Question 1

Suppose the United States reduced the tariff on a major imported item.Under a system of flexible rates of exchange,this would tend to

Accepted Answer

A) cause the dollar to appreciate. 
B) cause the dollar to depreciate. 
C) decrease the U.S.balance of trade deficit. 
D) increase the current account surplus. 
A) cause the dollar to appreciate. 
B) cause the dollar to depreciate. 
C) decrease the U.S.balance of trade deficit. 
D) increase the current account surplus. B

Question 2

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 currency and creates a demand for foreign currency in the foreign exchange market is a debit (or minus)item.Imports of goods are debits in the balance of payments.Any transaction that creates a demand for a nation's currency and a supply of foreign currency in the foreign exchange market is a credit (or plus)item.Exports are credits in the balance of payments..

Question 3

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. A

Question 4

"Wine experts are discovering that California wines of several varieties and vintages are comparable to many of the best French wines.The result is an increased demand,here and abroad,for California wines." With regard to the U.S.balance on current account,this trend will

Accepted Answer

A) increase the U.S.deficit because of the rise in the price of California wine. 
B) decrease the U.S.deficit because of increased shipments of California wines abroad. 
C) decrease the demand for U.S.dollars. 
D) increase the U.S.demand for euros. 
A) increase the U.S.deficit because of the rise in the price of California wine. 
B) decrease the U.S.deficit because of increased shipments of California wines abroad. 
C) decrease the demand for U.S.dollars. 
D) increase the U.S.demand for euros.

Question 5

Which of the following identities regarding the balance of payments must be true?

Accepted Answer

A) Current-Account Balance + Capital Account Balance + Official Reserve Balance = 0 
B) Current-Account Balance + Capital Account Balance + Official Reserve Balance = 1 
C) Current-Account Balance + Capital Account Balance + Merchandise Imports = 0 
D) Current-Account Balance + Capital Account Balance + Net Financial Inflow = 0 
A) Current-Account Balance + Capital Account Balance + Official Reserve Balance = 0 
B) Current-Account Balance + Capital Account Balance + Official Reserve Balance = 1 
C) Current-Account Balance + Capital Account Balance + Merchandise Imports = 0 
D) Current-Account Balance + Capital Account Balance + Net Financial Inflow = 0

Question 6

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 7

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 8

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 9

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 10

If restrictive monetary policy results in a slowdown in the domestic inflation rate and higher real interest rates,other things constant,the

Accepted Answer

A) nation's currency will appreciate. 
B) nation's currency will depreciate. 
C) nation will run a balance of trade surplus. 
D) nation will run a capital account deficit. 
A) nation's currency will appreciate. 
B) nation's currency will depreciate. 
C) nation will run a balance of trade surplus. 
D) nation will run a capital account deficit.

Question 11

Which of the following is true?

Accepted Answer

A) The U.S.current account deficit is a financial obligation of the federal government. 
B) A nation cannot run a current account deficit over a long period. 
C) A country with relatively poor (compared with other countries)domestic investment opportunities and a high saving rate will tend to run a current account deficit. 
D) A country with highly attractive (compared with other countries)domestic investment opportunities and a low saving rate will tend to run a current account deficit. 
A) The U.S.current account deficit is a financial obligation of the federal government. 
B) A nation cannot run a current account deficit over a long period. 
C) A country with relatively poor (compared with other countries)domestic investment opportunities and a high saving rate will tend to run a current account deficit. 
D) A country with highly attractive (compared with other countries)domestic investment opportunities and a low saving rate will tend to run a current account deficit.

Question 12

Under a system of flexible exchange rates,which of the following will most likely cause a nation's currency to appreciate on the foreign exchange market?

Accepted Answer

A) a decrease in domestic interest rates 
B) an increase in foreign interest rates 
C) domestic inflation of 10 percent while the nation's trading partners are experiencing stable prices 
D) stable domestic prices while the nation's trading partners are experiencing 10 percent inflation 
A) a decrease in domestic interest rates 
B) an increase in foreign interest rates 
C) domestic inflation of 10 percent while the nation's trading partners are experiencing stable prices 
D) stable domestic prices while the nation's trading partners are experiencing 10 percent inflation

Question 13

Under a flexible exchange system,which of the following will most likely cause a nation's currency to appreciate on the foreign exchange market?

Accepted Answer

A) an acceleration in the nation's inflation rate 
B) a balance of trade deficit 
C) a current account deficit 
D) a decline in the domestic inflation rate 
A) an acceleration in the nation's inflation rate 
B) a balance of trade deficit 
C) a current account deficit 
D) a decline in the domestic inflation rate

Question 14

Figure 18-3

-Figure 18-3 displays the international currency market for yen in terms of dollars and dollars in terms of yen.The supply curve in graph (B)is comprised of

Accepted Answer

A) U.S.citizens attempting to purchase Japanese-made goods. 
B) Japanese attempting to purchase U.S.-made goods. 
C) U.S.businesses attempting to sell to the Japanese. 
D) Japanese businesses attempting to sell to the U.S. 
E) the U.S.government attempting to unload dollars to the international market. 
A) U.S.citizens attempting to purchase Japanese-made goods. 
B) Japanese attempting to purchase U.S.-made goods. 
C) U.S.businesses attempting to sell to the Japanese. 
D) Japanese businesses attempting to sell to the U.S. 
E) the U.S.government attempting to unload dollars to the international market.

