Question 1

Which chain of events would promote payments equilibrium for a deficit nation,according to the price-adjustment mechanism?

Accepted Answer

A)  Increasing money supply--increasing domestic prices--rising imports--falling exports 
B)  Increasing money supply--falling domestic prices--rising imports--falling exports 
C)  Decreasing money supply--increasing domestic prices--falling imports--rising exports 
D)  Decreasing money supply--decreasing domestic prices--falling imports--rising exports 
A)  Increasing money supply--increasing domestic prices--rising imports--falling exports 
B)  Increasing money supply--falling domestic prices--rising imports--falling exports 
C)  Decreasing money supply--increasing domestic prices--falling imports--rising exports 
D)  Decreasing money supply--decreasing domestic prices--falling imports--rising exports

Question 2

Figure 13.1.U.S.Capital and Financial Account  
-Refer to Figure 13.1.The U.S.capital and financial account schedule would shift upward from CA0 to CA1 if:

Accepted Answer

A)  U.S.interest rates exceeded foreign interest rates 
B)  Foreign interest rates exceeded U.S.interest rates 
C)  Taxes were placed on income earned by U.S.residents from their foreign investments 
D)  Taxes were placed on income earned by foreign residents from their U.S.investments 
A)  U.S.interest rates exceeded foreign interest rates 
B)  Foreign interest rates exceeded U.S.interest rates 
C)  Taxes were placed on income earned by U.S.residents from their foreign investments 
D)  Taxes were placed on income earned by foreign residents from their U.S.investments

Question 3

The formulation of the so-called income adjustment mechanism is associated with:

Accepted Answer

A)  Adam Smith 
B)  David Ricardo 
C)  David Hume 
D)  John Maynard Keynes 
A)  Adam Smith 
B)  David Ricardo 
C)  David Hume 
D)  John Maynard Keynes

Question 4

Which chain of events would promote payments equilibrium for a surplus nation,according to the price-adjustment mechanism?

Accepted Answer

A)  Increasing money supply--increasing domestic prices--rising imports--falling exports 
B)  Increasing money supply--falling domestic prices--rising imports--falling exports 
C)  Decreasing money supply--increasing domestic prices--falling imports--rising exports 
D)  Decreasing money supply--decreasing domestic prices--falling imports--rising exports 
A)  Increasing money supply--increasing domestic prices--rising imports--falling exports 
B)  Increasing money supply--falling domestic prices--rising imports--falling exports 
C)  Decreasing money supply--increasing domestic prices--falling imports--rising exports 
D)  Decreasing money supply--decreasing domestic prices--falling imports--rising exports

Question 5

Reliance on an automatic adjustment process tends to be unacceptable in trade-deficit nations since it requires them to accept price deflation and/or falling income as a cost of reducing imports.

Accepted Answer

A) True 
 B)False

Question 6

The essence of the classical price-adjustment mechanism is embodied in the quantity theory of money.

Accepted Answer

A) True 
 B)False

Question 7

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 saving of $10 billion leads to a $20 billion increase in income and a trade deficit of $5 billion.

Accepted Answer

A) True 
 B)False

Question 8

Under the classical gold standard,adjustments in domestic prices and short-term interest rates automatically promoted balance-of-payments equilibrium over the long run.

Accepted Answer

A) True 
 B)False

Question 9

When a country's current account moves into disequilibrium,automatic adjustments in tariffs and quotas occur which move the current account back into equilibrium.

Accepted Answer

A) True 
 B)False

Question 10

Which of the following balance-of-payments adjustment mechanisms is most closely related to the quantity theory of money?

Accepted Answer

A)  Income-adjustment mechanism 
B)  Price-adjustment mechanism 
C)  Interest-rate-adjustment mechanism 
D)  Output-adjustment mechanism 
A)  Income-adjustment mechanism 
B)  Price-adjustment mechanism 
C)  Interest-rate-adjustment mechanism 
D)  Output-adjustment mechanism

Question 11

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 fall to levels below 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 12

During the gold standard era,the "rules of the game" suggested that:

Accepted Answer

A)  Surplus countries should increase their money supplies 
B)  Deficit countries should increase their money supplies 
C)  Surplus and deficit countries should increase their money supplies 
D)  Surplus and deficit countries should decrease their money supplies 
A)  Surplus countries should increase their money supplies 
B)  Deficit countries should increase their money supplies 
C)  Surplus and deficit countries should increase their money supplies 
D)  Surplus and deficit countries should decrease their money supplies

Question 13

According to the price-adjustment mechanism,trade deficits can occur only in the long run rather than in the short run.

Accepted Answer

A) True 
 B)False

Question 14

The classical gold standard

Accepted Answer

A)  Existed from early 1800's to early 1900's 
B)  Did not allow for imports and exports of gold 
C)  Led to the outflow of gold from surplus nations 
D)  Led to the inflow of gold to deficit nations 
A)  Existed from early 1800's to early 1900's 
B)  Did not allow for imports and exports of gold 
C)  Led to the outflow of gold from surplus nations 
D)  Led to the inflow of gold to deficit nations

Question 15

The monetary approach contends that,under a fixed exchange rate system,an excess supply of money leads to a trade surplus.

