Question 1

A debtor nation is one that during its entire history has

Accepted Answer

A) lent more to the rest of the world than it has borrowed from it. 
B) borrowed more from the rest of the world than it has lent to it. 
C) invested more in the rest of the world than has been invested in it. 
D) a public sector deficit that is larger than its net exports. 
E) had a government debt. 
A) lent more to the rest of the world than it has borrowed from it. 
B) borrowed more from the rest of the world than it has lent to it. 
C) invested more in the rest of the world than has been invested in it. 
D) a public sector deficit that is larger than its net exports. 
E) had a government debt.

Question 2

Which of the following quotations best describes purchasing power parity?

Accepted Answer

A) "The recent high Canadian interest rate has increased demand for the Canadian dollar." 
B) "The market feeling is that the Canadian dollar is overvalued and will likely depreciate." 
C) "The price of bananas is the same in Canada and the United States, adjusting for the exchange rate." 
D) "The expected depreciation of the Canadian dollar is currently lowering demand for it." 
E) None of the above. 
A) "The recent high Canadian interest rate has increased demand for the Canadian dollar." 
B) "The market feeling is that the Canadian dollar is overvalued and will likely depreciate." 
C) "The price of bananas is the same in Canada and the United States, adjusting for the exchange rate." 
D) "The expected depreciation of the Canadian dollar is currently lowering demand for it." 
E) None of the above.

Question 3

Use the table below to answer the following questions.
Table 25.4.1
  
-Refer to Table 25.4.1.If Mengia's official settlement balance was in surplus every year,for which year or years can you say for sure there was a current account deficit?

Accepted Answer

A) year 1 only 
B) year 2 only 
C) years 2 and 3 
D) years 1 and 2 
E) years 3 and 4 
A) year 1 only 
B) year 2 only 
C) years 2 and 3 
D) years 1 and 2 
E) years 3 and 4

Question 4

In 2010,the largest item in the current account is

Accepted Answer

A) exports. 
B) imports. 
C) net interest income. 
D) net transfers. 
E) foreign investment in Canada. 
A) exports. 
B) imports. 
C) net interest income. 
D) net transfers. 
E) foreign investment in Canada.

Question 5

If the current account is in deficit and the capital and financial account is also in deficit,then the official settlements account balance is

Accepted Answer

A) negative. 
B) positive. 
C) probably close to zero, but could be either negative or positive. 
D) zero. 
E) equal to the sum of the current account and the capital account. 
A) negative. 
B) positive. 
C) probably close to zero, but could be either negative or positive. 
D) zero. 
E) equal to the sum of the current account and the capital account.

Question 6

Suppose that a country's government expenditures are $400 billion,net taxes are $300 billion,saving is $300 billion,and investment is $250 billion.There is a private sector

Accepted Answer

A) surplus of $150 billion. 
B) surplus of $50 billion. 
C) deficit of $150 billion. 
D) deficit of $50 billion. 
E) deficit of $250 billion. 
A) surplus of $150 billion. 
B) surplus of $50 billion. 
C) deficit of $150 billion. 
D) deficit of $50 billion. 
E) deficit of $250 billion.

Question 7

When would the exchange rate fall the most?

Accepted Answer

A) The supply of and demand for dollars both increase. 
B) The supply of dollars increases, and the demand for dollars decreases. 
C) The supply of dollars decreases, and the demand for dollars increases. 
D) The supply of and demand for dollars both decrease. 
E) The Bank of Canada intervenes. 
A) The supply of and demand for dollars both increase. 
B) The supply of dollars increases, and the demand for dollars decreases. 
C) The supply of dollars decreases, and the demand for dollars increases. 
D) The supply of and demand for dollars both decrease. 
E) The Bank of Canada intervenes.

Question 8

Suppose that the Canadian dollar exchanges for 1.05 U.S.dollars and also for 0.65 Euros.A U.S.dollar exchanges for

Accepted Answer

A) 1.00 Euro. 
B) 1.70 Euros. 
C) 0.40 Euros. 
D) 0.68 Euros. 
E) 0.62 Euros. 
A) 1.00 Euro. 
B) 1.70 Euros. 
C) 0.40 Euros. 
D) 0.68 Euros. 
E) 0.62 Euros.

