Question 1

The difference between the value of a country's merchandise exports and merchandise imports is known as the balance

Accepted Answer

A)  of payments. 
B)  of merchandise trade. 
C)  on current account. 
D)  on capital account. 
A)  of payments. 
B)  of merchandise trade. 
C)  on current account. 
D)  on capital account.

Question 2

If income in the United States increases more rapidly than the income of our trading partners, other things constant, the dollar will

Accepted Answer

A)  appreciate, imports will become less expensive, and domestic exports will become more expensive to foreigners. 
B)  depreciate, imports will become less expensive, and domestic exports will become more expensive to foreigners. 
C)  appreciate, imports will become more expensive, and domestic exports will become less expensive to foreigners. 
D)  depreciate, imports will become more expensive, and domestic exports will become less expensive to foreigners. 
A)  appreciate, imports will become less expensive, and domestic exports will become more expensive to foreigners. 
B)  depreciate, imports will become less expensive, and domestic exports will become more expensive to foreigners. 
C)  appreciate, imports will become more expensive, and domestic exports will become less expensive to foreigners. 
D)  depreciate, imports will become more expensive, and domestic exports will become less expensive to foreigners.

Question 3

Which of the following would be likely to cause a nation's currency to depreciate?

Accepted Answer

A)  an increase in foreign demand for the nation's products 
B)  a lower domestic rate of inflation than that of the nation's trading partners 
C)  higher domestic interest rates 
D)  higher foreign interest rates 
A)  an increase in foreign demand for the nation's products 
B)  a lower domestic rate of inflation than that of the nation's trading partners 
C)  higher domestic interest rates 
D)  higher foreign interest rates

Question 4

Over time, which of the following will most likely result from a depreciation in the exchange rate of the dollar?

Accepted Answer

A)  Inflation will decline. 
B)  Foreign goods will cost Americans less, and therefore, the imports of Americans will rise. 
C)  U.S. goods exported abroad will cost less in foreign countries, so foreigners will buy more of them. 
D)  U.S. goods exported abroad will cost more in foreign countries, so foreigners will buy fewer of them. 
A)  Inflation will decline. 
B)  Foreign goods will cost Americans less, and therefore, the imports of Americans will rise. 
C)  U.S. goods exported abroad will cost less in foreign countries, so foreigners will buy more of them. 
D)  U.S. goods exported abroad will cost more in foreign countries, so foreigners will buy fewer of them.

Question 5

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

Accepted Answer

A)  an increase in domestic real interest rates 
B)  an increase in exports coupled with a decline in imports 
C)  an increase in the nation's inflation rate 
D)  a balance of trade surplus 
A)  an increase in domestic real interest rates 
B)  an increase in exports coupled with a decline in imports 
C)  an increase in the nation's inflation rate 
D)  a balance of trade surplus

Question 6

If a country fixes the exchange-rate value of its currency, it will have to

Accepted Answer

A)  follow a highly expansionary monetary policy in order to maintain the convertibility of its currency. 
B)  give up its monetary independence in order to maintain the convertibility of its currency. 
C)  fix its domestic interest rates in order to maintain the convertibility of its currency. 
D)  raise taxes in order to maintain the convertibility of its currency. 
A)  follow a highly expansionary monetary policy in order to maintain the convertibility of its currency. 
B)  give up its monetary independence in order to maintain the convertibility of its currency. 
C)  fix its domestic interest rates in order to maintain the convertibility of its currency. 
D)  raise taxes in order to maintain the convertibility of its currency.

Question 7

If investment opportunities in the U.S. become more attractive to foreigners,

Accepted Answer

A)  the exchange-rate value of the dollar will fall. 
B)  the current-account balance will shift toward a deficit. 
C)  the capital inflows to the U.S. will fall. 
D)  all of the above are true. 
A)  the exchange-rate value of the dollar will fall. 
B)  the current-account balance will shift toward a deficit. 
C)  the capital inflows to the U.S. will fall. 
D)  all of the above are true.

Question 8

Explain how the following will affect the relative values of the dollar and the English pound.
a.Income growth is higher in the United States than in England.
b.Inflation is higher in England than in the United States.
c.Real interest rates are higher in the United States than in England.