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 worsening economic conditions abroad lead to an autonomous decrease in Australian exports 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

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 weak economic conditions abroad result in Canada's exports falling from $3000 billion to $2500 billion,Canada's equilibrium income falls by approximately:

Accepted Answer

A)  $888 billion 
B)  $990 billion 
C)  $1110 billion 
D)  $1220 billion 
A)  $888 billion 
B)  $990 billion 
C)  $1110 billion 
D)  $1220 billion

Question 18

Under the price-adjustment mechanism,trade-deficit nations realize price inflation and a loss of competitiveness while trade surplus nations realize price deflation and an improvement in competitiveness.

Accepted Answer

A) True 
 B)False

Question 19

What is the foreign repercussion effect?

Accepted Answer

It refers to a situation in which a chan

Question 20

Table 13.1.Canada's Saving,Investment,Import,and Export Functions (in billions of dollars)Under a System of Fixed Exchange Rates
  
-Referring to Table 13.1,Canada's equilibrium level of income is:

Accepted Answer

A)  $8000 billion 
B)  $9000 billion 
C)  $10,000 billion 
D)  $11,000 billion 
A)  $8000 billion 
B)  $9000 billion 
C)  $10,000 billion 
D)  $11,000 billion

Which chain of events would promote payments equilibrium for a deficit nation,according to the price-adjustment mechanism?

Figure 13.1.U.S.Capital and Financial Account -Refer to Figure 13.1.The U.S.capital and financial account schedule would shift upward from CA₀ to CA₁ if:

The formulation of the so-called income adjustment mechanism is associated with:

Which chain of events would promote payments equilibrium for a surplus nation,according to the price-adjustment mechanism?

Reliance on an automatic adjustment process tends to be unacceptable in trade-deficit nations since it requires them to accept price deflation and/or falling income as a cost of reducing imports.

The essence of the classical price-adjustment mechanism is embodied in the quantity theory of money.

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 saving of $10 billion leads to a $20 billion increase in income and a trade deficit of $5 billion.

Under the classical gold standard,adjustments in domestic prices and short-term interest rates automatically promoted balance-of-payments equilibrium over the long run.

When a country's current account moves into disequilibrium,automatic adjustments in tariffs and quotas occur which move the current account back into equilibrium.

Which of the following balance-of-payments adjustment mechanisms is most closely related to the quantity theory of money?

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 fall to levels below those abroad.For Canada,this tends to promote:

During the gold standard era,the "rules of the game" suggested that:

According to the price-adjustment mechanism,trade deficits can occur only in the long run rather than in the short run.

The classical gold standard

The monetary approach contends that,under a fixed exchange rate system,an excess supply of money leads to a trade surplus.

Under the price-adjustment mechanism,trade-deficit nations realize price inflation and a loss of competitiveness while trade surplus nations realize price deflation and an improvement in competitiveness.

What is the foreign repercussion effect?

Table 13.1.Canada's Saving,Investment,Import,and Export Functions (in billions of dollars)Under a System of Fixed Exchange Rates -Referring to Table 13.1,Canada's equilibrium level of income is:

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 chain of events would promote payments equilibrium for a deficit nation,according to the price-adjustment mechanism?

Figure 13.1.U.S.Capital and Financial Account -Refer to Figure 13.1.The U.S.capital and financial account schedule would shift upward from CA0 to CA1 if:

The formulation of the so-called income adjustment mechanism is associated with:

Which chain of events would promote payments equilibrium for a surplus nation,according to the price-adjustment mechanism?

Reliance on an automatic adjustment process tends to be unacceptable in trade-deficit nations since it requires them to accept price deflation and/or falling income as a cost of reducing imports.

The essence of the classical price-adjustment mechanism is embodied in the quantity theory of money.

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 saving of $10 billion leads to a $20 billion increase in income and a trade deficit of $5 billion.

Under the classical gold standard,adjustments in domestic prices and short-term interest rates automatically promoted balance-of-payments equilibrium over the long run.

When a country's current account moves into disequilibrium,automatic adjustments in tariffs and quotas occur which move the current account back into equilibrium.

Which of the following balance-of-payments adjustment mechanisms is most closely related to the quantity theory of money?

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 fall to levels below those abroad.For Canada,this tends to promote:

During the gold standard era,the "rules of the game" suggested that:

According to the price-adjustment mechanism,trade deficits can occur only in the long run rather than in the short run.

The classical gold standard

The monetary approach contends that,under a fixed exchange rate system,an excess supply of money leads to a trade surplus.

Under the price-adjustment mechanism,trade-deficit nations realize price inflation and a loss of competitiveness while trade surplus nations realize price deflation and an improvement in competitiveness.

What is the foreign repercussion effect?

Table 13.1.Canada's Saving,Investment,Import,and Export Functions (in billions of dollars)Under a System of Fixed Exchange Rates -Referring to Table 13.1,Canada's equilibrium level of income is:

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 13.1.U.S.Capital and Financial Account -Refer to Figure 13.1.The U.S.capital and financial account schedule would shift upward from CA₀ to CA₁ if:

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 saving of $10 billion leads to a $20 billion increase in income and a trade deficit of $5 billion.