Question 1

What types of transactions count as debits in the balance of payments? What types of transactions count as credits? Give examples.

Accepted Answer

Any transaction that supplies a nation's

Question 2

Which of the following would be recorded as a credit in the U.S. balance of payments accounts?

Accepted Answer

A)  the purchase of a German business by a U.S. investor 
B)  the import of Honda trucks by a U.S. automobile distributor 
C)  European travel expenditures of an American college student 
D)  the purchase of a U.S. Treasury bond by a French investment company 
A)  the purchase of a German business by a U.S. investor 
B)  the import of Honda trucks by a U.S. automobile distributor 
C)  European travel expenditures of an American college student 
D)  the purchase of a U.S. Treasury bond by a French investment company

Question 3

Any country with highly attractive domestic investment opportunities and a low savings rate will tend to

Accepted Answer

A)  run a current account deficit that is equal to its capital account surplus. 
B)  run a current account surplus deficit over a long period. 
C)  tend to be relatively poor (compared with other countries). 
D)  run a current account deficit. 
A)  run a current account deficit that is equal to its capital account surplus. 
B)  run a current account surplus deficit over a long period. 
C)  tend to be relatively poor (compared with other countries). 
D)  run a current account deficit.

Question 4

When a group of nations adhere to a strict fixed exchange rate system, then

Accepted Answer

A)  no country will experience inflation or recession. 
B)  each nation loses some control of its monetary policy and its domestic economy. 
C)  each nation is able to exercise more control of its fiscal policy and aggregate demand. 
D)  each nation is able to exercise more control of its monetary policy and its domestic economy. 
A)  no country will experience inflation or recession. 
B)  each nation loses some control of its monetary policy and its domestic economy. 
C)  each nation is able to exercise more control of its fiscal policy and aggregate demand. 
D)  each nation is able to exercise more control of its monetary policy and its domestic economy.

Question 5

Use the figure below to answer the following question(s). Figure 18-2
  Figure 18-2 illustrates supply and demand for U.S. dollars and British pounds in the foreign exchange market. Which of the following would cause the demand for foreign exchange (pounds) to shift from D1 to D2?

Accepted Answer

A)  an increase in the real interest rate in Britain relative to the United States 
B)  higher inflation in Britain than in the United States 
C)  higher income growth in Britain than in the United States 
D)  an increase in the number of British citizens vacationing in the United States 
A)  an increase in the real interest rate in Britain relative to the United States 
B)  higher inflation in Britain than in the United States 
C)  higher income growth in Britain than in the United States 
D)  an increase in the number of British citizens vacationing in the United States

Question 6

If the exchange rate between the U.S. dollar and the Mexican peso went from $1 US = 9 peso to $1 US = 10 peso, then

Accepted Answer

A)  American goods have become less expensive for Mexicans. 
B)  Mexican goods have become more expensive for Americans. 
C)  American goods have become more expensive for Mexicans. 
D)  American exports to Mexico are likely to increase. 
A)  American goods have become less expensive for Mexicans. 
B)  Mexican goods have become more expensive for Americans. 
C)  American goods have become more expensive for Mexicans. 
D)  American exports to Mexico are likely to increase.

Question 7

If the exchange rate of the English pound goes from $1.80 to $1.60, the pound has

Accepted Answer

A)  appreciated, and the English will find U.S. goods cheaper. 
B)  appreciated, and the English will find U.S. goods more expensive. 
C)  depreciated, and the English will find U.S. goods more expensive. 
D)  depreciated, and the English will find U.S. goods cheaper. 
A)  appreciated, and the English will find U.S. goods cheaper. 
B)  appreciated, and the English will find U.S. goods more expensive. 
C)  depreciated, and the English will find U.S. goods more expensive. 
D)  depreciated, and the English will find U.S. goods cheaper.

Question 8

What are the three categories of transactions in the balance of payments? Give an example of each.

Accepted Answer

The current account includes records of

Question 9

If the exchange rate changes from 1 euro per U.S. dollar to 1.2 euros per U.S. dollar, the Euro has

Accepted Answer

A)  appreciated, since its value has increased. 
B)  appreciated, since the price of U.S. dollars has increased. 
C)  appreciated, making U.S. goods cheaper in Euros. 
D)  depreciated, since its value has declined. 
E)  depreciated, since its value has increased. 
A)  appreciated, since its value has increased. 
B)  appreciated, since the price of U.S. dollars has increased. 
C)  appreciated, making U.S. goods cheaper in Euros. 
D)  depreciated, since its value has declined. 
E)  depreciated, since its value has increased.