Question 15

Under a system of flexible exchange rates,an increase in the supply of foreign exchange (an increase in the demand for the dollar)will cause the

Accepted Answer

A) dollar to appreciate. 
B) dollar to depreciate. 
C) U.S.trade deficit to decrease. 
D) U.S.inflation rate to increase. 
A) dollar to appreciate. 
B) dollar to depreciate. 
C) U.S.trade deficit to decrease. 
D) U.S.inflation rate to increase.

Question 16

If the value of a nation's merchandise exports exceeds merchandise imports,the nation is running a

Accepted Answer

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

Question 17

An increase in incomes in other countries,other things equal,would tend to cause U.S.

Accepted Answer

A) exports to decrease and imports to increase. 
B) exports to increase and imports to increase. 
C) imports to decrease and exports to decrease. 
D) imports to increase and exports would remain unchanged. 
E) imports to remain unchanged and exports to increase. 
A) exports to decrease and imports to increase. 
B) exports to increase and imports to increase. 
C) imports to decrease and exports to decrease. 
D) imports to increase and exports would remain unchanged. 
E) imports to remain unchanged and exports to increase.

Question 18

Although popular opinion frequently portrays trade deficits (actually,account deficits)as "bad," can you present economic reasons why a trade deficit might be considered "good"?

Accepted Answer

A current account deficit simply means t

Question 19

Other things constant,which of the following will most likely cause the dollar to appreciate on the exchange rate market?

Accepted Answer

A) higher interest rates in the United States 
B) a relatively low rate of inflation in the United States 
C) high rates of income growth in Europe 
D) all of the above 
A) higher interest rates in the United States 
B) a relatively low rate of inflation in the United States 
C) high rates of income growth in Europe 
D) all of the above

Question 20

If the exchange rate between the U.S.dollar and the Japanese yen was 1 U.S.dollar equals 80 yen,what would be the price in dollars of Japanese automobiles selling for 2,400,000 yen?

Accepted Answer

A) $19,200 
B) $20,000 
C) $24,000 
D) $30,000 
A) $19,200 
B) $20,000 
C) $24,000 
D) $30,000

Exam 19: International Finance and the Foreign Exchange Market

Suppose the United States reduced the tariff on a major imported item.Under a system of flexible rates of exchange,this would tend to

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

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

"Wine experts are discovering that California wines of several varieties and vintages are comparable to many of the best French wines.The result is an increased demand,here and abroad,for California wines." With regard to the U.S.balance on current account,this trend will

Which of the following identities regarding the balance of payments must be true?

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

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

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

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

If restrictive monetary policy results in a slowdown in the domestic inflation rate and higher real interest rates,other things constant,the

Which of the following is true?

Under a system of flexible exchange rates,which of the following will most likely cause a nation's currency to appreciate on the foreign exchange market?

Under a flexible exchange system,which of the following will most likely cause a nation's currency to appreciate on the foreign exchange market?

Figure 18-3 -Figure 18-3 displays the international currency market for yen in terms of dollars and dollars in terms of yen.The supply curve in graph (B)is comprised of

Under a system of flexible exchange rates,an increase in the supply of foreign exchange (an increase in the demand for the dollar)will cause the

If the value of a nation's merchandise exports exceeds merchandise imports,the nation is running a

An increase in incomes in other countries,other things equal,would tend to cause U.S.

Although popular opinion frequently portrays trade deficits (actually,account deficits)as "bad," can you present economic reasons why a trade deficit might be considered "good"?

Other things constant,which of the following will most likely cause the dollar to appreciate on the exchange rate market?

If the exchange rate between the U.S.dollar and the Japanese yen was 1 U.S.dollar equals 80 yen,what would be the price in dollars of Japanese automobiles selling for 2,400,000 yen?

The Economic Approach

Asome Tools of the Economist

Asupply,demand,and the Market Process

Asupply and Demand: Applications and Extensions

Difficult Cases for the Market and the Role of Government

The Economics of Collective Decision-Making

Ataking the Nations Economic Pulse

Economic Fluctuations, unemployment, and Inflation

Aan Introduction to Basic Macroeconomic Markets

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

Fiscal Policy: the Keynesian View and Historical Perspective

Fiscal Policy, incentives, and Secondary Effects

Amoney 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

Consumer Choice and Elasticity

Acosts and the Supply of Goods

Aprice Takers and the Competitive Process

Price-Searcher Markets With Low Entry Barriers

Aprice-Searcher Markets With High Entry Barriers

The Supply of and Demand for Productive Resources

Earnings, productivity, and the Job Market

Investment, the Capital Market, and the Wealth of Nations

Income Inequality and Poverty

Government Spending and Taxation

The Economics of Social Security

The Stock Market: Its Function, Performance, and Potential As an Investment Opportunity

Great Debates in Economics: Keynes Versus Hayek

The Crisis of 2008: Causes and Lessons for the Future

Lessons From the Great Depression

Lessons From Japan and Canada

The Federal Budget and the National Debt

The Economics of Healthcare

Education: Problems and Performance

Earnings Differences Between Men and Women

Do Labor Unions Increase the Wages of Workers

The Question of Resource Exhaustion

Difficult Environmental Cases and the Role of Government

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