Question 1

If U.S.net exports are positive,

Accepted Answer

A)  other countries borrow from the United States to pay for some of the goods they purchase from the United States. 
B)  other countries make loans to the United States so that the United States can pay for some of the goods it purchases from other countries. 
C)  the United States sells some of the assets it owns in other countries to pay for some of the goods it sells to other countries. 
D)  the United States borrows from other countries to pay for some of the goods the United States purchases from them. 
A)  other countries borrow from the United States to pay for some of the goods they purchase from the United States. 
B)  other countries make loans to the United States so that the United States can pay for some of the goods it purchases from other countries. 
C)  the United States sells some of the assets it owns in other countries to pay for some of the goods it sells to other countries. 
D)  the United States borrows from other countries to pay for some of the goods the United States purchases from them.

Question 2

When the value of one currency falls relative to another currency,the exchange rate for the first currency has

Accepted Answer

A)  depreciated. 
B)  appreciated. 
C)  demanded. 
D)  revalued. 
A)  depreciated. 
B)  appreciated. 
C)  demanded. 
D)  revalued.

Question 3

In the short run,a change in the nominal exchange rate brings an equivalent change in the real exchange rate.

Accepted Answer

A) True 
 B)False

Question 4

If net exports is a negative number,the government sector must ________ if the private sector is in a ________.

Accepted Answer

A)  run a surplus; surplus 
B)  equal zero; deficit 
C)  run a deficit; surplus 
D)  The statement errs because the accounts are not related. 
A)  run a surplus; surplus 
B)  equal zero; deficit 
C)  run a deficit; surplus 
D)  The statement errs because the accounts are not related.

Question 5

How does a country maintain a fixed exchange rate?

Accepted Answer

A)  By intervening in the foreign exchange markets and buying or selling currency as needed to achieve the desired exchange rate. 
B)  By forbidding foreign exchange markets to trade currency at anything other than the official exchange rate. 
C)  By setting domestic interest rates to achieve purchasing power parity as the desired exchange rate. 
D)  By intervening in import and export markets to achieve the desired current account and exchange rate. 
A)  By intervening in the foreign exchange markets and buying or selling currency as needed to achieve the desired exchange rate. 
B)  By forbidding foreign exchange markets to trade currency at anything other than the official exchange rate. 
C)  By setting domestic interest rates to achieve purchasing power parity as the desired exchange rate. 
D)  By intervening in import and export markets to achieve the desired current account and exchange rate.

Question 6

In the long run,the nominal exchange rate

Accepted Answer

A)  is a monetary phenomenon, determined by the quantities of money in two countries. 
B)  is not related to the real exchange rate, since the real exchange rate is the true value of currencies. 
C)  will not change if prices in one country change, since prices are nominal variables. 
D)  is fixed by world central banks, as indicated by the fixed exchange rate system. 
A)  is a monetary phenomenon, determined by the quantities of money in two countries. 
B)  is not related to the real exchange rate, since the real exchange rate is the true value of currencies. 
C)  will not change if prices in one country change, since prices are nominal variables. 
D)  is fixed by world central banks, as indicated by the fixed exchange rate system.

Question 7

If 100 Japanese yen buy more U.S.dollars today than yesterday,the dollar has ________ and the yen has ________.

Accepted Answer

A)  depreciated; appreciated 
B)  appreciated; depreciated 
C)  depreciated; depreciated 
D)  appreciated; appreciated 
A)  depreciated; appreciated 
B)  appreciated; depreciated 
C)  depreciated; depreciated 
D)  appreciated; appreciated

Question 8

Suppose that the price of a Big Mac is a good approximation of the price level in the country.A Big Mac costs £2 in London and $3 in New York.
a) If purchasing power parity holds,what is the exchange rate between the U.S.dollar and the British pound?
b) If the current exchange rate is $1.6 per pound,what is the dollar price of a Big Mac in London?
What do you predict will happen to the exchange rate?
Explain.
c) The exchange rate between the U.S.dollar and the Russian ruble is 30 rubles per dollar.If purchasing power parity holds,what is the price of a Big Mac in Moscow?

Accepted Answer

a)If purchasing power parity holds,the d

Question 9

Which of the following are included in the U.S.current account balance?
I. exports to Japan
II. interest payments made to Canada
III. transfer payments made to Israel

Accepted Answer

A)  I only 
B)  I and II 
C)  I and III 
D)  I, II and III 
A)  I only 
B)  I and II 
C)  I and III 
D)  I, II and III

Question 10

If a country lends more to foreign countries than it borrows from foreign countries in a year,then definitely that year

Accepted Answer

A)  it has a current account deficit. 
B)  it is a creditor nation. 
C)  it is a debtor nation. 
D)  it is a net lender. 
A)  it has a current account deficit. 
B)  it is a creditor nation. 
C)  it is a debtor nation. 
D)  it is a net lender.