Question 10

The prospect of a recession in the United States would probably cause the dollar to

Accepted Answer

A)  depreciate because interest rates would be expected to rise. 
B)  depreciate because imports would be expected to rise. 
C)  appreciate because imports would be expected to fall. 
D)  appreciate because interest rates would be expected to decrease. 
A)  depreciate because interest rates would be expected to rise. 
B)  depreciate because imports would be expected to rise. 
C)  appreciate because imports would be expected to fall. 
D)  appreciate because interest rates would be expected to decrease.

Question 11

An American investor purchasing a Japanese government bond

Accepted Answer

A)  creates a demand for dollars and a supply of yen in the foreign exchange market. 
B)  creates a demand for yen and a supply of dollars in the foreign exchange market. 
C)  causes the yen to depreciate. 
D)  causes the dollar to appreciate. 
A)  creates a demand for dollars and a supply of yen in the foreign exchange market. 
B)  creates a demand for yen and a supply of dollars in the foreign exchange market. 
C)  causes the yen to depreciate. 
D)  causes the dollar to appreciate.

Question 12

If the exchange rate between the U.S. dollar and the Russian ruble was 0.04 ($0.04 = one ruble), what would be the price in dollars of a bottle of Russian wine selling for 2,000 ruble?

Accepted Answer

A)  $50 
B)  $80 
C)  $100 
D)  $500 
A)  $50 
B)  $80 
C)  $100 
D)  $500

Question 13

If the United States experiences an economic boom, how will this affect the foreign exchange value of the U.S. dollar?

Accepted Answer

A)  It will fall because other nations would be forced to raise their interest rates. 
B)  It will fall because the United States will import more goods and services, leading to an increased demand for foreign currencies. 
C)  It will rise because U.S. GDP would be rising faster than other countries. 
D)  It will rise because the Fed will have to lower U.S. interest rates. 
E)  It will rise because the United States will import more goods and services, leading to an increased demand for foreign currencies. 
A)  It will fall because other nations would be forced to raise their interest rates. 
B)  It will fall because the United States will import more goods and services, leading to an increased demand for foreign currencies. 
C)  It will rise because U.S. GDP would be rising faster than other countries. 
D)  It will rise because the Fed will have to lower U.S. interest rates. 
E)  It will rise because the United States will import more goods and services, leading to an increased demand for foreign currencies.

Question 14

With time, an appreciation in the value of the nation's currency in the foreign exchange market would cause

Accepted Answer

A)  the nation's imports to increase and exports to decline. 
B)  the nation's exports to increase and imports to decline. 
C)  both imports and exports to decline. 
D)  both imports and exports to rise. 
A)  the nation's imports to increase and exports to decline. 
B)  the nation's exports to increase and imports to decline. 
C)  both imports and exports to decline. 
D)  both imports and exports to rise.

Question 15

Which of the following would most likely cause a nation's currency to appreciate?

Accepted Answer

A)  an increase in inflation of the nation's trading partners 
B)  an increase in the nation's domestic inflation rate 
C)  a decrease in domestic real interest rates 
D)  an increase in real interest rates abroad 
A)  an increase in inflation of the nation's trading partners 
B)  an increase in the nation's domestic inflation rate 
C)  a decrease in domestic real interest rates 
D)  an increase in real interest rates abroad

Question 16

If Thailand fixes the foreign exchange value of its currency and follows a highly expansionary monetary policy,

Accepted Answer

A)  Thailand will be unable to maintain both the fixed-exchange rate and the full convertibility of its currency 
B)  Thailand will experience rapid economic growth. 
C)  it will be easier for Thailand to engage in international trade. 
D)  Thailand will have relatively low rates of inflation. 
A)  Thailand will be unable to maintain both the fixed-exchange rate and the full convertibility of its currency 
B)  Thailand will experience rapid economic growth. 
C)  it will be easier for Thailand to engage in international trade. 
D)  Thailand will have relatively low rates of inflation.

