Question 1

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

Accepted Answer

A)  U.S. residents purchases of gold from foreign residents. 
B)  U.S. tourists spending funds in Europe. 
C)  exports of merchandise. 
D)  U.S. purchases of foreign companies' stocks and bonds. 
A)  U.S. residents purchases of gold from foreign residents. 
B)  U.S. tourists spending funds in Europe. 
C)  exports of merchandise. 
D)  U.S. purchases of foreign companies' stocks and bonds.

Question 2

Judy has just bought a car that is made in Germany. As far as the U.S. balance of payments is concerned this purchase is a(n)

Accepted Answer

A)  accounting identity. 
B)  special draw. 
C)  surplus item. 
D)  deficit item. 
A)  accounting identity. 
B)  special draw. 
C)  surplus item. 
D)  deficit item.

Question 3

"When the balance of payments sums to zero is the only situation in which there is an equilibrium." Do you agree or disagree? Why?

Accepted Answer

Disagree. The balance of payments are al

Question 4

-In the above figure, the equilibrium exchange rate between U.S. dollars and British pounds is

Accepted Answer

A)  A. 
B)  B. 
C)  C. 
D)  W. 
A)  A. 
B)  B. 
C)  C. 
D)  W.

Question 5

The United States' balance of payments is likely to improve when

Accepted Answer

A)  there is an increase in political instability in other countries. 
B)  the inflation rate in the United States rises relative to other countries. 
C)  the American government increases its spending on foreign aid. 
D)  American people want to invest more in foreign countries. 
A)  there is an increase in political instability in other countries. 
B)  the inflation rate in the United States rises relative to other countries. 
C)  the American government increases its spending on foreign aid. 
D)  American people want to invest more in foreign countries.

Question 6

-Refer to the above table. The current account balance is

Accepted Answer

A)  $140. 
B)  $155. 
C)  $170. 
D)  -$45. 
A)  $140. 
B)  $155. 
C)  $170. 
D)  -$45.

Question 7

The financing of U.S. export transactions, ceteris paribus,

Accepted Answer

A)  reduces U.S. interest rates. 
B)  reduces the amount of foreign currency held by the Fed. 
C)  reduces U.S. GDP. 
D)  increases the amount of foreign currency held by U.S. banks. 
A)  reduces U.S. interest rates. 
B)  reduces the amount of foreign currency held by the Fed. 
C)  reduces U.S. GDP. 
D)  increases the amount of foreign currency held by U.S. banks.

Question 8

Unilateral transfers are

Accepted Answer

A)  transactions that take place within the geographic boundaries of a country. 
B)  gifts from residents of one country to foreign residents. 
C)  transactions that take place across geographic boundaries but in which both participants are citizens of the same country. 
D)  government transactions that involve reserves. 
A)  transactions that take place within the geographic boundaries of a country. 
B)  gifts from residents of one country to foreign residents. 
C)  transactions that take place across geographic boundaries but in which both participants are citizens of the same country. 
D)  government transactions that involve reserves.

Question 9

Distinguish between the balance of payments and the balance of trade.

Accepted Answer

The balance of payments is a summary rec

Question 10

Which of the following items is NOT a deficit item in the balance of payments?

Accepted Answer

A)  imports of merchandise 
B)  sales of domestic assets to foreigners 
C)  purchases of gold from foreigners 
D)  military spending abroad 
A)  imports of merchandise 
B)  sales of domestic assets to foreigners 
C)  purchases of gold from foreigners 
D)  military spending abroad

Question 11

A market in which businesses, households, and governments buy and sell national currencies is

Accepted Answer

A)  the foreign exchange market. 
B)  the currency exchange market. 
C)  the money exchange market. 
D)  the dollar exchange market. 
A)  the foreign exchange market. 
B)  the currency exchange market. 
C)  the money exchange market. 
D)  the dollar exchange market.

Question 12

In the balance of payments, all of the following are deficit items EXCEPT

Accepted Answer

A)  imports of merchandise. 
B)  funds placed in foreign depository institutions. 
C)  sales of dollars to foreigners. 
D)  tourism expenditures abroad. 
A)  imports of merchandise. 
B)  funds placed in foreign depository institutions. 
C)  sales of dollars to foreigners. 
D)  tourism expenditures abroad.

Question 13

Under the gold standard, when a nation had a deficit in its balance of payments,

Accepted Answer

A)  interest rates would rise which would reduce foreign investment. 
B)  interest rates would fall which would increase foreign investment. 
C)  gold would flow to foreign residents and the domestic money supply would decrease. 
D)  gold would flow into the country leading to an increase in the domestic money supply. 
A)  interest rates would rise which would reduce foreign investment. 
B)  interest rates would fall which would increase foreign investment. 
C)  gold would flow to foreign residents and the domestic money supply would decrease. 
D)  gold would flow into the country leading to an increase in the domestic money supply.

Question 14

Assume that $1 equals 100 yen (¥). A Japanese visitor to the United States wants to pay her $400 hotel bill. How many yen should she exchange in order to have enough dollars to pay the bill?

