Question 1

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 2

Which one of the following would create a demand for a foreign currency and supply of dollars in the foreign exchange market?

Accepted Answer

A) the sale of U.S.automobiles to a Mexican consumer 
B) the spending by British tourists in the United States 
C) the purchase of 1,000 shares of IBM stock by a Latin American investor 
D) the purchase of Japanese televisions by an American distributor 
A) the sale of U.S.automobiles to a Mexican consumer 
B) the spending by British tourists in the United States 
C) the purchase of 1,000 shares of IBM stock by a Latin American investor 
D) the purchase of Japanese televisions by an American distributor

Question 3

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 4

If the U.S.continually runs a bilateral trade deficit with Japan,then

Accepted Answer

A) Japan's trade policies must be unfair to the United States. 
B) the United States is worse off as the result of its trade with Japan. 
C) Japan is the low-cost supplier of goods that we import intensively. 
D) both a and b are true. 
A) Japan's trade policies must be unfair to the United States. 
B) the United States is worse off as the result of its trade with Japan. 
C) Japan is the low-cost supplier of goods that we import intensively. 
D) both a and b are true.

Question 5

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 6

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 7

A country such as the United States,which has a low saving rate and attractive investment opportunities,will tend to experience a long-term

Accepted Answer

A) inflow of capital and a current account surplus. 
B) inflow of capital and a current account deficit. 
C) outflow of capital and a current account surplus. 
D) outflow of capital and a current account deficit. 
A) inflow of capital and a current account surplus. 
B) inflow of capital and a current account deficit. 
C) outflow of capital and a current account surplus. 
D) outflow of capital and a current account deficit.

Question 8

During 1980 through 1984,declining inflation and high real interest rates led to a strong demand for the U.S.dollar.Under a system of flexible exchange rates,an increase in the foreign demand for the U.S.dollar in the foreign exchange market will cause the

Accepted Answer

A) dollar to depreciate. 
B) dollar to appreciate. 
C) U.S.trade deficit to decrease. 
D) U.S.capital account deficit to widen. 
A) dollar to depreciate. 
B) dollar to appreciate. 
C) U.S.trade deficit to decrease. 
D) U.S.capital account deficit to widen.

Question 9

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 10

Which of the following would be a debit in the U.S.balance of payments?

Accepted Answer

A) the purchase of air service from a U.S.airline by a Japanese traveler 
B) the purchase of a German car by an American 
C) a short-term loan to a Japanese manufacturer by a U.S.bank 
D) the purchase of U.S.grain by a Japanese firm 
A) the purchase of air service from a U.S.airline by a Japanese traveler 
B) the purchase of a German car by an American 
C) a short-term loan to a Japanese manufacturer by a U.S.bank 
D) the purchase of U.S.grain by a Japanese firm

Question 11

Under a system of flexible exchange rates,in the long run,a nation's balance on current account and capital account transactions will

Accepted Answer

A) increase continuously. 
B) decrease continuously. 
C) tend to net out to zero,indicating a balance between the debits and credits. 
D) tend to increase if the nation is running a balance of trade surplus and decrease if it is running a balance of trade deficit. 
A) increase continuously. 
B) decrease continuously. 
C) tend to net out to zero,indicating a balance between the debits and credits. 
D) tend to increase if the nation is running a balance of trade surplus and decrease if it is running a balance of trade deficit.

Question 12

Suppose a student group from your university tours the United Kingdom.As they purchase English goods,their actions will

Accepted Answer

A) create a demand for dollars and a supply of English pounds in the foreign exchange market. 
B) create a demand for English pounds and a supply of dollars in the foreign exchange market. 
C) cause the U.S.dollar to appreciate. 
D) cause the English pound to depreciate. 
A) create a demand for dollars and a supply of English pounds in the foreign exchange market. 
B) create a demand for English pounds and a supply of dollars in the foreign exchange market. 
C) cause the U.S.dollar to appreciate. 
D) cause the English pound to depreciate.

