Question 1

When a worker in the United States sends money to his family in Mexico, this transaction is recorded in the U.S. balance of payment as an:

Accepted Answer

A) outflow in the merchandise account. 
B) outflow in the net transfer account. 
C) inflow in the service account. 
D) inflow in the investment income account. 
A) outflow in the merchandise account. 
B) outflow in the net transfer account. 
C) inflow in the service account. 
D) inflow in the investment income account.

Question 2

Suppose 60,000 pesos buys a basket of goods in Mexico. If, at the existing exchange rate, it costs less than 60,000 pesos to buy the same basket of goods in the United States, then purchasing power parity implies that the:

Accepted Answer

A) dollar is overvalued. 
B) peso is undervalued. 
C) dollar should cost fewer pesos. 
D) dollar should cost more pesos. 
A) dollar is overvalued. 
B) peso is undervalued. 
C) dollar should cost fewer pesos. 
D) dollar should cost more pesos.

Question 3

The direct effect of expansionary monetary policy is to:

Accepted Answer

A) increase both U.S. imports and the value of the dollar. 
B) increase U.S. imports but reduce the value of the dollar. 
C) reduce both U.S. imports and the value of the dollar. 
D) reduce U.S. imports but increase the value of the dollar. 
A) increase both U.S. imports and the value of the dollar. 
B) increase U.S. imports but reduce the value of the dollar. 
C) reduce both U.S. imports and the value of the dollar. 
D) reduce U.S. imports but increase the value of the dollar.

Question 4

The Eurozone would be well equipped to deal with their member countries defaulting on their debt.

Accepted Answer

A) True 
 B)False

Question 5

Refer to the graph shown. The least likely cause of the shift from D1 to D2 is:

Accepted Answer

A) an increase in the U.S. inflation rate. 
B) an increase in U.S. interest rates. 
C) expansionary fiscal policy. 
D) contractionary monetary policy. 
A) an increase in the U.S. inflation rate. 
B) an increase in U.S. interest rates. 
C) expansionary fiscal policy. 
D) contractionary monetary policy.

Question 6

Expansionary monetary policy tends to:

Accepted Answer

A) reduce both the interest rate and capital inflows. 
B) reduce the interest rate and increase capital inflows. 
C) increase the interest rate and reduce capital inflows. 
D) increase both the interest rate and capital inflows. 
A) reduce both the interest rate and capital inflows. 
B) reduce the interest rate and increase capital inflows. 
C) increase the interest rate and reduce capital inflows. 
D) increase both the interest rate and capital inflows.

Question 7

The 2004 South Asian tsunami killed more than 150,000 people in countries around the Indian Ocean. Many Americans donated to help the victims of this natural disaster. These donations:

Accepted Answer

A) would not be included in the balance of payments account because there was no purchase or sale. 
B) are part of the export of services in the balance of payments account. 
C) are part of the import of services in the balance of payments account. 
D) are part of net transfers in the balance of payments account. 
A) would not be included in the balance of payments account because there was no purchase or sale. 
B) are part of the export of services in the balance of payments account. 
C) are part of the import of services in the balance of payments account. 
D) are part of net transfers in the balance of payments account.

Question 8

Fixed exchange rates restrict macroeconomic policy more than flexible exchange rates.

Accepted Answer

A) True 
 B)False

Question 9

Suppose a given basket of goods and services costs 15 dollars in the United States and 14,250 won in Korea. If the exchange rate is 900 won per dollar, purchasing power parity implies that the:

Accepted Answer

A) exchange rate has attained its long run equilibrium value. 
B) dollar must appreciate to restore purchasing power parity. 
C) dollar must depreciate to restore purchasing power parity. 
D) won must appreciate to restore purchasing power parity. 
A) exchange rate has attained its long run equilibrium value. 
B) dollar must appreciate to restore purchasing power parity. 
C) dollar must depreciate to restore purchasing power parity. 
D) won must appreciate to restore purchasing power parity.

Question 10

Currency stabilization policy is:

Accepted Answer

A) always successful. 
B) successful only if the government can identify the long-run equilibrium value of the exchange rate. 
C) successful only if the government does not attempt to affect market expectations. 
D) never successful. 
A) always successful. 
B) successful only if the government can identify the long-run equilibrium value of the exchange rate. 
C) successful only if the government does not attempt to affect market expectations. 
D) never successful.