Question 17

Other things constant, if Americans suddenly increased their desire to vacation in Mexico, the dollar price of the Mexican peso would

Accepted Answer

A)  increase, which is an appreciation of the Mexican peso. 
B)  increase, which is a depreciation of the Mexican peso. 
C)  decrease, which is an appreciation of the Mexican peso. 
D)  decrease, which is a depreciation of the Mexican peso. 
A)  increase, which is an appreciation of the Mexican peso. 
B)  increase, which is a depreciation of the Mexican peso. 
C)  decrease, which is an appreciation of the Mexican peso. 
D)  decrease, which is a depreciation of the Mexican peso.

Question 18

If the exchange rate between the U.S. dollar and the European euro went from $1.20 US = 1 euro to $1.10 US = 1 euro, then

Accepted Answer

A)  European goods have become less expensive for Americans. 
B)  American goods have become less expensive for Europeans. 
C)  American exports to Europe are likely to increase. 
D)  American imports from Europe are likely to decrease. 
A)  European goods have become less expensive for Americans. 
B)  American goods have become less expensive for Europeans. 
C)  American exports to Europe are likely to increase. 
D)  American imports from Europe are likely to decrease.

Question 19

An important explanation for the current account deficit and capital account surplus in the United States is that

Accepted Answer

A)  we buy fewer goods from foreigners than they buy from us, and foreigners find the United States an attractive place to invest. 
B)  we buy more goods from foreigners than they buy from us, and foreigners find the United States an attractive place to invest. 
C)  we buy fewer goods from foreigners than they buy from us, and Americans find foreign countries an attractive place to invest. 
D)  we buy more goods from foreigners than they buy from us, and Americans find foreign countries an attractive place to invest. 
A)  we buy fewer goods from foreigners than they buy from us, and foreigners find the United States an attractive place to invest. 
B)  we buy more goods from foreigners than they buy from us, and foreigners find the United States an attractive place to invest. 
C)  we buy fewer goods from foreigners than they buy from us, and Americans find foreign countries an attractive place to invest. 
D)  we buy more goods from foreigners than they buy from us, and Americans find foreign countries an attractive place to invest.

Question 20

During recent times, the United States has been running a trade deficit (our exports of goods and services have been less than our imports of goods and services). Which of the following is true regarding these trade deficits?

Accepted Answer

A)  They were primarily caused by rapid economic growth in the United States stimulating imports and also the attractiveness of the United States as a place to invest causing a capital inflow. 
B)  These trade deficits put the United States in debt to foreign economies and thus weaken future economic conditions in the United States. 
C)  These trade deficits are evidence that other countries practice unfair trade against the United States because under fair trade exports equal imports to another country. 
D)  None of the above are true regarding the trade deficits of the United States. 
A)  They were primarily caused by rapid economic growth in the United States stimulating imports and also the attractiveness of the United States as a place to invest causing a capital inflow. 
B)  These trade deficits put the United States in debt to foreign economies and thus weaken future economic conditions in the United States. 
C)  These trade deficits are evidence that other countries practice unfair trade against the United States because under fair trade exports equal imports to another country. 
D)  None of the above are true regarding the trade deficits of the United States.

What types of transactions count as debits in the balance of payments? What types of transactions count as credits? Give examples.

Which of the following would be recorded as a credit in the U.S. balance of payments accounts?

Any country with highly attractive domestic investment opportunities and a low savings rate will tend to

When a group of nations adhere to a strict fixed exchange rate system, then

Use the figure below to answer the following question(s). Figure 18-2 Figure 18-2 illustrates supply and demand for U.S. dollars and British pounds in the foreign exchange market. Which of the following would cause the demand for foreign exchange (pounds) to shift from D₁ to D₂?

If the exchange rate between the U.S. dollar and the Mexican peso went from $1 US = 9 peso to $1 US = 10 peso, then

If the exchange rate of the English pound goes from $1.80 to $1.60, the pound has

What are the three categories of transactions in the balance of payments? Give an example of each.

If the exchange rate changes from 1 euro per U.S. dollar to 1.2 euros per U.S. dollar, the Euro has

The prospect of a recession in the United States would probably cause the dollar to

An American investor purchasing a Japanese government bond

If the exchange rate between the U.S. dollar and the Russian ruble was 0.04 ($0.04 = one ruble), what would be the price in dollars of a bottle of Russian wine selling for 2,000 ruble?

If the United States experiences an economic boom, how will this affect the foreign exchange value of the U.S. dollar?

With time, an appreciation in the value of the nation's currency in the foreign exchange market would cause

Which of the following would most likely cause a nation's currency to appreciate?

