Question 1

A negative balance in the capital and financial account means the economy is

Accepted Answer

A)  lending to the rest of the world. 
B)  running a capital account surplus. 
C)  borrowing from the rest of the world. 
D)  importing more than it is exporting. 
A)  lending to the rest of the world. 
B)  running a capital account surplus. 
C)  borrowing from the rest of the world. 
D)  importing more than it is exporting.

Question 2

Suppose that the price of an identical sport-utility vehicle is $32,000 in U.S. dollars in the United States and $32,000 in Canadian dollars in Canada. Suppose in addition that the exchange rate between Canada and the United States is one Canadian dollar equals $0.75 U.S. dollar. Does purchasing power parity hold for SUVs between the United States and Canada?

Accepted Answer

A)  Yes, because SUVs have the same price in each local currency. 
B)  No, because SUVs are more expensive in Canada than in the United States. 
C)  No, because SUVs are more expensive in the United States than in Canada. 
D)  Without knowing interest rates, we can't say. 
A)  Yes, because SUVs have the same price in each local currency. 
B)  No, because SUVs are more expensive in Canada than in the United States. 
C)  No, because SUVs are more expensive in the United States than in Canada. 
D)  Without knowing interest rates, we can't say.

Question 3

Interest rates in the United States rise relative to interest rates in other countries. As a result, in the foreign exchange market

Accepted Answer

A)  the supply curve of dollars shifts leftward. 
B)  the supply curve of dollars shifts rightward. 
C)  the demand curve for dollars shifts leftward. 
D)  there is a downward movement along the supply curve of dollars. 
A)  the supply curve of dollars shifts leftward. 
B)  the supply curve of dollars shifts rightward. 
C)  the demand curve for dollars shifts leftward. 
D)  there is a downward movement along the supply curve of dollars.

Question 4

If the U.S. current account balance is -$500 billion and the capital and financial account balance is +$510 billion

Accepted Answer

A)  the U.S. official settlements account balance is $10 billion. 
B)  the U.S. government's holdings of foreign currency increases by $10 billion. 
C)  foreign investment in the United States is smaller than the U.S. investment abroad. 
D)  U.S. exports are greater than U.S. imports. 
A)  the U.S. official settlements account balance is $10 billion. 
B)  the U.S. government's holdings of foreign currency increases by $10 billion. 
C)  foreign investment in the United States is smaller than the U.S. investment abroad. 
D)  U.S. exports are greater than U.S. imports.

Question 5

If the Fed sets a target exchange rate that is higher than the current exchange rate, then

Accepted Answer

A)  the Fed must sell dollars. 
B)  the Fed must buy dollars. 
C)  the Fed can do nothing in the short run. 
D)  will try to print more dollars for foreign distribution. 
A)  the Fed must sell dollars. 
B)  the Fed must buy dollars. 
C)  the Fed can do nothing in the short run. 
D)  will try to print more dollars for foreign distribution.

Question 6

-In the figure above, suppose the economy is initially at point B. If people come to believe that the exchange rate will fall in the future, the supply of dollars ________ and the market moves to point such as ________.

Accepted Answer

A)  decreases; A 
B)  decreases; E 
C)  increases; D 
D)  increases; C 
A)  decreases; A 
B)  decreases; E 
C)  increases; D 
D)  increases; C

Question 7

In the market for international loans, most countries, including the United States, are net borrowers.

Accepted Answer

A) True 
 B)False

Question 8

If the U.S. government increased its holdings of British pounds, definitely

Accepted Answer

A)  the capital and financial account would increase. 
B)  the capital and financial account would decrease. 
C)  there would be an increase in U.S. official reserves. 
D)  there would be a decrease in U.S. official reserves. 
A)  the capital and financial account would increase. 
B)  the capital and financial account would decrease. 
C)  there would be an increase in U.S. official reserves. 
D)  there would be a decrease in U.S. official reserves.

Question 9

-Using the data in the above table, if the private sector runs a surplus of $250 billion, imports will equal $1,000 billion if

Accepted Answer

A)  government expenditure equals -$750 billion. 
B)  investment equals -$1,000 billion. 
C)  government expenditure equals -$1,000 billion. 
D)  the government sector runs a deficit of $750 billion. 
A)  government expenditure equals -$750 billion. 
B)  investment equals -$1,000 billion. 
C)  government expenditure equals -$1,000 billion. 
D)  the government sector runs a deficit of $750 billion.

Question 10

Purchasing power parity means equal rates of return.

Accepted Answer

A) True 
 B)False

Question 11

An increase in the U.S. interest rate differential increases the demand for dollars.

Accepted Answer

A) True 
 B)False

Question 12

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

Question 13

The current account records foreign investment in the United States minus U.S. investment abroad.

Accepted Answer

A) True 
 B)False

Question 14

To pay for a current account deficit, a country can

Accepted Answer

A)  borrow money from abroad. 
B)  lend money abroad. 
C)  increase official reserves to cover the shortfall. 
D)  transfer money from the capital account to the official settlements account. 
A)  borrow money from abroad. 
B)  lend money abroad. 
C)  increase official reserves to cover the shortfall. 
D)  transfer money from the capital account to the official settlements account.

Question 15

According to interest rate parity, if the interest rate is 1 percent in the European Union and the euro is expected to appreciate 3 percent, the comparable interest rate in the United States will be

Accepted Answer

A)  4 percent. 
B)  3 percent. 
C)  2 percent. 
D)  1 percent. 
A)  4 percent. 
B)  3 percent. 
C)  2 percent. 
D)  1 percent.