Question 11

Canadian exports involve an:

Accepted Answer

A) outflow of Canadian dollars from Canada to foreigners. 
B) inflow of Canadian dollars from foreigners to Canada. 
C) outflow of foreign currencies from Canada to foreigners. 
D) inflow of foreign currencies from foreigners to Canada. 
A) outflow of Canadian dollars from Canada to foreigners. 
B) inflow of Canadian dollars from foreigners to Canada. 
C) outflow of foreign currencies from Canada to foreigners. 
D) inflow of foreign currencies from foreigners to Canada.

Question 12

The euro was adopted solely for economic reasons.

Accepted Answer

A) True 
 B)False

Question 13

Refer to the graph shown. As a result of the shift from D1 to D2, the value of the dollar will:

Accepted Answer

A) increase in response to excess demand equal to Q4 - Q2. 
B) increase in response to excess demand equal to Q3 - Q1. 
C) decrease in response to excess supply equal to Q4 - Q2. 
D) decrease in response to excess supply equal to Q3 - Q1. 
A) increase in response to excess demand equal to Q4 - Q2. 
B) increase in response to excess demand equal to Q3 - Q1. 
C) decrease in response to excess supply equal to Q4 - Q2. 
D) decrease in response to excess supply equal to Q3 - Q1.

Question 14

Which of the following statements is true?

Accepted Answer

A) Expansionary fiscal and monetary policy both tend to increase the exchange rate of an economy. 
B) Expansionary monetary policy tends to lower the exchange rate of an economy. The effects of expansionary fiscal policy are unclear. 
C) Expansionary fiscal policy tends to increase the exchange rate of an economy. The effects of expansionary monetary policy are unclear. 
D) The effects of both expansionary fiscal and monetary policy on the exchange rate of an economy are unclear. 
A) Expansionary fiscal and monetary policy both tend to increase the exchange rate of an economy. 
B) Expansionary monetary policy tends to lower the exchange rate of an economy. The effects of expansionary fiscal policy are unclear. 
C) Expansionary fiscal policy tends to increase the exchange rate of an economy. The effects of expansionary monetary policy are unclear. 
D) The effects of both expansionary fiscal and monetary policy on the exchange rate of an economy are unclear.

Question 15

Which of the following is not a characteristic of a gold standard?

Accepted Answer

A) Currency convertibility into gold 
B) Exchange rate stability 
C) Unlimited international gold flows 
D) Discretionary or activist monetary policy 
A) Currency convertibility into gold 
B) Exchange rate stability 
C) Unlimited international gold flows 
D) Discretionary or activist monetary policy

Question 16

Exchange rate fluctuations:

Accepted Answer

A) do not have economic consequences. 
B) have minor economic consequences. 
C) have important economic consequences. 
D) have currently undetermined economic consequences. 
A) do not have economic consequences. 
B) have minor economic consequences. 
C) have important economic consequences. 
D) have currently undetermined economic consequences.

Question 17

Under the gold standard, if a country had a deficit in its balance of payments, it would have to:

Accepted Answer

A) sell gold in order to keep the value of its currency from rising. 
B) sell gold in order to keep the value of its currency from falling. 
C) buy gold in order to keep the value of its currency from rising. 
D) buy gold in order to keep the value of its currency from falling. 
A) sell gold in order to keep the value of its currency from rising. 
B) sell gold in order to keep the value of its currency from falling. 
C) buy gold in order to keep the value of its currency from rising. 
D) buy gold in order to keep the value of its currency from falling.

Question 18

Foreign governments are holding fewer dollars as reserves. As a result, the value of the dollar is declining. If foreign governments want to keep the U.S. dollar from declining, they could:

Accepted Answer

A) implement domestic contractionary monetary policies. 
B) implement domestic export subsidies to accumulate dollars. 
C) buy more U.S. dollars. 
D) reduce their U.S. dollar holdings even more. 
A) implement domestic contractionary monetary policies. 
B) implement domestic export subsidies to accumulate dollars. 
C) buy more U.S. dollars. 
D) reduce their U.S. dollar holdings even more.

