Question 1

The higher the tariffs between two countries,the less purchasing power parity will hold.

Accepted Answer

A) True 
 B)False

Question 2

A system where a foreign government uses the U.S.dollar as its currency is called:

Accepted Answer

A)  a dirty float. 
B)  a floating exchange rate. 
C)  a fixed exchange rate. 
D)  dollarization. 
A)  a dirty float. 
B)  a floating exchange rate. 
C)  a fixed exchange rate. 
D)  dollarization.

Question 3

If a teleportation device were invented,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 4

A person engages in foreign direct investment when he or she buys stocks of a foreign firm.

Accepted Answer

A) True 
 B)False

Question 5

Which of the following would be recorded as a credit in the U.S.current account?

Accepted Answer

A)  United States imports $1 worth of tobacco from Mexico. 
B)  British financial investments in the United States pay higher dividends. 
C)  United States sends $10 million in foreign aid to Somalia. 
D)  United States exports $5 million in corn to Canada. 
A)  United States imports $1 worth of tobacco from Mexico. 
B)  British financial investments in the United States pay higher dividends. 
C)  United States sends $10 million in foreign aid to Somalia. 
D)  United States exports $5 million in corn to Canada.

Question 6

How do budget deficits lead to trade deficits?

Accepted Answer

A)  Budget deficits lead to higher interest rates,which lead to net capital inflow,which leads to currency appreciation,thus reducing net exports. 
B)  Budget deficits lead to lower interest rates,which lead to net capital inflow,which leads to currency appreciation,thus reducing net exports. 
C)  Budget deficits lead to higher interest rates,which lead to net capital outflow,which leads to currency appreciation,thus reducing net exports. 
D)  Budget deficits lead to higher interest rates,which lead to net capital inflow,which leads to currency depreciation,thus reducing net exports. 
A)  Budget deficits lead to higher interest rates,which lead to net capital inflow,which leads to currency appreciation,thus reducing net exports. 
B)  Budget deficits lead to lower interest rates,which lead to net capital inflow,which leads to currency appreciation,thus reducing net exports. 
C)  Budget deficits lead to higher interest rates,which lead to net capital outflow,which leads to currency appreciation,thus reducing net exports. 
D)  Budget deficits lead to higher interest rates,which lead to net capital inflow,which leads to currency depreciation,thus reducing net exports.

Question 7

Holding official reserves constant,a deficit in the current account means a surplus in the capital account.

Accepted Answer

A) True 
 B)False

Question 8

A trade deficit occurs when:

Accepted Answer

A)  a government spends more than it receives in tax revenue. 
B)  a government spends less than it receives in tax revenue. 
C)  the value of a country's imports exceeds the value of its exports. 
D)  the value of a country's exports exceeds the value of its imports. 
A)  a government spends more than it receives in tax revenue. 
B)  a government spends less than it receives in tax revenue. 
C)  the value of a country's imports exceeds the value of its exports. 
D)  the value of a country's exports exceeds the value of its imports.

Question 9

When Koreans buy stock on the NYSE:

Accepted Answer

A)  the U.S.balance of trade increases. 
B)  the Korean capital account increases. 
C)  the U.S.capital account decreases. 
D)  the U.S.capital account increases. 
A)  the U.S.balance of trade increases. 
B)  the Korean capital account increases. 
C)  the U.S.capital account decreases. 
D)  the U.S.capital account increases.

Question 10

Which of the following would be recorded as a debit (negative)in the U.S.capital account?

Accepted Answer

A)  The United States buys $1 million in British government bonds. 
B)  British financial investments in the United States pay higher dividends. 
C)  American citizens go to sub-Saharan Africa to teach reading to young students. 
D)  The Chinese government increases its reserve holdings of U.S.dollars. 
A)  The United States buys $1 million in British government bonds. 
B)  British financial investments in the United States pay higher dividends. 
C)  American citizens go to sub-Saharan Africa to teach reading to young students. 
D)  The Chinese government increases its reserve holdings of U.S.dollars.

Question 11

When the United States has a current account deficit,the U.S.capital account:

Accepted Answer

A)  will have a deficit also. 
B)  will be balanced. 
C)  will have a surplus. 
D)  must be falling. 
A)  will have a deficit also. 
B)  will be balanced. 
C)  will have a surplus. 
D)  must be falling.

Question 12

Transactions in the current account include:

Accepted Answer

A)  changes in official reserves. 
B)  net income on capital held abroad. 
C)  imports. 
D)  foreign direct investment. 
A)  changes in official reserves. 
B)  net income on capital held abroad. 
C)  imports. 
D)  foreign direct investment.

Question 13

High-interest rates in a country decrease the value of its currency.

