Question 1

Which of the following does not represent an automatic adjustment in balance-of-payments disequilibrium? Variations in:

Accepted Answer

A)  Domestic income 
B)  Foreign prices 
C)  Domestic prices 
D)  Foreign par values 
A)  Domestic income 
B)  Foreign prices 
C)  Domestic prices 
D)  Foreign par values

Question 2

Assume that Canada initially faces payments equilibrium in its merchandise trade account as well as in its capital and financial account.Now suppose that Canadian interest rates increase to levels higher than those abroad.For Canada,this tends to promote:

Accepted Answer

A)  Net financial inflows 
B)  Net financial outflows 
C)  Net merchandise exports 
D)  Net merchandise imports 
A)  Net financial inflows 
B)  Net financial outflows 
C)  Net merchandise exports 
D)  Net merchandise imports

Question 3

If the marginal propensity to save equals 0.1 and the marginal propensity to import equals 0.3,an autonomous increase in exports of $1,000 would expand domestic income by $2,500 which leads to an increase in imports of $750.

Accepted Answer

A) True 
 B)False

Question 4

Table 13.1.Canada's Saving,Investment,Import,and Export Functions (in billions of dollars)Under a System of Fixed Exchange Rates
  
-Refer to Table 13.1.If improved business optimism leads to increases in Canada's planned investment spending from $1000 billion to $1200 billion,Canada's equilibrium income rises by approximately:

Accepted Answer

A)  $444 billion 
B)  $555 billion 
C)  $666 billion 
D)  $777 billion 
A)  $444 billion 
B)  $555 billion 
C)  $666 billion 
D)  $777 billion

Question 5

Under the gold standard,a nation with a current-account surplus would realize gold outflows,a decrease in its money supply,and a fall in its domestic price level.

Accepted Answer

A) True 
 B)False

Question 6

Under the gold standard,each participating nation defined the mint price of gold in terms of its national currency was prepared to buy and sell gold at that price.

Accepted Answer

A) True 
 B)False

Question 7

Figure 13.3.U.S.Capital and Financial Account Under a Fixed Exchange Rate System  
-Refer to Figure 13.3.Decreases in U.S.interest rates relative to foreign interest rates would shift U.S.capital and financial account schedule CA0 downward toward CA1,resulting in net financial outflows from the United States.

Accepted Answer

A) True 
 B)False

Question 8

Figure 13.2.Australian Economy Under a Fixed Exchange Rate System  
-Refer to Figure 13.2.The slope of the (X-M)schedule and (S-I)schedule indicates that Australia's foreign trade multiplier is:

Accepted Answer

A)  0.5 
B)  1.0 
C)  1.5 
D)  2.0 
A)  0.5 
B)  1.0 
C)  1.5 
D)  2.0

Question 9

If the marginal propensity to save equals 0.2 and the marginal propensity to import equals 0.3,the foreign-trade multiplier equal 2.0.

Accepted Answer

A) True 
 B)False

Question 10

Figure 13.4.Canadian Economy Under a Fixed Exchange Rate System  
-Refer to Figure 13.4.Starting at equilibrium income $100 billion,where (S - I)0 intersects (X - M)0,an autonomous increase in Canadian investment of $10 billion leads to a $20 billion increase in income and no change in the country's trade account.

Accepted Answer

A) True 
 B)False

Question 11

Figure 13.4.Canadian Economy Under a Fixed Exchange Rate System  
-Refer to Figure 13.4.Starting at equilibrium income $100 billion,where (S - I)0 intersects (X - M)0,an autonomous decrease in Canadian exports of $10 billion leads to a $20 decrease in income and a trade deficit of $5 billion.

Accepted Answer

A) True 
 B)False

Question 12

Figure 13.4.Canadian Economy Under a Fixed Exchange Rate System  
-Refer to Figure 13.4.Starting at equilibrium income $100 billion,where (S - I)0 intersects (X - M)0,an autonomous decrease in Canadian imports of $10 billion leads to a $20 billion decrease in income and a trade deficit of $5 billion.

Accepted Answer

A) True 
 B)False

Question 13

Figure 13.3.U.S.Capital and Financial Account Under a Fixed Exchange Rate System  
-Refer to Figure 13.3.As U.S.interest rates rise relative to foreign interest rates,the U.S.slides upward along schedule CA0,thus moving towards capital and financial account surplus.

Accepted Answer

A) True 
 B)False

Question 14

Regarding the equation of exchange,the classical economists assumed that final output was below its maximum level while the velocity of money was volatile.

Accepted Answer

A) True 
 B)False

Question 15

That the balance of payments could be adjusted by prices and interest rates,under a fixed exchange rate system,originated with Keynesian theory during the 1930s.

