Question 1

If people in the United States buy more of a foreign good when its price falls, then

Accepted Answer

A)  the demand curve for U.S. dollars will slope up. 
B)  the supply curve for U.S. dollars will slope up. 
C)  the exchange rate will increase when there is inflation. 
D)  fixed exchange rates will make foreign exchange markets more efficient. 
A)  the demand curve for U.S. dollars will slope up. 
B)  the supply curve for U.S. dollars will slope up. 
C)  the exchange rate will increase when there is inflation. 
D)  fixed exchange rates will make foreign exchange markets more efficient.

Question 2

Assume the U.S. government wants to hold the value of the dollar at $1.00 U.S. equals 100 Japanese yen, but it finds that the value of yen is appreciating against the U.S. dollar. What would be an appropriate policy to reverse this trend?

Accepted Answer

A)  Buy more Japanese goods. 
B)  Buy U.S. dollars. 
C)  Sell U.S. dollars. 
D)  Encourage U.S. investments abroad. 
A)  Buy more Japanese goods. 
B)  Buy U.S. dollars. 
C)  Sell U.S. dollars. 
D)  Encourage U.S. investments abroad.

Question 3

Exchanging dollars for euros to pay a computer manufacturer in Belgium would occur

Accepted Answer

A)  in the foreign exchange market. 
B)  at the Federal Reserve. 
C)  at the European Central Bank. 
D)  in the letter of credit market. 
A)  in the foreign exchange market. 
B)  at the Federal Reserve. 
C)  at the European Central Bank. 
D)  in the letter of credit market.

Question 4

If the United States has a trade deficit with China, then China must have

Accepted Answer

A)  a trade surplus with countries other than the United States. 
B)  a trade surplus with the United States. 
C)  a trade deficit with countries other than the United States. 
D)  a trade deficit with the United States. 
A)  a trade surplus with countries other than the United States. 
B)  a trade surplus with the United States. 
C)  a trade deficit with countries other than the United States. 
D)  a trade deficit with the United States.

Question 5

When the dollar price of a British pound is $0.20, it is correct to state that an American traveling in England will receive ________ pounds per dollar.

Accepted Answer

A)  2 
B)  4 
C)  5 
D)  20 
A)  2 
B)  4 
C)  5 
D)  20

Question 6

All of the following are market determinants of exchange rates EXCEPT

Accepted Answer

A)  changes in productivity in one country relative to another. 
B)  changes in real interest rates in one country relative to another. 
C)  changes in product preferences between countries. 
D)  changes in the relative prices of goods and services within a country. 
A)  changes in productivity in one country relative to another. 
B)  changes in real interest rates in one country relative to another. 
C)  changes in product preferences between countries. 
D)  changes in the relative prices of goods and services within a country.

Question 7

According to the text, over 40 percent of member nations of the International Monetary Fund have

Accepted Answer

A)  a fixed exchange rate. 
B)  no separate legal currency. 
C)  an independently floating exchange rate. 
D)  a managed floating exchange rate. 
A)  a fixed exchange rate. 
B)  no separate legal currency. 
C)  an independently floating exchange rate. 
D)  a managed floating exchange rate.

Question 8

Official reserve assets include all of the following EXCEPT

Accepted Answer

A)  foreign currencies. 
B)  gold. 
C)  special drawing rights. 
D)  gifts to foreign countries. 
A)  foreign currencies. 
B)  gold. 
C)  special drawing rights. 
D)  gifts to foreign countries.

Question 9

With a pure gold standard,

Accepted Answer

A)  a nation may not pursue an independent monetary policy. 
B)  an inflow of gold will reduce the money supply of a country. 
C)  there will be a tendency for a too rapid increase in the volume of world trade. 
D)  a balance of payments deficit will lead to an increase in the domestic price level. 
A)  a nation may not pursue an independent monetary policy. 
B)  an inflow of gold will reduce the money supply of a country. 
C)  there will be a tendency for a too rapid increase in the volume of world trade. 
D)  a balance of payments deficit will lead to an increase in the domestic price level.