Accepted Answer

a.The dollar will depreciate r

Question 9

If a U.S. dollar exchanges for 0.6 English pounds, the dollar price of a pound is

Accepted Answer

A)  $0.60. 
B)  $1.50. 
C)  $1.67. 
D)  $1.75. 
A)  $0.60. 
B)  $1.50. 
C)  $1.67. 
D)  $1.75.

Question 10

If a nation is running a trade deficit, it is

Accepted Answer

A)  spending more on public services than it is raising in tax revenues. 
B)  worse off as the result of its trade with foreign countries. 
C)  importing more goods and services than it exports. 
D)  encountering a balance of payments disequilibrium. 
A)  spending more on public services than it is raising in tax revenues. 
B)  worse off as the result of its trade with foreign countries. 
C)  importing more goods and services than it exports. 
D)  encountering a balance of payments disequilibrium.

Question 11

Countries that fix the foreign exchange value of their currencies, while following a highly expansionary monetary policy, will

Accepted Answer

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

Question 12

Under a fixed-rate unified currency regime, each country belonging to the system

Accepted Answer

A)  may pursue an independent monetary policy. 
B)  gives up its monetary policy independence to one central bank with the power to expand and contract the money supply. 
C)  is committed to conducting highly expansionary monetary policy in order to maintain the convertibility of its currency. 
D)  must fix its domestic interest rates in order to maintain the convertibility of its currency. 
A)  may pursue an independent monetary policy. 
B)  gives up its monetary policy independence to one central bank with the power to expand and contract the money supply. 
C)  is committed to conducting highly expansionary monetary policy in order to maintain the convertibility of its currency. 
D)  must fix its domestic interest rates in order to maintain the convertibility of its currency.

Question 13

The persistent U.S. trade deficit with Japan is

Accepted Answer

A)  surprising because one would expect that bilateral trade between two countries with flexible exchange rates would be in balance. 
B)  surprising because the Japanese are high cost producers of many goods that are purchased in large quantities by U.S. consumers. 
C)  not surprising because there is no reason why bilateral trade between two countries should be in balance. 
D)  proof that the trade practices of the Japanese are unfair toward the United States. 
A)  surprising because one would expect that bilateral trade between two countries with flexible exchange rates would be in balance. 
B)  surprising because the Japanese are high cost producers of many goods that are purchased in large quantities by U.S. consumers. 
C)  not surprising because there is no reason why bilateral trade between two countries should be in balance. 
D)  proof that the trade practices of the Japanese are unfair toward the United States.

Question 14

An appreciation of the U.S. dollar

Accepted Answer

A)  is the same thing as a decrease in the consumer price level. 
B)  increases the purchasing power of the U.S. dollar in foreign markets for goods and services. 
C)  decreases the purchasing power of the U.S. dollar in foreign markets for goods and services. 
D)  is the same thing as an increase in the consumer price level. 
A)  is the same thing as a decrease in the consumer price level. 
B)  increases the purchasing power of the U.S. dollar in foreign markets for goods and services. 
C)  decreases the purchasing power of the U.S. dollar in foreign markets for goods and services. 
D)  is the same thing as an increase in the consumer price level.

Question 15

Under a pure flexible exchange rate system, the rate that equates demand and supply in the exchange rate market will also lead to a balance of

Accepted Answer

A)  merchandise exports and merchandise imports. 
B)  current account transactions. 
C)  capital account transactions. 
D)  current and capital account transactions. 
A)  merchandise exports and merchandise imports. 
B)  current account transactions. 
C)  capital account transactions. 
D)  current and capital account transactions.

Question 16

If a nation is experiencing an inflow of capital and a balance of trade deficit, this is a problem if

Accepted Answer

A)  the capital inflow is channeled into productive projects. 
B)  the capital inflow is channeled into unproductive projects. 
C)  the country's rate of unemployment is low. 
D)  the investment rate of the country is already high. 
A)  the capital inflow is channeled into productive projects. 
B)  the capital inflow is channeled into unproductive projects. 
C)  the country's rate of unemployment is low. 
D)  the investment rate of the country is already high.

