Question 1

Foreign direct investment takes place in the United States when foreigners:

Accepted Answer

A)  construct a new business plant in the United States. 
B)  buy U.S.stocks and bonds. 
C)  shift bank deposits into the United States from other countries. 
D)  buy U.S.exports. 
A)  construct a new business plant in the United States. 
B)  buy U.S.stocks and bonds. 
C)  shift bank deposits into the United States from other countries. 
D)  buy U.S.exports.

Question 2

Today,most countries in the world peg their currency exchange rates.

Accepted Answer

A) True 
 B)False

Question 3

The Swiss franc is a global reserve currency.

Accepted Answer

A) True 
 B)False

Question 4

If the United States has a capital account surplus,the current account:

Accepted Answer

A)  must be falling. 
B)  must be in surplus. 
C)  must be balanced. 
D)  must be in deficit. 
A)  must be falling. 
B)  must be in surplus. 
C)  must be balanced. 
D)  must be in deficit.

Question 5

If this year's current account balance is -$100 billion and the capital account balance is $150 billion,then the amount of official reserves will:

Accepted Answer

A)  increase by $50 billion. 
B)  decrease by $50 billion. 
C)  increase by $250 billion. 
D)  decrease by $250 billion. 
A)  increase by $50 billion. 
B)  decrease by $50 billion. 
C)  increase by $250 billion. 
D)  decrease by $250 billion.

Question 6

If the exchange rate between the U.S.dollar and the euro is $1 for €0.75,then the price of €1 is:

Accepted Answer

A)  $0.75. 
B)  $1. 
C)  $1.33. 
D)  $1.75. 
A)  $0.75. 
B)  $1. 
C)  $1.33. 
D)  $1.75.

Question 7

An exchange rate is the cost,or price,of:

Accepted Answer

A)  exporting goods. 
B)  importing goods. 
C)  borrowing in a foreign country. 
D)  one currency in terms of another. 
A)  exporting goods. 
B)  importing goods. 
C)  borrowing in a foreign country. 
D)  one currency in terms of another.

Question 8

Suppose the exchange rate between the euro and the U.S.dollar is €0.5 to $1.If a Big Mac costs $3 in the United States and €1.5 in Germany,then the real exchange rate is:

Accepted Answer

A)  1:1. 
B)  2:1. 
C)  1:2. 
D)  1:3. 
A)  1:1. 
B)  2:1. 
C)  1:2. 
D)  1:3.

Question 9

In general,when there is more investment going into a country than out of the country,the country will have a:

Accepted Answer

A)  current account deficit. 
B)  current account surplus. 
C)  capital account deficit. 
D)  capital account surplus. 
A)  current account deficit. 
B)  current account surplus. 
C)  capital account deficit. 
D)  capital account surplus.

Question 10

An increase in the demand for foreign imports will ultimately lead to an increase in the value of the domestic currency.

Accepted Answer

A) True 
 B)False

Question 11

If every country in the world adopted a policy of 100% free trade,which of the following would happen?

Accepted Answer

A)  Purchasing power parity would cease to hold. 
B)  Purchasing power parity would hold more closely. 
C)  There would be no change in the degree of purchasing power parity. 
D)  Currencies would depreciate. 
A)  Purchasing power parity would cease to hold. 
B)  Purchasing power parity would hold more closely. 
C)  There would be no change in the degree of purchasing power parity. 
D)  Currencies would depreciate.

Question 12

The capital account of the United States increases when:

Accepted Answer

A)  Japanese investors sell American assets. 
B)  American investors buy Mexican assets. 
C)  the American government buys British government bonds. 
D)  the Chinese government buys American government bonds. 
A)  Japanese investors sell American assets. 
B)  American investors buy Mexican assets. 
C)  the American government buys British government bonds. 
D)  the Chinese government buys American government bonds.

Question 13

Currency held by governments is part of the:

Accepted Answer

A)  current account. 
B)  capital account. 
C)  official reserves account. 
D)  Treasury direct account. 
A)  current account. 
B)  capital account. 
C)  official reserves account. 
D)  Treasury direct account.