Question 11

What balance of payment account records foreign investment between countries?

Accepted Answer

The capital account records fo

Question 12

The current account records all transactions below EXCEPT for

Accepted Answer

A)  net exports of goods and services. 
B)  net interest income. 
C)  net foreign investment. 
D)  net transfers. 
A)  net exports of goods and services. 
B)  net interest income. 
C)  net foreign investment. 
D)  net transfers.

Question 13

In July 2008,a British pound could buy $2. By October 2008,a pound could buy $1.55.Over the four months,the

Accepted Answer

A)  pound depreciated against the dollar. 
B)  the real exchange rate did not change. 
C)  pound appreciated against the dollar. 
D)  the U.S. inflation rate increased. 
A)  pound depreciated against the dollar. 
B)  the real exchange rate did not change. 
C)  pound appreciated against the dollar. 
D)  the U.S. inflation rate increased.

Question 14

Other things remaining the same,the U.S.interest rate differential increases if the U.S.interest rate

Accepted Answer

A)  rises and foreign interest rates remain constant. 
B)  falls and foreign interest rates remain constant. 
C)  falls and foreign interest rates rise. 
D)  remains constant and foreign interest rates rise. 
A)  rises and foreign interest rates remain constant. 
B)  falls and foreign interest rates remain constant. 
C)  falls and foreign interest rates rise. 
D)  remains constant and foreign interest rates rise.

Question 15

If the current account has a positive balance of $100 and the capital and financial account has a negative balance of $90,there will be ________ in official reserves of ________.

Accepted Answer

A)  a decrease; $10 
B)  an increase; $10 
C)  an increase; $190 
D)  a decrease; $190 
A)  a decrease; $10 
B)  an increase; $10 
C)  an increase; $190 
D)  a decrease; $190

Question 16

Suppose that the U.S.interest rate is 5 percent and the Japanese interest rate is 1 percent.The effect of this difference in the foreign exchange market is that

Accepted Answer

A)  financial capital stops moving. 
B)  a Japanese investor is guaranteed to make an additional 4 percent in yen terms by investing in the United States. 
C)  investors expect the yen to appreciate against the dollar. 
D)  investors expect the yen to depreciate against the dollar. 
A)  financial capital stops moving. 
B)  a Japanese investor is guaranteed to make an additional 4 percent in yen terms by investing in the United States. 
C)  investors expect the yen to appreciate against the dollar. 
D)  investors expect the yen to depreciate against the dollar.

Question 17

$$\begin{array} { | l | c |} 
\hline  { \text { Component } } & \begin{array} { c } 
\text { Amount } \
\text { (billions of dollars) }
\end{array} \
\hline \text { Investment, } I & 700 \
\hline \text { Net taxes, } T & 1,300 \
\hline \text { Government expenditure, } & \
G & 1,200 \
\hline \text { Exports, } X & 1,500 \
\hline \text { Imports, } M & 1,700 \
\hline
\end{array}$$
-In the above table,the private sector has a

Accepted Answer

A)  surplus of $300 billion. 
B)  deficit of $300 billion. 
C)  deficit of $200 billion. 
D)  deficit of $400 billion. 
A)  surplus of $300 billion. 
B)  deficit of $300 billion. 
C)  deficit of $200 billion. 
D)  deficit of $400 billion.

Question 18

How does a country maintain a fixed exchange rate?

Accepted Answer

A)  By intervening in the foreign exchange markets and buying or selling currency as needed to achieve the desired exchange rate. 
B)  By forbidding foreign exchange markets to trade currency at anything other than the official exchange rate. 
C)  By setting domestic interest rates to achieve purchasing power parity as the desired exchange rate. 
D)  By intervening in import and export markets to achieve the desired current account and exchange rate. 
A)  By intervening in the foreign exchange markets and buying or selling currency as needed to achieve the desired exchange rate. 
B)  By forbidding foreign exchange markets to trade currency at anything other than the official exchange rate. 
C)  By setting domestic interest rates to achieve purchasing power parity as the desired exchange rate. 
D)  By intervening in import and export markets to achieve the desired current account and exchange rate.

Question 19

If the expected future exchange rate rises,the currency's

Accepted Answer

A)  quantity supplied increases. 
B)  supply decreases. 
C)  supply increases. 
D)  exchange rate falls. 
A)  quantity supplied increases. 
B)  supply decreases. 
C)  supply increases. 
D)  exchange rate falls.

