Question 1

The official reserve account includes all of the following EXCEPT

Accepted Answer

A)  gold. 
B)  SDRs. 
C)  foreign currencies. 
D)  silver and other precious metals. 
A)  gold. 
B)  SDRs. 
C)  foreign currencies. 
D)  silver and other precious metals.

Question 2

In the balance of payments, a deficit item is any transaction

Accepted Answer

A)  that leads to a receipt by a resident of a country or its government. 
B)  that leads to a payment by a resident of a country or its government. 
C)  that is an export of a good or service. 
D)  that makes residents of a country worse off. 
A)  that leads to a receipt by a resident of a country or its government. 
B)  that leads to a payment by a resident of a country or its government. 
C)  that is an export of a good or service. 
D)  that makes residents of a country worse off.

Question 3

If U.S. residents boycotts French goods, this will

Accepted Answer

A)  reduce the demand for euros in the foreign exchange market. 
B)  increase the demand for euros in the foreign exchange market. 
C)  cause the euro to appreciate. 
D)  have no effect on the euro. 
A)  reduce the demand for euros in the foreign exchange market. 
B)  increase the demand for euros in the foreign exchange market. 
C)  cause the euro to appreciate. 
D)  have no effect on the euro.

Question 4

Explain the three categories of balance of payments transactions.

Accepted Answer

Current account transactions relate to s

Question 5

If a central bank wants to keep the value of its home currency fixed in the foreign exchange market, then an increase in the demand for its home currency will lead the central bank to

Accepted Answer

A)  do nothing. 
B)  sell its home currency. 
C)  buy its home currency. 
D)  sell foreign currencies. 
A)  do nothing. 
B)  sell its home currency. 
C)  buy its home currency. 
D)  sell foreign currencies.

Question 6

Under a flexible exchange rate system, a decrease in the value of a domestic currency in terms of foreign currencies is referred to as

Accepted Answer

A)  an appreciation. 
B)  a depreciation. 
C)  a devaluation. 
D)  a revaluation. 
A)  an appreciation. 
B)  a depreciation. 
C)  a devaluation. 
D)  a revaluation.

Question 7

Assume the following exchange rates for today: $1=140 yen and 1 Danish krone = $0.10. We can conclude

Accepted Answer

A)  1 yen = 280 kr. 
B)  1 yen = 14 kr. 
C)  1 kr. = 28 yen 
D)  1 kr. = 14 yen 
A)  1 yen = 280 kr. 
B)  1 yen = 14 kr. 
C)  1 kr. = 28 yen 
D)  1 kr. = 14 yen

Question 8

-Refer to the above figure. Suppose E is the original equilibrium. An increase in the U.S. demand for Japanese-made goods will lead to

Accepted Answer

A)  a depreciation of the yen and an increase in the quantity of yen sold per week. 
B)  a depreciation of the yen and a decrease in the quantity of yen sold per week. 
C)  an appreciation of the yen and an increase in the quantity of yen sold per week. 
D)  an appreciation of the yen and a decrease in the quantity of yen sold per week. 
A)  a depreciation of the yen and an increase in the quantity of yen sold per week. 
B)  a depreciation of the yen and a decrease in the quantity of yen sold per week. 
C)  an appreciation of the yen and an increase in the quantity of yen sold per week. 
D)  an appreciation of the yen and a decrease in the quantity of yen sold per week.

Question 9

Which of the following statements is true about the role that service exports and imports have in the balance of payments?

Accepted Answer

A)  Service exports and imports are not included in the balance of payments because it is impossible to transport a service to another country. 
B)  Service exports and imports are included in the balance of payments in the labor account. 
C)  Service exports and imports are included in the balance of payments in the official reserve transactions account. 
D)  Service exports and imports are included in the balance of payments in the current account. 
A)  Service exports and imports are not included in the balance of payments because it is impossible to transport a service to another country. 
B)  Service exports and imports are included in the balance of payments in the labor account. 
C)  Service exports and imports are included in the balance of payments in the official reserve transactions account. 
D)  Service exports and imports are included in the balance of payments in the current account.

Question 10

The largest portion of any nation's balance of payments current account is the

Accepted Answer

A)  importing and exporting of merchandise goods. 
B)  importing and exporting of services. 
C)  importing and exporting of gold. 
D)  importing and exporting of capital goods. 
A)  importing and exporting of merchandise goods. 
B)  importing and exporting of services. 
C)  importing and exporting of gold. 
D)  importing and exporting of capital goods.

Question 11

The price of one nation's currency in terms of the currency of another nation is called the

Accepted Answer

A)  IMF rate. 
B)  fed funds ratio. 
C)  exchange rate. 
D)  discount rate. 
A)  IMF rate. 
B)  fed funds ratio. 
C)  exchange rate. 
D)  discount rate.

Question 12

If a country wants to keep the value of its currency fixed, then its central bank should

Accepted Answer

A)  sell domestic goods when there is an increase in the supply of its domestic currency. 
B)  buy domestic goods when there is an increase in the supply of its domestic currency. 
C)  sell its domestic currency when there is an increase in the supply of that currency. 
D)  buy its domestic currency when there is an increase in the supply of that currency. 
A)  sell domestic goods when there is an increase in the supply of its domestic currency. 
B)  buy domestic goods when there is an increase in the supply of its domestic currency. 
C)  sell its domestic currency when there is an increase in the supply of that currency. 
D)  buy its domestic currency when there is an increase in the supply of that currency.

Question 13

Which of the following combinations is plausible for a nation's balance of payments? (All numbers in billions.)

