Question 1

Which of the following is NOT included in a country's current account?

Accepted Answer

A)  transfer payments abroad,such as foreign aid 
B)  net income on capital held abroad 
C)  net exports 
D)  foreign direct investment 
A)  transfer payments abroad,such as foreign aid 
B)  net income on capital held abroad 
C)  net exports 
D)  foreign direct investment

Question 2

Which of the following is NOT a constraint on trade that prevents prices from being fully equalized across borders?

Accepted Answer

A)  The qualities of goods sold in different countries vary. 
B)  The costs of transportation for some goods can be significant. 
C)  Some goods cannot be shipped at all. 
D)  Governments may tax or otherwise restrict trade to an extent that hinders market exchange. 
A)  The qualities of goods sold in different countries vary. 
B)  The costs of transportation for some goods can be significant. 
C)  Some goods cannot be shipped at all. 
D)  Governments may tax or otherwise restrict trade to an extent that hinders market exchange.

Question 3

Which of the following is NOT a component of the current account?

Accepted Answer

A)  the trade balance 
B)  the balance of foreign direct investment flows 
C)  income on capital held abroad 
D)  foreign aid 
A)  the trade balance 
B)  the balance of foreign direct investment flows 
C)  income on capital held abroad 
D)  foreign aid

Question 4

A country currently operating in a recession would benefit most from:

Accepted Answer

A)  an expansion in the money supply that leads to an appreciation of the domestic currency. 
B)  an expansion in the money supply that leads to a deprecation of the domestic currency. 
C)  a contraction in the money supply that leads to an appreciation of the domestic currency. 
D)  a contraction in the money supply that leads to a deprecation of the domestic currency. 
A)  an expansion in the money supply that leads to an appreciation of the domestic currency. 
B)  an expansion in the money supply that leads to a deprecation of the domestic currency. 
C)  a contraction in the money supply that leads to an appreciation of the domestic currency. 
D)  a contraction in the money supply that leads to a deprecation of the domestic currency.

Question 5

An increase in the growth rate of the money supply in the short run causes a(n)_____ of the domestic currency and a(n)_____ in aggregate demand.

Accepted Answer

A)  depreciation;decrease 
B)  depreciation;increase 
C)  appreciation;decrease 
D)  appreciation;increase 
A)  depreciation;decrease 
B)  depreciation;increase 
C)  appreciation;decrease 
D)  appreciation;increase

Question 6

Which of the following prevents the purchasing power parity theorem from holding perfectly?

Accepted Answer

A)  transportation costs 
B)  goods that cannot be shipped 
C)  tariffs and quotas 
D)  transportation costs,goods that cannot be shipped,and tariffs and quotas 
A)  transportation costs 
B)  goods that cannot be shipped 
C)  tariffs and quotas 
D)  transportation costs,goods that cannot be shipped,and tariffs and quotas

Question 7

Which of the following transactions can be classified as foreign direct investment for the United States?

Accepted Answer

A)  A Beijing antique dealer opens a store in downtown New York City. 
B)  The purchase of a Maserati GranTurismo from a Maserati dealer in New Jersey. 
C)  A Korean businessman,living in South Korea,purchases stock on the NYSE. 
D)  A Bangladeshi-American purchases a home in Dhaka,Bangladesh. 
A)  A Beijing antique dealer opens a store in downtown New York City. 
B)  The purchase of a Maserati GranTurismo from a Maserati dealer in New Jersey. 
C)  A Korean businessman,living in South Korea,purchases stock on the NYSE. 
D)  A Bangladeshi-American purchases a home in Dhaka,Bangladesh.

Question 8

If the United States imports $100 billion worth of goods and services from Mexico and exports $75 billion worth of goods and services to Mexico,then:

Accepted Answer

A)  the United States has a $25 billion trade surplus with Mexico. 
B)  the United States has a $25 billion trade deficit with Mexico. 
C)  the United States has a $175 billion trade surplus with Mexico. 
D)  the United States has a $175 billion trade deficit with Mexico. 
A)  the United States has a $25 billion trade surplus with Mexico. 
B)  the United States has a $25 billion trade deficit with Mexico. 
C)  the United States has a $175 billion trade surplus with Mexico. 
D)  the United States has a $175 billion trade deficit with Mexico.

Question 9

Explain the difference between the nominal exchange rate and the real exchange rate.

Accepted Answer

The nominal exchange rate is the rate at

Question 10

A country with a large current account surplus is also typically running a large:

Accepted Answer

A)  trade deficit. 
B)  capital account deficit. 
C)  capital account surplus. 
D)  official reserve account deficit. 
A)  trade deficit. 
B)  capital account deficit. 
C)  capital account surplus. 
D)  official reserve account deficit.

Question 11

A current account deficit in Kazakhstan could mean that:

Accepted Answer

A)  Kazakhstan is a terrible place to invest. 
B)  Kazakhstan is a good place to invest. 
C)  Kazakhs are saving too much. 
D)  the rest of the world is saving too little. 
A)  Kazakhstan is a terrible place to invest. 
B)  Kazakhstan is a good place to invest. 
C)  Kazakhs are saving too much. 
D)  the rest of the world is saving too little.

Question 12

The capital account:

Accepted Answer

A)  is the sum of the balance of trade,net income on capital held abroad,and net transfer payments. 
B)  is the difference between exports and imports. 
C)  measures changes in foreign ownership of domestic assets,including financial assets like stocks and bonds,as well as physical assets. 
D)  is a summary of all of the economic transactions between residents of one country and residents of the rest of the world. 
A)  is the sum of the balance of trade,net income on capital held abroad,and net transfer payments. 
B)  is the difference between exports and imports. 
C)  measures changes in foreign ownership of domestic assets,including financial assets like stocks and bonds,as well as physical assets. 
D)  is a summary of all of the economic transactions between residents of one country and residents of the rest of the world.