Question 14

If the current account deficit indicates a problem with savings,a good way to deal with it is to:

Accepted Answer

A)  raise tariffs and other barriers to trade. 
B)  tax foreign investment. 
C)  ignore the problem. 
D)  decrease the government's budget deficit. 
A)  raise tariffs and other barriers to trade. 
B)  tax foreign investment. 
C)  ignore the problem. 
D)  decrease the government's budget deficit.

Question 15

Since 1990,the U.S.capital account has been rising in most years.

Accepted Answer

A) True 
 B)False

Question 16

What country is the World Bank's largest borrower?

Accepted Answer

A)  China 
B)  India 
C)  Iran 
D)  Kenya 
A)  China 
B)  India 
C)  Iran 
D)  Kenya

Question 17

In the long run,an increase in the growth rate of the money supply leads to an increase in both the real exchange rate and the amount of exports.

Accepted Answer

A) True 
 B)False

Question 18

"Other investment" takes place in the United States when foreigners:

Accepted Answer

A)  construct new business plants in the United States. 
B)  buy U.S.stocks and bonds. 
C)  shift bank deposits into the United States from other countries. 
D)  buy U.S.exports. 
A)  construct new business plants in the United States. 
B)  buy U.S.stocks and bonds. 
C)  shift bank deposits into the United States from other countries. 
D)  buy U.S.exports.

Question 19

Suppose an aggregate demand shock has led to a recession.The government decides to use either monetary policy or fiscal policy to deal with the recession.Which policy tends to be more effective in an open economy: monetary policy or fiscal policy? Explain your answer.

Accepted Answer

In the short run,expansionary monetary p

Question 20

If the Federal Reserve increases the U.S.money supply,the dollar's value will:

Accepted Answer

A)  remain unchanged. 
B)  appreciate. 
C)  depreciate. 
D)  become more volatile. 
A)  remain unchanged. 
B)  appreciate. 
C)  depreciate. 
D)  become more volatile.

Exam 20: International Finance

Foreign direct investment takes place in the United States when foreigners:

Today,most countries in the world peg their currency exchange rates.

The Swiss franc is a global reserve currency.

If the United States has a capital account surplus,the current account:

If this year's current account balance is -$100 billion and the capital account balance is $150 billion,then the amount of official reserves will:

If the exchange rate between the U.S.dollar and the euro is $1 for €0.75,then the price of €1 is:

An exchange rate is the cost,or price,of:

Suppose the exchange rate between the euro and the U.S.dollar is €0.5 to $1.If a Big Mac costs $3 in the United States and €1.5 in Germany,then the real exchange rate is:

In general,when there is more investment going into a country than out of the country,the country will have a:

An increase in the demand for foreign imports will ultimately lead to an increase in the value of the domestic currency.

If every country in the world adopted a policy of 100% free trade,which of the following would happen?

The capital account of the United States increases when:

Currency held by governments is part of the:

If the current account deficit indicates a problem with savings,a good way to deal with it is to:

Since 1990,the U.S.capital account has been rising in most years.

What country is the World Bank's largest borrower?

In the long run,an increase in the growth rate of the money supply leads to an increase in both the real exchange rate and the amount of exports.

"Other investment" takes place in the United States when foreigners:

Suppose an aggregate demand shock has led to a recession.The government decides to use either monetary policy or fiscal policy to deal with the recession.Which policy tends to be more effective in an open economy: monetary policy or fiscal policy? Explain your answer.

If the Federal Reserve increases the U.S.money supply,the dollar's value will:

The Big Ideas

The Power of Trade

Supply and Demand

Equilibrium- How Supply and Demand

Price Ceilings and Floors

GDP and the Measurement of Progress

The Wealth of Nations and Economic Growth

Growth,capital Accumulation

Saving,investment,and the Financial System

Stock Markets and Personal Finance

Unemployment and Labor Force Participation

Inflation and the Quantity Theory of Money

Business Fluctuations

Transmission and Amplification Mechanisms

The Federal Reserve System

Monetary Policy

The Federal Budget- Taxes and Spending

Fiscal Policy

International Trade

Political Economy and Public Choice

Filters