Question 10

Flexible exchange rates exist when

Accepted Answer

A)  no one knows what the true value of a currency is. 
B)  governments and central banks spend foreign reserves to prop up an exchange rate at a certain level. 
C)  exchange rates are determined by forces of supply and demand. 
D)  speculators bet that a currency will soon be depreciated. 
A)  no one knows what the true value of a currency is. 
B)  governments and central banks spend foreign reserves to prop up an exchange rate at a certain level. 
C)  exchange rates are determined by forces of supply and demand. 
D)  speculators bet that a currency will soon be depreciated.

Question 11

The balance of payments is

Accepted Answer

A)  the value of goods and services bought and sold in the world market. 
B)  a summary record of a country's economic transactions with foreign residents and governments. 
C)  a summary record of a country's purchases and sales of goods and services in the world market. 
D)  the value of merchandise goods bought and sold in the world market. 
A)  the value of goods and services bought and sold in the world market. 
B)  a summary record of a country's economic transactions with foreign residents and governments. 
C)  a summary record of a country's purchases and sales of goods and services in the world market. 
D)  the value of merchandise goods bought and sold in the world market.

Question 12

One way that countries can settle international payment obligations is

Accepted Answer

A)  to run a balance of payments surplus. 
B)  to run a balance of payments deficit. 
C)  to use special drawing rights. 
D)  to stop trading. 
A)  to run a balance of payments surplus. 
B)  to run a balance of payments deficit. 
C)  to use special drawing rights. 
D)  to stop trading.

Question 13

Suppose U.S. interest rates fall. This reduction in U.S. interest rates will cause which of the following to occur?

Accepted Answer

A)  an outflow of capital from the United States 
B)  no change in foreign investment in the United States 
C)  an increase in the value (appreciation) of the U.S. dollar 
D)  an inflow of capital to the United States 
A)  an outflow of capital from the United States 
B)  no change in foreign investment in the United States 
C)  an increase in the value (appreciation) of the U.S. dollar 
D)  an inflow of capital to the United States

Question 14

If the current account is in deficit, we know that

Accepted Answer

A)  the merchandise trade balance is also in deficit. 
B)  the merchandise trade balance is in surplus. 
C)  the capital account is in surplus. 
D)  there is a statistical discrepancy in the surplus. 
A)  the merchandise trade balance is also in deficit. 
B)  the merchandise trade balance is in surplus. 
C)  the capital account is in surplus. 
D)  there is a statistical discrepancy in the surplus.

Question 15

As the dollar price of a euro falls,

Accepted Answer

A)  U.S. residents will purchase fewer French imports. 
B)  the quantity of euros supplied will increase. 
C)  French goods will be less expensive to U.S. residents. 
D)  French residents will increase their purchases of U.S. assets. 
A)  U.S. residents will purchase fewer French imports. 
B)  the quantity of euros supplied will increase. 
C)  French goods will be less expensive to U.S. residents. 
D)  French residents will increase their purchases of U.S. assets.

Question 16

The balance of trade is

Accepted Answer

A)  the difference between exports and imports of goods and services. 
B)  the difference between exports and imports of services. 
C)  the summary record of a country's economic transactions with foreigners in a year. 
D)  none of the above. 
A)  the difference between exports and imports of goods and services. 
B)  the difference between exports and imports of services. 
C)  the summary record of a country's economic transactions with foreigners in a year. 
D)  none of the above.

Question 17

Special drawing rights (SDRs) are

Accepted Answer

A)  a reserve asset created by the International Monetary Fund that countries can use to settle international payment obligations. 
B)  a liability payment from a branch bank to a nation's central bank. 
C)  a country's surpluses in their fiscal budgets. 
D)  exchanges of gold between nations. 
A)  a reserve asset created by the International Monetary Fund that countries can use to settle international payment obligations. 
B)  a liability payment from a branch bank to a nation's central bank. 
C)  a country's surpluses in their fiscal budgets. 
D)  exchanges of gold between nations.