Question 13

Because the United States purchases more cars,stereos,and other goods from Japan than Japan purchases from the United States,it is often said that the United States has a "trade deficit" with Japan.Does this mean that the U.S.balance of payments is running a deficit? How would you more accurately characterize the effect that trade with Japan has on the balance of payments?

Accepted Answer

The balance of payments must,by definiti

Question 14

Which of the following operate under a fixed-rate unified currency system?

Accepted Answer

A) the 12 countries of the European Monetary Union 
B) the 50 states of the United States 
C) Hong Kong,Panama,and the United States 
D) all of the above 
A) the 12 countries of the European Monetary Union 
B) the 50 states of the United States 
C) Hong Kong,Panama,and the United States 
D) all of the above

Question 15

The balance of payments is

Accepted Answer

A) the equilibrium result when two countries achieve purchasing power parity. 
B) an account that records changes in exchange rates between two countries. 
C) an account that records all economic transactions between a country and all other countries,usually within a year. 
D) all of the above. 
E) none of the above. 
A) the equilibrium result when two countries achieve purchasing power parity. 
B) an account that records changes in exchange rates between two countries. 
C) an account that records all economic transactions between a country and all other countries,usually within a year. 
D) all of the above. 
E) none of the above.

Question 16

If the dollar price of the euro goes from $1 to 90 cents,the euro has

Accepted Answer

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

Question 17

A depreciation of the U.S.dollar on the foreign exchange market will

Accepted Answer

A) make U.S.exports cheaper to foreigners. 
B) make imports less expensive for U.S.consumers. 
C) make U.S.exports more expensive for foreign consumers. 
D) probably cause the United States to run a capital account surplus in the long run. 
A) make U.S.exports cheaper to foreigners. 
B) make imports less expensive for U.S.consumers. 
C) make U.S.exports more expensive for foreign consumers. 
D) probably cause the United States to run a capital account surplus in the long run.

Question 18

Other things constant,which of the following would be most likely to cause the dollar to depreciate on the exchange rate market?

Accepted Answer

A) higher domestic interest rates 
B) higher interest rates abroad 
C) restrictive domestic monetary policy 
D) higher inflation abroad 
A) higher domestic interest rates 
B) higher interest rates abroad 
C) restrictive domestic monetary policy 
D) higher inflation abroad

Question 19

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 20

Which one of the following would create a demand for a foreign currency and supply of dollars in the foreign exchange market?

Accepted Answer

A) the spending of French tourists in the United States 
B) the purchase of Japanese automobiles by American consumers 
C) the sale of U.S.computer equipment to a French buyer 
D) the purchase of a U.S.shoe factory by a Mexican investor 
A) the spending of French tourists in the United States 
B) the purchase of Japanese automobiles by American consumers 
C) the sale of U.S.computer equipment to a French buyer 
D) the purchase of a U.S.shoe factory by a Mexican investor

Exam 19: International Finance and the Foreign Exchange Market

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

Which one of the following would create a demand for a foreign currency and supply of dollars in the foreign exchange market?

An appreciation of the U.S.dollar

If the U.S.continually runs a bilateral trade deficit with Japan,then

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

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

A country such as the United States,which has a low saving rate and attractive investment opportunities,will tend to experience a long-term

During 1980 through 1984,declining inflation and high real interest rates led to a strong demand for the U.S.dollar.Under a system of flexible exchange rates,an increase in the foreign demand for the U.S.dollar in the foreign exchange market will cause the

An American investor purchasing a Japanese government bond

Which of the following would be a debit in the U.S.balance of payments?

Under a system of flexible exchange rates,in the long run,a nation's balance on current account and capital account transactions will

Suppose a student group from your university tours the United Kingdom.As they purchase English goods,their actions will

Which of the following operate under a fixed-rate unified currency system?

The balance of payments is

If the dollar price of the euro goes from $1 to 90 cents,the euro has

A depreciation of the U.S.dollar on the foreign exchange market will

Other things constant,which of the following would be most likely to cause the dollar to depreciate on the exchange rate market?

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

Which one of the following would create a demand for a foreign currency and supply of dollars in the foreign exchange market?

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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