Question 20

Relative to the yen,from 2007-2012 the U.S.dollar

Accepted Answer

A)  appreciated due to an increase in the interest rate differential and expectations of a higher future exchange rate. 
B)  appreciated due to a decrease in the interest rate differential and expectations of a lower future exchange rate. 
C)  depreciated due to an increase in the interest rate differential and expectations of a higher future exchange rate. 
D)  depreciated due to a decrease in the interest rate differential and expectations of a lower future exchange rate. 
A)  appreciated due to an increase in the interest rate differential and expectations of a higher future exchange rate. 
B)  appreciated due to a decrease in the interest rate differential and expectations of a lower future exchange rate. 
C)  depreciated due to an increase in the interest rate differential and expectations of a higher future exchange rate. 
D)  depreciated due to a decrease in the interest rate differential and expectations of a lower future exchange rate.

If U.S.net exports are positive,

When the value of one currency falls relative to another currency,the exchange rate for the first currency has

In the short run,a change in the nominal exchange rate brings an equivalent change in the real exchange rate.

If net exports is a negative number,the government sector must if the private sector is in a .

How does a country maintain a fixed exchange rate?

In the long run,the nominal exchange rate

If 100 Japanese yen buy more U.S.dollars today than yesterday,the dollar has and the yen has .

Which of the following are included in the U.S.current account balance? I. exports to Japan II. interest payments made to Canada III. transfer payments made to Israel

If a country lends more to foreign countries than it borrows from foreign countries in a year,then definitely that year

What balance of payment account records foreign investment between countries?

The current account records all transactions below EXCEPT for

In July 2008,a British pound could buy $2. By October 2008,a pound could buy $1.55.Over the four months,the

Other things remaining the same,the U.S.interest rate differential increases if the U.S.interest rate

If the current account has a positive balance of $100 and the capital and financial account has a negative balance of $90,there will be in official reserves of .

Suppose that the U.S.interest rate is 5 percent and the Japanese interest rate is 1 percent.The effect of this difference in the foreign exchange market is that

Component Amount (billions of dollars) Investment, I 700 Net taxes, T 1,300 Government expenditure, G 1,200 Exports, X 1,500 Imports, M 1,700 -In the above table,the private sector has a

How does a country maintain a fixed exchange rate?

If the expected future exchange rate rises,the currency's

Relative to the yen,from 2007-2012 the U.S.dollar

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

Inflation, Jobs, and the Business Cycle

Fiscal Policy

Monetary Policy

International Trade Policy

Introduction

Monitoring Macroeconomic Performance

Macroeconomic Trends

Macroeconomic Fluctuations

Macroeconomic Policy

Filters

Exam 9: The Exchange Rate and the Balance of Payments

If U.S.net exports are positive,

When the value of one currency falls relative to another currency,the exchange rate for the first currency has

In the short run,a change in the nominal exchange rate brings an equivalent change in the real exchange rate.

If net exports is a negative number,the government sector must ________ if the private sector is in a ________.

How does a country maintain a fixed exchange rate?

In the long run,the nominal exchange rate

If 100 Japanese yen buy more U.S.dollars today than yesterday,the dollar has ________ and the yen has ________.

Which of the following are included in the U.S.current account balance? I. exports to Japan II. interest payments made to Canada III. transfer payments made to Israel

If a country lends more to foreign countries than it borrows from foreign countries in a year,then definitely that year

What balance of payment account records foreign investment between countries?

The current account records all transactions below EXCEPT for

In July 2008,a British pound could buy $2. By October 2008,a pound could buy $1.55.Over the four months,the

Other things remaining the same,the U.S.interest rate differential increases if the U.S.interest rate

If the current account has a positive balance of $100 and the capital and financial account has a negative balance of $90,there will be ________ in official reserves of ________.

Suppose that the U.S.interest rate is 5 percent and the Japanese interest rate is 1 percent.The effect of this difference in the foreign exchange market is that

Component Amount (billions of dollars) Investment, I 700 Net taxes, T 1,300 Government expenditure, G 1,200 Exports, X 1,500 Imports, M 1,700 -In the above table,the private sector has a

How does a country maintain a fixed exchange rate?

If the expected future exchange rate rises,the currency's

Relative to the yen,from 2007-2012 the U.S.dollar

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

Inflation, Jobs, and the Business Cycle

Fiscal Policy

Monetary Policy

International Trade Policy

Introduction

Monitoring Macroeconomic Performance

Macroeconomic Trends

Macroeconomic Fluctuations

Macroeconomic Policy

Filters

If net exports is a negative number,the government sector must if the private sector is in a .

If 100 Japanese yen buy more U.S.dollars today than yesterday,the dollar has and the yen has .

If the current account has a positive balance of $100 and the capital and financial account has a negative balance of $90,there will be in official reserves of .