Question 13

Saying the United States is a good place for other countries to invest in is consistent with _____ in the United States.

Accepted Answer

A)  higher capital accounts 
B)  balanced trade 
C)  lower trade deficits 
D)  lower interest payments 
A)  higher capital accounts 
B)  balanced trade 
C)  lower trade deficits 
D)  lower interest payments

Question 14

China is the world's leading producer of rare earth metals.What will happen to the value of the yuan if demand for rare earth metals increases and the government does not intervene?

Accepted Answer

A)  It will appreciate. 
B)  It will depreciate. 
C)  It will neither appreciate nor depreciate. 
D)  It will disappear. 
A)  It will appreciate. 
B)  It will depreciate. 
C)  It will neither appreciate nor depreciate. 
D)  It will disappear.

Question 15

In the short run,a tighter monetary policy by the U.S.Federal Reserve leads to:

Accepted Answer

A)  an increase in the supply of dollars and a dollar depreciation. 
B)  a decrease in the supply of dollars and a dollar appreciation. 
C)  an increase in the demand for dollars and a dollar depreciation. 
D)  a decrease in the demand for dollars and a dollar appreciation. 
A)  an increase in the supply of dollars and a dollar depreciation. 
B)  a decrease in the supply of dollars and a dollar appreciation. 
C)  an increase in the demand for dollars and a dollar depreciation. 
D)  a decrease in the demand for dollars and a dollar appreciation.

Question 16

If a country does not have as sound an economy as the United States,in the long run it should peg to the U.S.dollar.

Accepted Answer

A) True 
 B)False

Question 17

Figure: Foreign Exchange Market for U.S.Dollars   What would cause a shift of the demand curve from D1 to D2 in the figure?

Accepted Answer

A)  an increase in the export of U.S.beef to China 
B)  a purchase of Japanese corporate bonds by Americans 
C)  a sale of U.S.Treasury bonds by Chinese bondholders 
D)  an increase of the dollar supply by the U.S.Federal Reserve 
A)  an increase in the export of U.S.beef to China 
B)  a purchase of Japanese corporate bonds by Americans 
C)  a sale of U.S.Treasury bonds by Chinese bondholders 
D)  an increase of the dollar supply by the U.S.Federal Reserve

Question 18

If a country is running a capital surplus,then the inflow of foreign:

Accepted Answer

A)  capital is less than the outflow of domestic capital abroad. 
B)  capital is greater than the outflow of domestic capital abroad. 
C)  goods and services is greater than the outflow of goods and services abroad. 
D)  goods and services is less than the outflow of goods and services abroad. 
A)  capital is less than the outflow of domestic capital abroad. 
B)  capital is greater than the outflow of domestic capital abroad. 
C)  goods and services is greater than the outflow of goods and services abroad. 
D)  goods and services is less than the outflow of goods and services abroad.

Question 19

When Koreans buy stock on the NYSE:

Accepted Answer

A)  this immediately create new investment in the United States. 
B)  portfolio investment in the United States increases. 
C)  the U.S.capital account decreases. 
D)  foreign direct investment in the United States increases. 
A)  this immediately create new investment in the United States. 
B)  portfolio investment in the United States increases. 
C)  the U.S.capital account decreases. 
D)  foreign direct investment in the United States increases.

Question 20

If $1 U.S.buys 90 Japanese yen and a computer that costs $800 U.S.is priced at 90,000 Japanese yen,then the computer in Japan is:

Accepted Answer

A)  underpriced by 18,000 Japanese yen. 
B)  overpriced by 18,000 Japanese yen. 
C)  underpriced by 80,000 Japanese yen. 
D)  overpriced by 80,000 Japanese yen. 
A)  underpriced by 18,000 Japanese yen. 
B)  overpriced by 18,000 Japanese yen. 
C)  underpriced by 80,000 Japanese yen. 
D)  overpriced by 80,000 Japanese yen.

Exam 20: International Finance

Which of the following is NOT included in a country's current account?

Which of the following is NOT a constraint on trade that prevents prices from being fully equalized across borders?

Which of the following is NOT a component of the current account?

A country currently operating in a recession would benefit most from:

An increase in the growth rate of the money supply in the short run causes a(n)_____ of the domestic currency and a(n)_____ in aggregate demand.

Which of the following prevents the purchasing power parity theorem from holding perfectly?

Which of the following transactions can be classified as foreign direct investment for the United States?

If the United States imports $100 billion worth of goods and services from Mexico and exports $75 billion worth of goods and services to Mexico,then:

Explain the difference between the nominal exchange rate and the real exchange rate.

A country with a large current account surplus is also typically running a large:

A current account deficit in Kazakhstan could mean that:

The capital account:

Saying the United States is a good place for other countries to invest in is consistent with _____ in the United States.

China is the world's leading producer of rare earth metals.What will happen to the value of the yuan if demand for rare earth metals increases and the government does not intervene?

In the short run,a tighter monetary policy by the U.S.Federal Reserve leads to:

If a country does not have as sound an economy as the United States,in the long run it should peg to the U.S.dollar.

Figure: Foreign Exchange Market for U.S.Dollars What would cause a shift of the demand curve from D1 to D2 in the figure?

If a country is running a capital surplus,then the inflow of foreign:

When Koreans buy stock on the NYSE:

If $1 U.S.buys 90 Japanese yen and a computer that costs $800 U.S.is priced at 90,000 Japanese yen,then the computer in Japan is:

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

An increase in the growth rate of the money supply in the short run causes a(n)_ of the domestic currency and a(n)_ in aggregate demand.

Figure: Foreign Exchange Market for U.S.Dollars What would cause a shift of the demand curve from D₁ to D₂ in the figure?