If Thailand fixes the foreign exchange value of its currency and follows a highly expansionary monetary policy,

Other things constant, if Americans suddenly increased their desire to vacation in Mexico, the dollar price of the Mexican peso would

If the exchange rate between the U.S. dollar and the European euro went from $1.20 US = 1 euro to $1.10 US = 1 euro, then

An important explanation for the current account deficit and capital account surplus in the United States is that

During recent times, the United States has been running a trade deficit (our exports of goods and services have been less than our imports of goods and services). Which of the following is true regarding these trade deficits?

The Economic Approach

Some Tools of the Economist

Demand, Supply, and the Market Process

Supply and Demand: Applications and Extensions

Difficult Cases for the Market, and the Role of Government

The Economics of Political Action

Taking the Nations Economic Pulse

Economic Fluctuations, Unemployment, and Inflation

An Introduction to Basic Macroeconomic Markets

Dynamic Change, Economic Fluctuations, and the Ad--As Model

Fiscal Policy: The Keynesian View and the Historical Development of Macroeconomics

Fiscal Policy: Incentives, and Secondary Effects

Money and the Banking System

Modern Macroeconomics and Monetary Policy

Stabilization Policy, Output, and Employment

Creating an Environment for Growth and Prosperity

Institutions, Policies, and Cross-Country Differences in Income and Growth

Gaining From International Trade

Special Topics

Filters

Exam 19: International Finance and the Foreign Exchange Market

What types of transactions count as debits in the balance of payments? What types of transactions count as credits? Give examples.

Which of the following would be recorded as a credit in the U.S. balance of payments accounts?

Any country with highly attractive domestic investment opportunities and a low savings rate will tend to

When a group of nations adhere to a strict fixed exchange rate system, then

Use the figure below to answer the following question(s). Figure 18-2 Figure 18-2 illustrates supply and demand for U.S. dollars and British pounds in the foreign exchange market. Which of the following would cause the demand for foreign exchange (pounds) to shift from D1 to D2?

If the exchange rate between the U.S. dollar and the Mexican peso went from $1 US = 9 peso to $1 US = 10 peso, then

If the exchange rate of the English pound goes from $1.80 to $1.60, the pound has

What are the three categories of transactions in the balance of payments? Give an example of each.

If the exchange rate changes from 1 euro per U.S. dollar to 1.2 euros per U.S. dollar, the Euro has

The prospect of a recession in the United States would probably cause the dollar to

An American investor purchasing a Japanese government bond

If the exchange rate between the U.S. dollar and the Russian ruble was 0.04 ($0.04 = one ruble), what would be the price in dollars of a bottle of Russian wine selling for 2,000 ruble?

If the United States experiences an economic boom, how will this affect the foreign exchange value of the U.S. dollar?

With time, an appreciation in the value of the nation's currency in the foreign exchange market would cause

Which of the following would most likely cause a nation's currency to appreciate?

If Thailand fixes the foreign exchange value of its currency and follows a highly expansionary monetary policy,

Other things constant, if Americans suddenly increased their desire to vacation in Mexico, the dollar price of the Mexican peso would

If the exchange rate between the U.S. dollar and the European euro went from $1.20 US = 1 euro to $1.10 US = 1 euro, then

An important explanation for the current account deficit and capital account surplus in the United States is that

During recent times, the United States has been running a trade deficit (our exports of goods and services have been less than our imports of goods and services). Which of the following is true regarding these trade deficits?

The Economic Approach

Some Tools of the Economist

Demand, Supply, and the Market Process

Supply and Demand: Applications and Extensions

Difficult Cases for the Market, and the Role of Government

The Economics of Political Action

Taking the Nations Economic Pulse

Economic Fluctuations, Unemployment, and Inflation

An Introduction to Basic Macroeconomic Markets

Dynamic Change, Economic Fluctuations, and the Ad--As Model

Fiscal Policy: The Keynesian View and the Historical Development of Macroeconomics

Fiscal Policy: Incentives, and Secondary Effects

Money and the Banking System

Modern Macroeconomics and Monetary Policy

Stabilization Policy, Output, and Employment

Creating an Environment for Growth and Prosperity

Institutions, Policies, and Cross-Country Differences in Income and Growth

Gaining From International Trade

Special Topics

Filters

Use the figure below to answer the following question(s). Figure 18-2 Figure 18-2 illustrates supply and demand for U.S. dollars and British pounds in the foreign exchange market. Which of the following would cause the demand for foreign exchange (pounds) to shift from D₁ to D₂?