002 crisis was:

Fixed exchange rates are exposed to sudden devaluations or revaluations.

Recall Application 1, "The Chinese Yuan and Big Macs," to answer the following questions: -According to the application, the dollar price of a Big Mac in the US is lower than the dollar price of the Big Mac in:

When the economy experiences a balance of payments surplus, the central bank must _______ to maintain the exchange rate.

When the country is experiencing a balance of payments deficit, it must devalue its currency.

Recall Application 2, "World Savings and the U.S. Current Account Deficits," to answer the following questions: -According to the application, the U.S. can continue having current account deficits only because:

Which of the following countries were severely affected during the Asian Financial Crisis in 1997- 1998?

Suppose the exchange rate between the United States and Russia changed from $1 = 5 rubles to $1 = 4 rubles, which of the following statements is true?

Which of the following is not included in the U.S. current account?

_______ is the situation where the central bank buys or sells foreign currencies to affect the country's exchange rate.

Figure 19.5 -From Figure 19.5 above, if the U.S. fixes the exchange rate at $1.25 per euro, then the U.S experiences:

Recall Application 1, "The Chinese Yuan and Big Macs," to answer the following questions: -According to the application, because the actual dollar- yuan exchange rate was 6.8 yuan per U.S. dollar and the predicted purchasing power exchange rate (using the Big Mac) in China is 3.49 yuan, then:

All other things equal, an appreciation of the U.S. real exchange rate causes:

Introduction: What Is Economics

The Key Principles of Economics

Exchange and Markets

Demand, Supply, and Market Equilibrium

Measuring a Nations Production and Income

Unemployment and Inflation

The Economy at Full Employment

Why Do Economies Grow

Aggregate Demand and Aggregate Supply

Fiscal Policy

The Income-Expenditure Model

Investment and Financial Markets

Money and the Banking System

The Federal Reserve and Monetary Policy

Modern Macroeconomics: From the Short Run to the Long Run

The Dynamics of Inflation and Unemployment

Macroeconomic Policy Debates

International Trade and Public Policy

Filters

Exam 19: The World of International Finance

Define a nation's balance of payments. Identify the major accounts of a country's balance of payments and explain their relationship.

Recall Application 2, "World Savings and the U.S. Current Account Deficits," to answer the following questions: -According to the application, Japan has a low investment rate because:

Purchasing power parity implies that a unit of any given currency should be able to buy the same quantity of goods and services in any country.

Figure 19.3 -Refer to Figure 19.3. The market for yen is currently at Point A. An increase in the U.S. interest rates causes the equilibrium to move to point _______ and the U.S. dollar will _______.

The Asian financial crisis of 1997 was due to the fact:

The current account is the sum of:

Which of the following causes the dollar to depreciate relative to the British pound?

Recall Application 4, "The Argentine Financial Crisis," to answer the question below: -The main reason Argentina had pegged its currency to the U.S. dollar prior to the 2002 crisis was:

Fixed exchange rates are exposed to sudden devaluations or revaluations.

Recall Application 1, "The Chinese Yuan and Big Macs," to answer the following questions: -According to the application, the dollar price of a Big Mac in the US is lower than the dollar price of the Big Mac in:

When the economy experiences a balance of payments surplus, the central bank must _______ to maintain the exchange rate.

When the country is experiencing a balance of payments deficit, it must devalue its currency.

Recall Application 2, "World Savings and the U.S. Current Account Deficits," to answer the following questions: -According to the application, the U.S. can continue having current account deficits only because:

Which of the following countries were severely affected during the Asian Financial Crisis in 1997- 1998?

Suppose the exchange rate between the United States and Russia changed from $1 = 5 rubles to $1 = 4 rubles, which of the following statements is true?

Which of the following is not included in the U.S. current account?

_______ is the situation where the central bank buys or sells foreign currencies to affect the country's exchange rate.

Figure 19.5 -From Figure 19.5 above, if the U.S. fixes the exchange rate at $1.25 per euro, then the U.S experiences:

Recall Application 1, "The Chinese Yuan and Big Macs," to answer the following questions: -According to the application, because the actual dollar- yuan exchange rate was 6.8 yuan per U.S. dollar and the predicted purchasing power exchange rate (using the Big Mac) in China is 3.49 yuan, then:

All other things equal, an appreciation of the U.S. real exchange rate causes:

Introduction: What Is Economics

The Key Principles of Economics

Exchange and Markets

Demand, Supply, and Market Equilibrium

Measuring a Nations Production and Income

Unemployment and Inflation

The Economy at Full Employment

Why Do Economies Grow

Aggregate Demand and Aggregate Supply

Fiscal Policy

The Income-Expenditure Model

Investment and Financial Markets

Money and the Banking System

The Federal Reserve and Monetary Policy

Modern Macroeconomics: From the Short Run to the Long Run

The Dynamics of Inflation and Unemployment

Macroeconomic Policy Debates

International Trade and Public Policy

Filters

Figure 19.3 -Refer to Figure 19.3. The market for yen is currently at Point A. An increase in the U.S. interest rates causes the equilibrium to move to point _ and the U.S. dollar will _.