Question 9

If the exchange rate is 97 U.S.cents per Canadian dollar,then

Accepted Answer

A) the Canadian dollar is cheaper than the U.S.dollar. 
B) the U.S.dollar is more expensive than the Canadian dollar. 
C) the Canadian dollar will appreciate. 
D) one U.S.dollar will buy 1.03 Canadian dollars. 
E) one U.S.dollar will buy 0.97 Canadian dollars. 
A) the Canadian dollar is cheaper than the U.S.dollar. 
B) the U.S.dollar is more expensive than the Canadian dollar. 
C) the Canadian dollar will appreciate. 
D) one U.S.dollar will buy 1.03 Canadian dollars. 
E) one U.S.dollar will buy 0.97 Canadian dollars.

Question 10

Appreciation of a currency means

Accepted Answer

A) an increase in the amount of goods and services that currency can purchase within its own country. 
B) an increase in the precious metal content in coins. 
C) a shortage of currency. 
D) that currency can buy more foreign currency. 
E) that currency can buy less foreign currency. 
A) an increase in the amount of goods and services that currency can purchase within its own country. 
B) an increase in the precious metal content in coins. 
C) a shortage of currency. 
D) that currency can buy more foreign currency. 
E) that currency can buy less foreign currency.

Question 11

The lower the exchange rate,the

Accepted Answer

A) larger is the quantity of Canadian dollars supplied in the foreign exchange market. 
B) larger is the quantity of Canadian dollars demanded in the foreign exchange market. 
C) smaller is the quantity of Canadian dollars supplied in the foreign exchange market. 
D) smaller is the quantity of Canadian dollars demanded in the foreign exchange market. 
E) B and C. 
A) larger is the quantity of Canadian dollars supplied in the foreign exchange market. 
B) larger is the quantity of Canadian dollars demanded in the foreign exchange market. 
C) smaller is the quantity of Canadian dollars supplied in the foreign exchange market. 
D) smaller is the quantity of Canadian dollars demanded in the foreign exchange market. 
E) B and C.

Question 12

Suppose initially Canada has all its international payments accounts in balance (no surplus or deficit).Then Canadian firms increase the amount they export to Japan,and the Japanese finance the increase by borrowing from Canada.In Canada everything else remaining the same there will now be a

Accepted Answer

A) current and financial account surplus and capital account surplus. 
B) current and financial account surplus and capital account deficit. 
C) current and financial account deficit and capital account surplus. 
D) current and financial account deficit and capital account deficit. 
E) current and financial account deficit and capital account balance. 
A) current and financial account surplus and capital account surplus. 
B) current and financial account surplus and capital account deficit. 
C) current and financial account deficit and capital account surplus. 
D) current and financial account deficit and capital account deficit. 
E) current and financial account deficit and capital account balance.

Question 13

The private sector balance and the government sector balance tend to move in ________.Net exports respond ________.

Accepted Answer

A) opposite directions;closely to the government sector balance 
B) the same direction;to the sum of the government sector and private sector balances 
C) the same direction;closely to the government sector balance 
D) opposite directions;to the sum of the government sector and private sector balances 
E) the same direction;to changes in the exchange rate 
A) opposite directions;closely to the government sector balance 
B) the same direction;to the sum of the government sector and private sector balances 
C) the same direction;closely to the government sector balance 
D) opposite directions;to the sum of the government sector and private sector balances 
E) the same direction;to changes in the exchange rate

Question 14

Use the information below to answer the following questions.
Fact 25.4.1
You are given the following information about the country of Ecoland, whose currency is the turkey, and whose official settlements balance is zero.
  
-Refer to Fact 25.4.1.What is the amount of net taxes?

Accepted Answer

A) 10 billion turkies 
B) 12 billion turkies 
C) 2 billion turkies 
D) 8 billion turkies 
E) 14 billion turkies 
A) 10 billion turkies 
B) 12 billion turkies 
C) 2 billion turkies 
D) 8 billion turkies 
E) 14 billion turkies

Question 15

Between 1999 and 2008,Canada was a

Accepted Answer

A) a net borrower from the rest of the world. 
B) a net lender to the rest of the world. 
C) neither a borrower nor a lender to the rest of the world. 
D) borrowing and lending in equal amounts with the rest of the world. 
E) none of the above 
A) a net borrower from the rest of the world. 
B) a net lender to the rest of the world. 
C) neither a borrower nor a lender to the rest of the world. 
D) borrowing and lending in equal amounts with the rest of the world. 
E) none of the above

Question 16

Suppose that a country's government expenditures are $400 billion,net taxes are $300 billion,saving is $300 billion,and investment is $250 billion.Net exports are a

Accepted Answer

A) surplus of $150 billion. 
B) surplus of $50 billion. 
C) deficit of $150 billion. 
D) deficit of $50 billion. 
E) deficit of $250 billion. 
A) surplus of $150 billion. 
B) surplus of $50 billion. 
C) deficit of $150 billion. 
D) deficit of $50 billion. 
E) deficit of $250 billion.