Accepted Answer

A) True 
 B)False

Question 16

Figure 13.2.Australian Economy Under a Fixed Exchange Rate System  
-Refer to Figure 13.2.Starting at equilibrium income $50 billion,where (S-I)0 intersects (X-M)0,suppose that changing preferences lead to an autonomous increase in Australian imports of $5 billion.Australian income thus ____ which leads to Australia's trade account moving to a ____.

Accepted Answer

A)  Rises to $60 billion,surplus of $2.5 billion 
B)  Rises to $60 billion,surplus of $5 billion 
C)  Falls to $40 billion,deficit of $2.5 billion 
D)  Falls to $40 billion,deficit of $5 billion 
A)  Rises to $60 billion,surplus of $2.5 billion 
B)  Rises to $60 billion,surplus of $5 billion 
C)  Falls to $40 billion,deficit of $2.5 billion 
D)  Falls to $40 billion,deficit of $5 billion

Question 17

Under the gold standard of the 1800s,exchange rates were allowed to float freely in the currency markets.

Accepted Answer

A) True 
 B)False

Question 18

Suppose the United States levies an interest equalization tax,which taxes Americans on dividend and interest income from foreign securities.Such a tax would be intended to:

Accepted Answer

A)  Encourage financial movements from the United States to overseas 
B)  Discourage financial movements from the United States to overseas 
C)  Discourage financial movements from overseas to the United States 
D)  None of the above 
A)  Encourage financial movements from the United States to overseas 
B)  Discourage financial movements from the United States to overseas 
C)  Discourage financial movements from overseas to the United States 
D)  None of the above

Question 19

Starting from a position where the nation's money demand equals the money supply,and its balance of payments is in equilibrium,economic theory suggests that the nation's balance of payments would move into a deficit position if there occurred in the nation a:

Accepted Answer

A)  Decrease in the money supply 
B)  Increase in the money demand 
C)  Decrease in the money demand 
D)  None of the above 
A)  Decrease in the money supply 
B)  Increase in the money demand 
C)  Decrease in the money demand 
D)  None of the above

Question 20

The Keynesian income-adjustment mechanism contends that a trade-surplus nation tends to realize falling income and falling imports,thus accentuating the trade surplus.

Accepted Answer

A) True 
 B)False

Which of the following does not represent an automatic adjustment in balance-of-payments disequilibrium? Variations in:

Assume that Canada initially faces payments equilibrium in its merchandise trade account as well as in its capital and financial account.Now suppose that Canadian interest rates increase to levels higher than those abroad.For Canada,this tends to promote:

If the marginal propensity to save equals 0.1 and the marginal propensity to import equals 0.3,an autonomous increase in exports of $1,000 would expand domestic income by $2,500 which leads to an increase in imports of $750.

Under the gold standard,a nation with a current-account surplus would realize gold outflows,a decrease in its money supply,and a fall in its domestic price level.

Under the gold standard,each participating nation defined the mint price of gold in terms of its national currency was prepared to buy and sell gold at that price.

Figure 13.2.Australian Economy Under a Fixed Exchange Rate System -Refer to Figure 13.2.The slope of the (X-M)schedule and (S-I)schedule indicates that Australia's foreign trade multiplier is:

If the marginal propensity to save equals 0.2 and the marginal propensity to import equals 0.3,the foreign-trade multiplier equal 2.0.

Figure 13.4.Canadian Economy Under a Fixed Exchange Rate System -Refer to Figure 13.4.Starting at equilibrium income $100 billion,where (S - I)₀ intersects (X - M)₀,an autonomous decrease in Canadian exports of $10 billion leads to a $20 decrease in income and a trade deficit of $5 billion.

Figure 13.3.U.S.Capital and Financial Account Under a Fixed Exchange Rate System -Refer to Figure 13.3.As U.S.interest rates rise relative to foreign interest rates,the U.S.slides upward along schedule CA₀,thus moving towards capital and financial account surplus.

Regarding the equation of exchange,the classical economists assumed that final output was below its maximum level while the velocity of money was volatile.

That the balance of payments could be adjusted by prices and interest rates,under a fixed exchange rate system,originated with Keynesian theory during the 1930s.

Under the gold standard of the 1800s,exchange rates were allowed to float freely in the currency markets.

Suppose the United States levies an interest equalization tax,which taxes Americans on dividend and interest income from foreign securities.Such a tax would be intended to:

Starting from a position where the nation's money demand equals the money supply,and its balance of payments is in equilibrium,economic theory suggests that the nation's balance of payments would move into a deficit position if there occurred in the nation a:

The Keynesian income-adjustment mechanism contends that a trade-surplus nation tends to realize falling income and falling imports,thus accentuating the trade surplus.