Question 19

Other things equal, a reduction in American income should:

Accepted Answer

A) increase the U.S. current account but lower the dollar. 
B) increase the U.S. current account and raise the dollar. 
C) decrease the U.S. current account and lower the dollar. 
D) decrease the U.S. current account but raise the dollar. 
A) increase the U.S. current account but lower the dollar. 
B) increase the U.S. current account and raise the dollar. 
C) decrease the U.S. current account and lower the dollar. 
D) decrease the U.S. current account but raise the dollar.

Question 20

Consider the following diagram showing supply and demand for euros in Germany:   If the price of euro is currently $P0,what does this tell us about the private balance of payments?

Accepted Answer

At price P₀ the quantity demanded of euro

Exam 35: International Financial Policy

When a worker in the United States sends money to his family in Mexico, this transaction is recorded in the U.S. balance of payment as an:

Suppose 60,000 pesos buys a basket of goods in Mexico. If, at the existing exchange rate, it costs less than 60,000 pesos to buy the same basket of goods in the United States, then purchasing power parity implies that the:

The direct effect of expansionary monetary policy is to:

The Eurozone would be well equipped to deal with their member countries defaulting on their debt.

Refer to the graph shown. The least likely cause of the shift from D1 to D2 is:

Expansionary monetary policy tends to:

The 2004 South Asian tsunami killed more than 150,000 people in countries around the Indian Ocean. Many Americans donated to help the victims of this natural disaster. These donations:

Fixed exchange rates restrict macroeconomic policy more than flexible exchange rates.

Suppose a given basket of goods and services costs 15 dollars in the United States and 14,250 won in Korea. If the exchange rate is 900 won per dollar, purchasing power parity implies that the:

Currency stabilization policy is:

Canadian exports involve an:

The euro was adopted solely for economic reasons.

Refer to the graph shown. As a result of the shift from D1 to D2, the value of the dollar will:

Which of the following statements is true?

Which of the following is not a characteristic of a gold standard?

Exchange rate fluctuations:

Under the gold standard, if a country had a deficit in its balance of payments, it would have to:

Foreign governments are holding fewer dollars as reserves. As a result, the value of the dollar is declining. If foreign governments want to keep the U.S. dollar from declining, they could:

Other things equal, a reduction in American income should:

Consider the following diagram showing supply and demand for euros in Germany: If the price of euro is currently $P0,what does this tell us about the private balance of payments?

Economics and Economic Reasoning

The Production Possibility Model, Trade, and Globalization

Economic Institutions

Supply and Demand

Using Supply and Demand

Describing Supply and Demand: Elasticities

Taxation and Government Intervention

Market Failure Versus Government Failure

Comparative Advantage, Exchange Rates, and Globalization

International Trade Policy

Production and Cost Analysis I

Production and Cost Analysis II

Perfect Competition

Monopoly and Monopolistic Competition

Oligopoly and Antitrust Policy

Real-World Competition and Technology

Work and the Labor Market

Who Gets What the Distribution of Income

The Logic of Individual Choice: the Foundation of Supply and Demand

Game Theory, Strategic Decision Making, and Behavioral Economics

Thinking Like a Modern Economist

Behavioral Economics and Modern Economic Policy

Microeconomic Policy, Economic Reasoning, and Beyond

Economic Growth, Business Cycles, and Unemployment

Measuring and Describing the Aggregate Economy

The Keynesian Short-Run Policy Model: Demand-Side Policies

The Classical Long-Run Policy Model: Growth and Supply-Side Policies

The Financial Sector and the Economy

Monetary Policy

Financial Crises, Panics, and Unconventional Monetary Policy

Deficits and Debt: the Austerity Debate

The Fiscal Policy Dilemma

Jobs and Unemployment

Inflation, Deflation, and Macro Policy

Macro Policy in a Global Setting

Structural Stagnation and Globalization

Macro Policy in Developing Countries

Filters

Consider the following diagram showing supply and demand for euros in Germany: If the price of euro is currently $P₀,what does this tell us about the private balance of payments?