Question 18

The possibility that changes in the value of a nation's currency will result in variations in the market value of a business's assets is referred to as

Accepted Answer

A)  hedge risk. 
B)  foreign exchange risk. 
C)  conversion risk. 
D)  transaction risk. 
A)  hedge risk. 
B)  foreign exchange risk. 
C)  conversion risk. 
D)  transaction risk.

Question 19

A key objective of the gold standard was to

Accepted Answer

A)  create a flexible exchange rate system between countries. 
B)  create a fixed exchange rate system between countries. 
C)  allow nations to maintain their gold reserves. 
D)  allow nations to tax its citizens in gold. 
A)  create a flexible exchange rate system between countries. 
B)  create a fixed exchange rate system between countries. 
C)  allow nations to maintain their gold reserves. 
D)  allow nations to tax its citizens in gold.

Question 20

If there is a negative sign in front of unilateral transfers for the United States, then

Accepted Answer

A)  the United States imported more services than it exported. 
B)  the value of U.S. gifts to foreigners exceeded foreign gifts to U.S. residents. 
C)  the United States imported more commercial financial assets than it exported. 
D)  the United States had a negative balance of trade. 
A)  the United States imported more services than it exported. 
B)  the value of U.S. gifts to foreigners exceeded foreign gifts to U.S. residents. 
C)  the United States imported more commercial financial assets than it exported. 
D)  the United States had a negative balance of trade.

Exam 33: Exchange Rates and the Balance of Payments

If people in the United States buy more of a foreign good when its price falls, then

Assume the U.S. government wants to hold the value of the dollar at $1.00 U.S. equals 100 Japanese yen, but it finds that the value of yen is appreciating against the U.S. dollar. What would be an appropriate policy to reverse this trend?

Exchanging dollars for euros to pay a computer manufacturer in Belgium would occur

If the United States has a trade deficit with China, then China must have

When the dollar price of a British pound is $0.20, it is correct to state that an American traveling in England will receive ________ pounds per dollar.

All of the following are market determinants of exchange rates EXCEPT

According to the text, over 40 percent of member nations of the International Monetary Fund have

Official reserve assets include all of the following EXCEPT

With a pure gold standard,

Flexible exchange rates exist when

The balance of payments is

One way that countries can settle international payment obligations is

Suppose U.S. interest rates fall. This reduction in U.S. interest rates will cause which of the following to occur?

If the current account is in deficit, we know that

As the dollar price of a euro falls,

The balance of trade is

Special drawing rights (SDRs) are

The possibility that changes in the value of a nation's currency will result in variations in the market value of a business's assets is referred to as

A key objective of the gold standard was to

If there is a negative sign in front of unilateral transfers for the United States, then

The Nature of Economics

Scarcity and the World of Trade-Offs

Demand and Supply

Extensions of Demand and Supply Analysis

Public Spending and Public Choice

Funding the Public Sector

The Macroeconomy: Unemployment, Inflation, and Deflation

Measuring the Economys Performance

Global Economic Growth and Development

Real GDP and the Price Level in the Long Run

Classical and Keynesian Macro Analyses

Consumption, Real GDP, and the Multiplier

Fiscal Policy

Deficit Spending and the Public Debt

Money, Banking, and Central Banking

Domestic and International Dimensions of Monetary Policy

Stabilization in an Integrated World Economy

Policies and Prospects for Global Economic Growth

Demand and Supply Elasticity

Consumer Choice

Rents, Profits, and the Financial Environment of Business

The Firm: Cost and Output Determination

Perfect Competition

Monopoly

Monopolistic Competition

Oligopoly and Strategic Behavior

Regulation and Antitrust Policy in a Globalized Economy

The Labor Market: Demand, Supply and Outsourcing

Unions and Labor Market Monopoly Power

Income, Poverty, and Health Care

Environmental Economics

Comparative Advantage and the Open Economy

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