Accepted Answer

A)  ¥4 
B)  ¥40 
C)  ¥4,000 
D)  ¥40,000 
A)  ¥4 
B)  ¥40 
C)  ¥4,000 
D)  ¥40,000

Question 15

An increase in the value of a domestic currency in terms of other currencies is known as

Accepted Answer

A)  an appreciation. 
B)  a depreciation. 
C)  a flexible exchange rate. 
D)  a discount rate. 
A)  an appreciation. 
B)  a depreciation. 
C)  a flexible exchange rate. 
D)  a discount rate.

Question 16

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

Accepted Answer

A)  +100 
B)  -150 
C)  +150 
D)  -10 
A)  +100 
B)  -150 
C)  +150 
D)  -10

Question 17

What happens if the Brazilian real appreciates relative to the U.S. dollar?

Accepted Answer

A)  Brazilians will buy fewer U.S. goods, which generates an increase in the quantity supplied of dollars. 
B)  The quantity demanded of reals increases as U.S. residents want to buy more Brazilian products. 
C)  The quantity of reals supplied increases because the lower price (in reals) for U.S. goods induces Brazilians to buy more U.S. products. 
D)  The U.S. Federal Reserve Bank increases the supply of dollars to the world economy. 
A)  Brazilians will buy fewer U.S. goods, which generates an increase in the quantity supplied of dollars. 
B)  The quantity demanded of reals increases as U.S. residents want to buy more Brazilian products. 
C)  The quantity of reals supplied increases because the lower price (in reals) for U.S. goods induces Brazilians to buy more U.S. products. 
D)  The U.S. Federal Reserve Bank increases the supply of dollars to the world economy.

Question 18

Which of the following will cause an increase in the demand for the Venezuelan currency, the Venezuelan bolivar?

Accepted Answer

A)  real interest rates in Venezuela fall 
B)  U.S. residents change preferences in favor of goods produced in the United States 
C)  real interest rates in the United States increase 
D)  none of the above 
A)  real interest rates in Venezuela fall 
B)  U.S. residents change preferences in favor of goods produced in the United States 
C)  real interest rates in the United States increase 
D)  none of the above

Question 19

If the price of the Brazilian real is 60 cents and a U.S. resident purchases a Brazilian-manufactured item for 60,000 real, there will be

Accepted Answer

A)  a quantity demanded of 60,000 real and a quantity supplied of $60,000. 
B)  a quantity demanded of 60,000 real and a quantity supplied of $36,000. 
C)  a quantity demanded of 60,000 real, but we cannot determine the effect in the market for dollars. 
D)  a quantity supplied of 60,000 real and a quantity demanded of 60,000 yen. 
A)  a quantity demanded of 60,000 real and a quantity supplied of $60,000. 
B)  a quantity demanded of 60,000 real and a quantity supplied of $36,000. 
C)  a quantity demanded of 60,000 real, but we cannot determine the effect in the market for dollars. 
D)  a quantity supplied of 60,000 real and a quantity demanded of 60,000 yen.

Question 20

-Refer to the above figure. Suppose the equilibrium moves from E to   . An event that could have caused this movement is

Accepted Answer

A)  an increase in the real interest rate in the United States. 
B)  an increase in U.S. productivity. 
C)  an increase in the perceived stability of the U.S. economy. 
D)  an increase in demand for Japanese-produced goods by U.S. residents. 
A)  an increase in the real interest rate in the United States. 
B)  an increase in U.S. productivity. 
C)  an increase in the perceived stability of the U.S. economy. 
D)  an increase in demand for Japanese-produced goods by U.S. residents.

Exam 33: Exchange Rates and the Balance of Payments

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

Judy has just bought a car that is made in Germany. As far as the U.S. balance of payments is concerned this purchase is a(n)

"When the balance of payments sums to zero is the only situation in which there is an equilibrium." Do you agree or disagree? Why?

-In the above figure, the equilibrium exchange rate between U.S. dollars and British pounds is

The United States' balance of payments is likely to improve when

-Refer to the above table. The current account balance is

The financing of U.S. export transactions, ceteris paribus,

Unilateral transfers are

Distinguish between the balance of payments and the balance of trade.

Which of the following items is NOT a deficit item in the balance of payments?

A market in which businesses, households, and governments buy and sell national currencies is

In the balance of payments, all of the following are deficit items EXCEPT

Under the gold standard, when a nation had a deficit in its balance of payments,

Assume that $1 equals 100 yen (¥). A Japanese visitor to the United States wants to pay her $400 hotel bill. How many yen should she exchange in order to have enough dollars to pay the bill?

An increase in the value of a domestic currency in terms of other currencies is known as

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

What happens if the Brazilian real appreciates relative to the U.S. dollar?

Which of the following will cause an increase in the demand for the Venezuelan currency, the Venezuelan bolivar?

If the price of the Brazilian real is 60 cents and a U.S. resident purchases a Brazilian-manufactured item for 60,000 real, there will be

-Refer to the above figure. Suppose the equilibrium moves from E to . An event that could have caused this movement is

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