Question 16

In October 2008, Iceland's central bank increased its lending rate to 18% in an "effort to prop up the country's frozen current and markets." (www.nytimes.com, October, 29, 2008) As a result, there was ________, holding all else the same.

Accepted Answer

A)  a movement upward along the supply curve for krona 
B)  a leftward shift in the supply curve for krona 
C)  a rightward shift in the supply curve for krona 
D)  an increase in the quantity supplied of krona 
A)  a movement upward along the supply curve for krona 
B)  a leftward shift in the supply curve for krona 
C)  a rightward shift in the supply curve for krona 
D)  an increase in the quantity supplied of krona

Question 17

If net exports is 100 and the private sector balance is 150, then the government sector balance is

Accepted Answer

A)  -50. 
B)  50. 
C)  250. 
D)  0. 
A)  -50. 
B)  50. 
C)  250. 
D)  0.

Question 18

In the foreign exchange market, if the demand for dollars permanently decreases, the Fed can maintain the exchange rate at its old equilibrium level indefinitely by buying dollars.

Accepted Answer

A) True 
 B)False

Question 19

A creditor nation means a nation

Accepted Answer

A)  whose exports exceed its imports. 
B)  whose current account is larger than its capital account. 
C)  whose current lending to the rest of the world exceeds its borrowing from the rest of the world. 
D)  who through its history has invested more in the rest of the world than other countries have invested in it. 
A)  whose exports exceed its imports. 
B)  whose current account is larger than its capital account. 
C)  whose current lending to the rest of the world exceeds its borrowing from the rest of the world. 
D)  who through its history has invested more in the rest of the world than other countries have invested in it.

Question 20

All of the following statements are correct EXCEPT

Accepted Answer

A)  China's exchange rate policy boosts exports in the long run. 
B)  China's exchange rate policy is mainly an attempt to control inflation. 
C)  China's exchange rate policy results in a depreciated yuan. 
D)  China's exchange rate policy does not impact the real exchange rate in the long run. 
A)  China's exchange rate policy boosts exports in the long run. 
B)  China's exchange rate policy is mainly an attempt to control inflation. 
C)  China's exchange rate policy results in a depreciated yuan. 
D)  China's exchange rate policy does not impact the real exchange rate in the long run.

A negative balance in the capital and financial account means the economy is

Interest rates in the United States rise relative to interest rates in other countries. As a result, in the foreign exchange market

If the U.S. current account balance is -$500 billion and the capital and financial account balance is +$510 billion

If the Fed sets a target exchange rate that is higher than the current exchange rate, then

-In the figure above, suppose the economy is initially at point B. If people come to believe that the exchange rate will fall in the future, the supply of dollars and the market moves to point such as .

In the market for international loans, most countries, including the United States, are net borrowers.

If the U.S. government increased its holdings of British pounds, definitely

-Using the data in the above table, if the private sector runs a surplus of $250 billion, imports will equal $1,000 billion if

Purchasing power parity means equal rates of return.

An increase in the U.S. interest rate differential increases the demand for dollars.

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

The current account records foreign investment in the United States minus U.S. investment abroad.

To pay for a current account deficit, a country can

According to interest rate parity, if the interest rate is 1 percent in the European Union and the euro is expected to appreciate 3 percent, the comparable interest rate in the United States will be

In October 2008, Iceland's central bank increased its lending rate to 18% in an "effort to prop up the country's frozen current and markets." (www.nytimes.com, October, 29, 2008) As a result, there was ________, holding all else the same.

If net exports is 100 and the private sector balance is 150, then the government sector balance is

In the foreign exchange market, if the demand for dollars permanently decreases, the Fed can maintain the exchange rate at its old equilibrium level indefinitely by buying dollars.

A creditor nation means a nation

All of the following statements are correct EXCEPT

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 Business Cycle, Inflation, and Deflation

Fiscal Policy

Monetary Policy

International Trade Policy

Filters

Exam 9: The Exchange Rate and the Balance of Payments

A negative balance in the capital and financial account means the economy is

Interest rates in the United States rise relative to interest rates in other countries. As a result, in the foreign exchange market

If the U.S. current account balance is -$500 billion and the capital and financial account balance is +$510 billion

If the Fed sets a target exchange rate that is higher than the current exchange rate, then

-In the figure above, suppose the economy is initially at point B. If people come to believe that the exchange rate will fall in the future, the supply of dollars ________ and the market moves to point such as ________.

In the market for international loans, most countries, including the United States, are net borrowers.

If the U.S. government increased its holdings of British pounds, definitely

-Using the data in the above table, if the private sector runs a surplus of $250 billion, imports will equal $1,000 billion if

Purchasing power parity means equal rates of return.

An increase in the U.S. interest rate differential increases the demand for dollars.

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

The current account records foreign investment in the United States minus U.S. investment abroad.

To pay for a current account deficit, a country can

According to interest rate parity, if the interest rate is 1 percent in the European Union and the euro is expected to appreciate 3 percent, the comparable interest rate in the United States will be

In October 2008, Iceland's central bank increased its lending rate to 18% in an "effort to prop up the country's frozen current and markets." (www.nytimes.com, October, 29, 2008) As a result, there was ________, holding all else the same.

If net exports is 100 and the private sector balance is 150, then the government sector balance is

In the foreign exchange market, if the demand for dollars permanently decreases, the Fed can maintain the exchange rate at its old equilibrium level indefinitely by buying dollars.

A creditor nation means a nation

All of the following statements are correct EXCEPT

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 Business Cycle, Inflation, and Deflation

Fiscal Policy

Monetary Policy

International Trade Policy

Filters

-In the figure above, suppose the economy is initially at point B. If people come to believe that the exchange rate will fall in the future, the supply of dollars and the market moves to point such as .