The International Economy and Globalization

Foundations of Modern Trade Theory: Comparative Advantage

Sources of Comparative Advantage

Tariffs

Nontariff Trade Barriers

Trade Regulations and Industrial Policies

Trade Policies for the Developing Nations

Regional Trading Arrangements

International Factor Movements and Multinational Enterprises

The Balance of Payments

Foreign Exchange

Exchange-Rate Determination

Exchange-Rate Adjustments and the Balance of Payments

Exchange-Rate Systems and Currency Crises

Macroeconomic Policy in an Open Economy

International Banking: Reserves, Debt, and Risk

Filters

Exam 13: Mechanisms of International Adjustment

Which of the following does not represent an automatic adjustment in balance-of-payments disequilibrium? Variations in:

Assume that Canada initially faces payments equilibrium in its merchandise trade account as well as in its capital and financial account.Now suppose that Canadian interest rates increase to levels higher than those abroad.For Canada,this tends to promote:

If the marginal propensity to save equals 0.1 and the marginal propensity to import equals 0.3,an autonomous increase in exports of $1,000 would expand domestic income by $2,500 which leads to an increase in imports of $750.

Under the gold standard,a nation with a current-account surplus would realize gold outflows,a decrease in its money supply,and a fall in its domestic price level.

Under the gold standard,each participating nation defined the mint price of gold in terms of its national currency was prepared to buy and sell gold at that price.

Figure 13.2.Australian Economy Under a Fixed Exchange Rate System -Refer to Figure 13.2.The slope of the (X-M)schedule and (S-I)schedule indicates that Australia's foreign trade multiplier is:

If the marginal propensity to save equals 0.2 and the marginal propensity to import equals 0.3,the foreign-trade multiplier equal 2.0.

Figure 13.4.Canadian Economy Under a Fixed Exchange Rate System -Refer to Figure 13.4.Starting at equilibrium income $100 billion,where (S - I)0 intersects (X - M)0,an autonomous decrease in Canadian exports of $10 billion leads to a $20 decrease in income and a trade deficit of $5 billion.

Figure 13.4.Canadian Economy Under a Fixed Exchange Rate System -Refer to Figure 13.4.Starting at equilibrium income $100 billion,where (S - I)0 intersects (X - M)0,an autonomous decrease in Canadian imports of $10 billion leads to a $20 billion decrease in income and a trade deficit of $5 billion.

Figure 13.3.U.S.Capital and Financial Account Under a Fixed Exchange Rate System -Refer to Figure 13.3.As U.S.interest rates rise relative to foreign interest rates,the U.S.slides upward along schedule CA0,thus moving towards capital and financial account surplus.

Regarding the equation of exchange,the classical economists assumed that final output was below its maximum level while the velocity of money was volatile.

That the balance of payments could be adjusted by prices and interest rates,under a fixed exchange rate system,originated with Keynesian theory during the 1930s.

Under the gold standard of the 1800s,exchange rates were allowed to float freely in the currency markets.

Suppose the United States levies an interest equalization tax,which taxes Americans on dividend and interest income from foreign securities.Such a tax would be intended to:

Starting from a position where the nation's money demand equals the money supply,and its balance of payments is in equilibrium,economic theory suggests that the nation's balance of payments would move into a deficit position if there occurred in the nation a:

The Keynesian income-adjustment mechanism contends that a trade-surplus nation tends to realize falling income and falling imports,thus accentuating the trade surplus.

The International Economy and Globalization

Foundations of Modern Trade Theory: Comparative Advantage

Sources of Comparative Advantage

Tariffs

Nontariff Trade Barriers

Trade Regulations and Industrial Policies

Trade Policies for the Developing Nations

Regional Trading Arrangements

International Factor Movements and Multinational Enterprises

The Balance of Payments

Foreign Exchange

Exchange-Rate Determination

Exchange-Rate Adjustments and the Balance of Payments

Exchange-Rate Systems and Currency Crises

Macroeconomic Policy in an Open Economy

International Banking: Reserves, Debt, and Risk

Filters

Figure 13.4.Canadian Economy Under a Fixed Exchange Rate System -Refer to Figure 13.4.Starting at equilibrium income $100 billion,where (S - I)₀ intersects (X - M)₀,an autonomous decrease in Canadian exports of $10 billion leads to a $20 decrease in income and a trade deficit of $5 billion.

Figure 13.3.U.S.Capital and Financial Account Under a Fixed Exchange Rate System -Refer to Figure 13.3.As U.S.interest rates rise relative to foreign interest rates,the U.S.slides upward along schedule CA₀,thus moving towards capital and financial account surplus.