Accepted Answer

A)  current account = 10, capital account = 40, official reserve transaction account = 50 
B)  current account = 40, capital account = 20, official reserve transaction account = -50 
C)  current account = 50, capital account = -30, official reserve transaction account = 20 
D)  current account = 30, capital account = -20, official reserve transaction account = -10 
A)  current account = 10, capital account = 40, official reserve transaction account = 50 
B)  current account = 40, capital account = 20, official reserve transaction account = -50 
C)  current account = 50, capital account = -30, official reserve transaction account = 20 
D)  current account = 30, capital account = -20, official reserve transaction account = -10

Question 14

The supply of dollars in foreign exchange markets is

Accepted Answer

A)  determined by the Federal Reserve's Board of Governors. 
B)  determined by the demand for U.S. goods. 
C)  determined by the U.S. demand for foreign goods. 
D)  a function of the international banking system. 
A)  determined by the Federal Reserve's Board of Governors. 
B)  determined by the demand for U.S. goods. 
C)  determined by the U.S. demand for foreign goods. 
D)  a function of the international banking system.

Question 15

The gold standard is

Accepted Answer

A)  a type of floating exchange rate system. 
B)  a type of managed flexible exchange rate system. 
C)  a type of fixed exchange rate system. 
D)  a purely floating exchange rate system. 
A)  a type of floating exchange rate system. 
B)  a type of managed flexible exchange rate system. 
C)  a type of fixed exchange rate system. 
D)  a purely floating exchange rate system.

Question 16

Country X-2013 Transactions (billions of dollars)
  
-In the above table, the balance on the current account for Country X is ________ billion dollars.

Accepted Answer

A)  -85 
B)  -150 
C)  +75 
D)  -200 
A)  -85 
B)  -150 
C)  +75 
D)  -200

Question 17

-In the above figure, which of the following is a possible explanation for the reduction in the equilibrium value of the European euro from P2 to P1?

Accepted Answer

A)  An increase in demand for French automobiles 
B)  The European central bank's decision to buy euros on the world market 
C)  A decrease in the price of California wines, assuming that French wines and California wines are substitutes 
D)  An increase in the price of California wines, assuming that French wines and California wine are substitutes 
A)  An increase in demand for French automobiles 
B)  The European central bank's decision to buy euros on the world market 
C)  A decrease in the price of California wines, assuming that French wines and California wines are substitutes 
D)  An increase in the price of California wines, assuming that French wines and California wine are substitutes

Question 18

Which of the following will cause a change in the exchange rate?

Accepted Answer

A)  changes in real interest rates 
B)  changes in consumer preferences 
C)  changes in the perception of economic stability 
D)  all of the above 
A)  changes in real interest rates 
B)  changes in consumer preferences 
C)  changes in the perception of economic stability 
D)  all of the above

Question 19

An increase in the demand for the Brazilian real induces

Accepted Answer

A)  an increase in the demand for Brazilian goods. 
B)  a decrease in the supply of dollars. 
C)  an increase in the real price of a dollar. 
D)  an increase in the dollar price of a real. 
A)  an increase in the demand for Brazilian goods. 
B)  a decrease in the supply of dollars. 
C)  an increase in the real price of a dollar. 
D)  an increase in the dollar price of a real.

Question 20

Which of the following statements is true about the role of gifts given to U.S. citizens from foreign residents?

Accepted Answer

A)  Gifts are not included in the balance of payments because of the nature of the gift. 
B)  Gifts are only included in the balance of payments if the gift is given to a government official. 
C)  Gifts are included in the balance of payments. 
D)  Gifts given to U.S. citizens are not included in the balance of payments but gifts given to foreigners are included. 
A)  Gifts are not included in the balance of payments because of the nature of the gift. 
B)  Gifts are only included in the balance of payments if the gift is given to a government official. 
C)  Gifts are included in the balance of payments. 
D)  Gifts given to U.S. citizens are not included in the balance of payments but gifts given to foreigners are included.

Exam 33: Exchange Rates and the Balance of Payments

The official reserve account includes all of the following EXCEPT

In the balance of payments, a deficit item is any transaction

If U.S. residents boycotts French goods, this will

Explain the three categories of balance of payments transactions.

If a central bank wants to keep the value of its home currency fixed in the foreign exchange market, then an increase in the demand for its home currency will lead the central bank to

Under a flexible exchange rate system, a decrease in the value of a domestic currency in terms of foreign currencies is referred to as

Assume the following exchange rates for today: $1=140 yen and 1 Danish krone = $0.10. We can conclude

-Refer to the above figure. Suppose E is the original equilibrium. An increase in the U.S. demand for Japanese-made goods will lead to

Which of the following statements is true about the role that service exports and imports have in the balance of payments?

The largest portion of any nation's balance of payments current account is the

The price of one nation's currency in terms of the currency of another nation is called the

If a country wants to keep the value of its currency fixed, then its central bank should

Which of the following combinations is plausible for a nation's balance of payments? (All numbers in billions.)

The supply of dollars in foreign exchange markets is

The gold standard is

Country X-2013 Transactions (billions of dollars) -In the above table, the balance on the current account for Country X is ________ billion dollars.

-In the above figure, which of the following is a possible explanation for the reduction in the equilibrium value of the European euro from P2 to P1?

Which of the following will cause a change in the exchange rate?

An increase in the demand for the Brazilian real induces

Which of the following statements is true about the role of gifts given to U.S. citizens from foreign residents?

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

Filters

-In the above figure, which of the following is a possible explanation for the reduction in the equilibrium value of the European euro from P₂ to P₁?