Question 17

Refer to the figure below to answer the following questions.
   
Figure 25.3.1
-In Figure 25.3.1,suppose the demand for dollars permanently decreases to D?.To maintain the target,the Bank of Canada

Accepted Answer

A) buys dollars. 
B) sells dollars. 
C) must decrease the nation's net exports. 
D) cannot permanently maintain the exchange rate target of 90 U.S.cents per Canadian dollar. 
E) none of the above. 
A) buys dollars. 
B) sells dollars. 
C) must decrease the nation's net exports. 
D) cannot permanently maintain the exchange rate target of 90 U.S.cents per Canadian dollar. 
E) none of the above.

Question 18

At the equilibrium exchange rate ________.

Accepted Answer

A) the demand for dollars equals the supply of dollars 
B) a shortage may exist but a surplus may not exist 
C) a surplus may exist but a shortage may not exist 
D) the quantity of dollars demanded equals the quantity of dollars supplied 
E) the Canadian dollar is trading for 100 U.S.cents per Canadian dollar 
A) the demand for dollars equals the supply of dollars 
B) a shortage may exist but a surplus may not exist 
C) a surplus may exist but a shortage may not exist 
D) the quantity of dollars demanded equals the quantity of dollars supplied 
E) the Canadian dollar is trading for 100 U.S.cents per Canadian dollar

Question 19

Use the table below to answer the following questions.
Table 25.4.1
  
-Refer to Table 25.4.1.The country Mengia came into existence at the beginning of year 1.Given the information,in year 4 Mengia is a

Accepted Answer

A) net lender and a creditor nation. 
B) net lender and a debtor nation. 
C) net borrower and a creditor nation. 
D) net borrower and a debtor nation. 
E) net lender and neither a creditor nor a debtor nation. 
A) net lender and a creditor nation. 
B) net lender and a debtor nation. 
C) net borrower and a creditor nation. 
D) net borrower and a debtor nation. 
E) net lender and neither a creditor nor a debtor nation.

Question 20

NX =

Accepted Answer

A) C + I + G. 
B) (S + I)- (T + G). 
C) (G - T)+ (I - S). 
D) (S - I)+ (G - T). 
E) (T - G)+ (S - I). 
A) C + I + G. 
B) (S + I)- (T + G). 
C) (G - T)+ (I - S). 
D) (S - I)+ (G - T). 
E) (T - G)+ (S - I).

Exam 25: The Exchange Rate and the Balance of Payments

A debtor nation is one that during its entire history has

Which of the following quotations best describes purchasing power parity?

Use the table below to answer the following questions. Table 25.4.1 -Refer to Table 25.4.1.If Mengia's official settlement balance was in surplus every year,for which year or years can you say for sure there was a current account deficit?

In 2010,the largest item in the current account is

If the current account is in deficit and the capital and financial account is also in deficit,then the official settlements account balance is

Suppose that a country's government expenditures are $400 billion,net taxes are $300 billion,saving is $300 billion,and investment is $250 billion.There is a private sector

When would the exchange rate fall the most?

Suppose that the Canadian dollar exchanges for 1.05 U.S.dollars and also for 0.65 Euros.A U.S.dollar exchanges for

If the exchange rate is 97 U.S.cents per Canadian dollar,then

Appreciation of a currency means

The lower the exchange rate,the

Suppose initially Canada has all its international payments accounts in balance (no surplus or deficit).Then Canadian firms increase the amount they export to Japan,and the Japanese finance the increase by borrowing from Canada.In Canada everything else remaining the same there will now be a

The private sector balance and the government sector balance tend to move in ________.Net exports respond ________.

Use the information below to answer the following questions. Fact 25.4.1 You are given the following information about the country of Ecoland, whose currency is the turkey, and whose official settlements balance is zero. -Refer to Fact 25.4.1.What is the amount of net taxes?

Between 1999 and 2008,Canada was a

Suppose that a country's government expenditures are $400 billion,net taxes are $300 billion,saving is $300 billion,and investment is $250 billion.Net exports are a

Refer to the figure below to answer the following questions. Figure 25.3.1 -In Figure 25.3.1,suppose the demand for dollars permanently decreases to D?.To maintain the target,the Bank of Canada

At the equilibrium exchange rate ________.

Use the table below to answer the following questions. Table 25.4.1 -Refer to Table 25.4.1.The country Mengia came into existence at the beginning of year 1.Given the information,in year 4 Mengia is a

NX =

What Is Economics?

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The private sector balance and the government sector balance tend to move in .Net exports respond .