Question 1

The international financial market moved towards equilibrium under the gold standard due to

Accepted Answer

A)  shifts in exchange rates caused by changes in supply and demand for foreign exchange. 
B)  changes in interest rates. 
C)  negotiations among central banks. 
D)  flows of gold among countries. 
A)  shifts in exchange rates caused by changes in supply and demand for foreign exchange. 
B)  changes in interest rates. 
C)  negotiations among central banks. 
D)  flows of gold among countries.

Question 2

All of the following are deficit items in the balance of payments EXCEPT

Accepted Answer

A)  purchases of foreign assets. 
B)  imports of merchandise. 
C)  foreign tourist expenditures. 
D)  purchases of foreign currency. 
A)  purchases of foreign assets. 
B)  imports of merchandise. 
C)  foreign tourist expenditures. 
D)  purchases of foreign currency.

Question 3

Country X-2013 Transactions (billions of dollars)
  
-In the above table, the fact that there is a minus sign before the number for unilateral transfers means that

Accepted Answer

A)  Country X has significant inflation. 
B)  Country X imported more goods than it exported. 
C)  Country X received more in foreign aid than it gave in foreign aid. 
D)  Country X gave more to foreign residents than foreign residents gave to Country X. 
A)  Country X has significant inflation. 
B)  Country X imported more goods than it exported. 
C)  Country X received more in foreign aid than it gave in foreign aid. 
D)  Country X gave more to foreign residents than foreign residents gave to Country X.

Question 4

Hypothetical Data for Nation "A" in Billions of Local Currency
  
-Refer to the above table. Nation "A" has a balance of trade

Accepted Answer

A)  deficit of 50. 
B)  surplus of 50. 
C)  deficit of 10. 
D)  surplus of 10. 
A)  deficit of 50. 
B)  surplus of 50. 
C)  deficit of 10. 
D)  surplus of 10.

Question 5

If the United States looks more economically and politically stable relative to the rest of the world, this will

Accepted Answer

A)  decrease the demand for dollars. 
B)  increase the demand for dollars. 
C)  have no effect on the demand for dollars. 
D)  stop all trading between the currencies of the United States and other countries. 
A)  decrease the demand for dollars. 
B)  increase the demand for dollars. 
C)  have no effect on the demand for dollars. 
D)  stop all trading between the currencies of the United States and other countries.

Question 6

If residents of the United States give more gifts to relatives abroad than they receive, unilateral transfers will be

Accepted Answer

A)  positive. 
B)  unaffected. 
C)  negative. 
D)  zeroed out. 
A)  positive. 
B)  unaffected. 
C)  negative. 
D)  zeroed out.

Question 7

-Refer to the above table. Suppose the transactions in the table are added to a balance of payments account that is already in balance. What will have to take place to keep the balance of payments in balance?

Accepted Answer

A)  Nothing will have to be done as the accounts are in balance. 
B)  Nothing will have to be done as the accounts are in equilibrium. 
C)  The U.S. government will have to make official reserve transactions equal to $11,000. 
D)  Foreign governments will have to make official reserve transactions equal to -$11,000. 
A)  Nothing will have to be done as the accounts are in balance. 
B)  Nothing will have to be done as the accounts are in equilibrium. 
C)  The U.S. government will have to make official reserve transactions equal to $11,000. 
D)  Foreign governments will have to make official reserve transactions equal to -$11,000.

Question 8

In the market for euros, the demand for euros (€) is

Accepted Answer

A)  downward sloping, because at lower dollar prices for the euro, U.S. residents will buy more European goods and services. 
B)  upward sloping, because at higher dollar prices for the euro, U.S. residents will buy more European goods and services. 
C)  upward sloping, because at higher dollar prices for the euro, Europeans will buy more U.S. goods and services. 
D)  horizontal, because dollar prices of euros and euro prices of dollars are directly related. 
A)  downward sloping, because at lower dollar prices for the euro, U.S. residents will buy more European goods and services. 
B)  upward sloping, because at higher dollar prices for the euro, U.S. residents will buy more European goods and services. 
C)  upward sloping, because at higher dollar prices for the euro, Europeans will buy more U.S. goods and services. 
D)  horizontal, because dollar prices of euros and euro prices of dollars are directly related.

Question 9

Changes in which of the following will cause a change in exchange rates?

Accepted Answer

A)  real interest rates 
B)  consumer preferences 
C)  perceptions of economic and political stability 
D)  All of the above 
A)  real interest rates 
B)  consumer preferences 
C)  perceptions of economic and political stability 
D)  All of the above

Question 10

At the Bretton Woods conference, all currencies were given

Accepted Answer

A)  a fixed value. 
B)  a variable value. 
C)  a par value. 
D)  a floating value. 
A)  a fixed value. 
B)  a variable value. 
C)  a par value. 
D)  a floating value.

Question 11

A problem with the operation of the gold standard in the world economy was that

Accepted Answer

A)  it involved too much government intervention in the economy. 
B)  the world economy was subject to too much inflation. 
C)  a country did not have control of its domestic monetary policy. 
D)  it caused the Great Depression. 
A)  it involved too much government intervention in the economy. 
B)  the world economy was subject to too much inflation. 
C)  a country did not have control of its domestic monetary policy. 
D)  it caused the Great Depression.