Question 17

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

Accepted Answer

A)  the purchase of an European-made car by an American 
B)  the purchase of insurance from Lloyd's of London by an American business firm 
C)  the purchase of an American-made computer by an European business 
D)  the purchase of Japanese bonds by an American investor 
A)  the purchase of an European-made car by an American 
B)  the purchase of insurance from Lloyd's of London by an American business firm 
C)  the purchase of an American-made computer by an European business 
D)  the purchase of Japanese bonds by an American investor

Question 18

Other things constant, if Americans suddenly decreased their desire for Mexican tequila, the exchange rate value 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 19

Under a flexible exchange rate system, a nation that offers more attractive investment opportunities than its trading partners can expect to run a

Accepted Answer

A)  surplus on current account transactions. 
B)  deficit on current account transactions. 
C)  balance of trade surplus. 
D)  capital account deficit. 
A)  surplus on current account transactions. 
B)  deficit on current account transactions. 
C)  balance of trade surplus. 
D)  capital account deficit.

Question 20

Under a system of flexible exchange rates, an increase in demand for a nation's currency in the foreign exchange market will

Accepted Answer

A)  cause the nation's currency to appreciate. 
B)  make it more expensive for the nation to import goods. 
C)  cause the nation's balance on current account to shift toward a surplus. 
D)  make it less expensive for foreigners to buy the nation's goods. 
A)  cause the nation's currency to appreciate. 
B)  make it more expensive for the nation to import goods. 
C)  cause the nation's balance on current account to shift toward a surplus. 
D)  make it less expensive for foreigners to buy the nation's goods.

The difference between the value of a country's merchandise exports and merchandise imports is known as the balance

If income in the United States increases more rapidly than the income of our trading partners, other things constant, the dollar will

Which of the following would be likely to cause a nation's currency to depreciate?

Over time, which of the following will most likely result from a depreciation in the exchange rate of the dollar?

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

If a country fixes the exchange-rate value of its currency, it will have to

If investment opportunities in the U.S. become more attractive to foreigners,

Explain how the following will affect the relative values of the dollar and the English pound. a.Income growth is higher in the United States than in England. b.Inflation is higher in England than in the United States. c.Real interest rates are higher in the United States than in England.

If a U.S. dollar exchanges for 0.6 English pounds, the dollar price of a pound is

If a nation is running a trade deficit, it is

Countries that fix the foreign exchange value of their currencies, while following a highly expansionary monetary policy, will

Under a fixed-rate unified currency regime, each country belonging to the system

The persistent U.S. trade deficit with Japan is

An appreciation of the U.S. dollar

Under a pure flexible exchange rate system, the rate that equates demand and supply in the exchange rate market will also lead to a balance of

If a nation is experiencing an inflow of capital and a balance of trade deficit, this is a problem if

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

Other things constant, if Americans suddenly decreased their desire for Mexican tequila, the exchange rate value of the Mexican peso would

Under a flexible exchange rate system, a nation that offers more attractive investment opportunities than its trading partners can expect to run a

Under a system of flexible exchange rates, an increase in demand for a nation's currency in the foreign exchange market will

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

The difference between the value of a country's merchandise exports and merchandise imports is known as the balance

If income in the United States increases more rapidly than the income of our trading partners, other things constant, the dollar will

Which of the following would be likely to cause a nation's currency to depreciate?

Over time, which of the following will most likely result from a depreciation in the exchange rate of the dollar?

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

If a country fixes the exchange-rate value of its currency, it will have to

If investment opportunities in the U.S. become more attractive to foreigners,

Explain how the following will affect the relative values of the dollar and the English pound. a.Income growth is higher in the United States than in England. b.Inflation is higher in England than in the United States. c.Real interest rates are higher in the United States than in England.

If a U.S. dollar exchanges for 0.6 English pounds, the dollar price of a pound is

If a nation is running a trade deficit, it is

Countries that fix the foreign exchange value of their currencies, while following a highly expansionary monetary policy, will

Under a fixed-rate unified currency regime, each country belonging to the system

The persistent U.S. trade deficit with Japan is

An appreciation of the U.S. dollar

Under a pure flexible exchange rate system, the rate that equates demand and supply in the exchange rate market will also lead to a balance of

If a nation is experiencing an inflow of capital and a balance of trade deficit, this is a problem if

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

Other things constant, if Americans suddenly decreased their desire for Mexican tequila, the exchange rate value of the Mexican peso would

Under a flexible exchange rate system, a nation that offers more attractive investment opportunities than its trading partners can expect to run a

Under a system of flexible exchange rates, an increase in demand for a nation's currency in the foreign exchange market will

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