Question 12

A decrease in the market clearing exchange value of the home nation's currency in terms of the currency of another nation is a home currency

Accepted Answer

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

Question 13

When numerous Japanese companies buy $100,000,000 worth of goods or services from U.S. producers, ceteris paribus, there will be

Accepted Answer

A)  appreciation in the value of the yen against the dollar. 
B)  depreciation in the value of the yen against the dollar. 
C)  depreciation of the dollar against the yen. 
D)  no change in values of the currencies. 
A)  appreciation in the value of the yen against the dollar. 
B)  depreciation in the value of the yen against the dollar. 
C)  depreciation of the dollar against the yen. 
D)  no change in values of the currencies.

Question 14

Special Drawing Rights are

Accepted Answer

A)  a reserve asset created by the International Monetary Fund that can be used to settle international payments. 
B)  loans granted by the International Monetary Fund to countries that experience balance of payments problems. 
C)  the term given for official reserves taken as a whole. 
D)  financial assets held by the U.S. Treasury Department. 
A)  a reserve asset created by the International Monetary Fund that can be used to settle international payments. 
B)  loans granted by the International Monetary Fund to countries that experience balance of payments problems. 
C)  the term given for official reserves taken as a whole. 
D)  financial assets held by the U.S. Treasury Department.

Question 15

In a fixed exchange rate system,

Accepted Answer

A)  market forces and the country's stock of gold determine its exchange rate. 
B)  a central bank affects the value of a currency by changing its foreign exchange reserves. 
C)  market forces play a role in determining the fixed value of a currency. 
D)  the International Monetary Fund determines exchange rates. 
A)  market forces and the country's stock of gold determine its exchange rate. 
B)  a central bank affects the value of a currency by changing its foreign exchange reserves. 
C)  market forces play a role in determining the fixed value of a currency. 
D)  the International Monetary Fund determines exchange rates.

Question 16

Under a flexible exchange rate system, an increase in the value of a domestic currency in terms of other 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 17

When there is political instability in another country, the United States can expect

Accepted Answer

A)  an increase in the capital account balance due to an increase in the current account. 
B)  an increase in the capital account balance due to the movement of assets to the U.S. 
C)  a decrease in the balance of payments due to a decrease in special drawing rights. 
D)  a decrease in the balance of payments due to a decrease in the demand for goods and services. 
A)  an increase in the capital account balance due to an increase in the current account. 
B)  an increase in the capital account balance due to the movement of assets to the U.S. 
C)  a decrease in the balance of payments due to a decrease in special drawing rights. 
D)  a decrease in the balance of payments due to a decrease in the demand for goods and services.

Question 18

Suppose there was a substantial increase in political instability in the rest of the world. What would be the effects on the U.S. current account? Explain.

Accepted Answer

Increased instability in the rest of the

Question 19

A reduction in a country's rate of inflation should

Accepted Answer

A)  increase its imports. 
B)  increase its exports. 
C)  lead to a negative trade balance. 
D)  lead to an outflow of SDRs. 
A)  increase its imports. 
B)  increase its exports. 
C)  lead to a negative trade balance. 
D)  lead to an outflow of SDRs.

Question 20

Special Drawing Rights are

Accepted Answer

A)  financial assets held by the U.S. Treasury Department. 
B)  the new currency for the European Union and a part of official reserves. 
C)  reserve assets created by the International Monetary Fund. 
D)  credits provided by the World Bank that permits less developed countries to borrow international reserves. 
A)  financial assets held by the U.S. Treasury Department. 
B)  the new currency for the European Union and a part of official reserves. 
C)  reserve assets created by the International Monetary Fund. 
D)  credits provided by the World Bank that permits less developed countries to borrow international reserves.

Exam 33: Exchange Rates and the Balance of Payments

The international financial market moved towards equilibrium under the gold standard due to

All of the following are deficit items in the balance of payments EXCEPT

Country X-2013 Transactions (billions of dollars) -In the above table, the fact that there is a minus sign before the number for unilateral transfers means that

Hypothetical Data for Nation "A" in Billions of Local Currency -Refer to the above table. Nation "A" has a balance of trade

If the United States looks more economically and politically stable relative to the rest of the world, this will

If residents of the United States give more gifts to relatives abroad than they receive, unilateral transfers will be

-Refer to the above table. Suppose the transactions in the table are added to a balance of payments account that is already in balance. What will have to take place to keep the balance of payments in balance?

In the market for euros, the demand for euros (€) is

Changes in which of the following will cause a change in exchange rates?

At the Bretton Woods conference, all currencies were given

A problem with the operation of the gold standard in the world economy was that

A decrease in the market clearing exchange value of the home nation's currency in terms of the currency of another nation is a home currency

When numerous Japanese companies buy $100,000,000 worth of goods or services from U.S. producers, ceteris paribus, there will be

Special Drawing Rights are

In a fixed exchange rate system,

Under a flexible exchange rate system, an increase in the value of a domestic currency in terms of other currencies is referred to as

When there is political instability in another country, the United States can expect

Suppose there was a substantial increase in political instability in the rest of the world. What would be the effects on the U.S. current account? Explain.

A reduction in a country's rate of inflation should

Special Drawing Rights are

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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