Accepted Answer

A) True 
 B)False

Question 14

Figure: Economy in Distress   This country,currently at point C,has approached the IMF for a loan.Critics of the IMF's recovery packages claim that their "austerity" recommendations for monetary and fiscal policy worsen recessions.Using the diagram,explain their argument.

Accepted Answer

Austerity recommendations typically incl

Question 15

Consider the exchange rate between the U.S.dollar and the Japanese yen.If the yen appreciates,then:

Accepted Answer

A)  the dollar must appreciate also. 
B)  the dollar must depreciate. 
C)  the value of the dollar will remain constant. 
D)  the value of the dollar can increase,decrease,or remain unchanged. 
A)  the dollar must appreciate also. 
B)  the dollar must depreciate. 
C)  the value of the dollar will remain constant. 
D)  the value of the dollar can increase,decrease,or remain unchanged.

Question 16

If the current exchange rate between the U.S.dollar and euro was $1 to €0.75 yesterday but $1 to €0.85 today,the euro:

Accepted Answer

A)  has appreciated against the U.S.dollar. 
B)  has depreciated against the U.S.dollar. 
C)  has neither appreciated nor depreciated against the U.S.dollar. 
D)  has appreciated or depreciated against the U.S.dollar,depending on other currencies. 
A)  has appreciated against the U.S.dollar. 
B)  has depreciated against the U.S.dollar. 
C)  has neither appreciated nor depreciated against the U.S.dollar. 
D)  has appreciated or depreciated against the U.S.dollar,depending on other currencies.

Question 17

If the Federal Reserve made the decision to increase the money supply in the United States,this would lead to:

Accepted Answer

A)  an increase in the demand for U.S.dollars. 
B)  a decrease in the demand for U.S.dollars. 
C)  an appreciation of the U.S.dollar relative to other currencies. 
D)  a depreciation of the U.S.dollar relative to other currencies. 
A)  an increase in the demand for U.S.dollars. 
B)  a decrease in the demand for U.S.dollars. 
C)  an appreciation of the U.S.dollar relative to other currencies. 
D)  a depreciation of the U.S.dollar relative to other currencies.

Question 18

Which of the following is NOT a way that a country can finance a trade deficit?

Accepted Answer

A)  increased borrowing 
B)  sale of assets 
C)  decreased exports 
D)  reduction in cash reserves 
A)  increased borrowing 
B)  sale of assets 
C)  decreased exports 
D)  reduction in cash reserves

Question 19

An increase in U.S.government spending tends to:

Accepted Answer

A)  increase U.S.interest rates and increase the U.S.capital account surplus. 
B)  increase U.S.interest rates and decrease the U.S.capital account surplus. 
C)  decrease U.S.interest rates and increase the U.S.capital account surplus. 
D)  decrease U.S.interest rates and decrease the U.S.capital account surplus. 
A)  increase U.S.interest rates and increase the U.S.capital account surplus. 
B)  increase U.S.interest rates and decrease the U.S.capital account surplus. 
C)  decrease U.S.interest rates and increase the U.S.capital account surplus. 
D)  decrease U.S.interest rates and decrease the U.S.capital account surplus.

Question 20

What does knowing that $1.25 buys one euro tell you?

Accepted Answer

A)  the currency reserve ratio 
B)  the exchange rate 
C)  the foreign money replacement rate 
D)  the capital index conversion rate 
A)  the currency reserve ratio 
B)  the exchange rate 
C)  the foreign money replacement rate 
D)  the capital index conversion rate

Exam 20: International Finance

The higher the tariffs between two countries,the less purchasing power parity will hold.

A system where a foreign government uses the U.S.dollar as its currency is called:

If a teleportation device were invented,which of the following would happen?

A person engages in foreign direct investment when he or she buys stocks of a foreign firm.

Which of the following would be recorded as a credit in the U.S.current account?

How do budget deficits lead to trade deficits?

Holding official reserves constant,a deficit in the current account means a surplus in the capital account.

A trade deficit occurs when:

When Koreans buy stock on the NYSE:

Which of the following would be recorded as a debit (negative)in the U.S.capital account?

When the United States has a current account deficit,the U.S.capital account:

Transactions in the current account include:

High-interest rates in a country decrease the value of its currency.

Figure: Economy in Distress This country,currently at point C,has approached the IMF for a loan.Critics of the IMF's recovery packages claim that their "austerity" recommendations for monetary and fiscal policy worsen recessions.Using the diagram,explain their argument.

Consider the exchange rate between the U.S.dollar and the Japanese yen.If the yen appreciates,then:

If the current exchange rate between the U.S.dollar and euro was $1 to €0.75 yesterday but $1 to €0.85 today,the euro:

If the Federal Reserve made the decision to increase the money supply in the United States,this would lead to:

Which of the following is NOT a way that a country can finance a trade deficit?

An increase in U.S.government spending tends to:

What does knowing that $1.25 buys one euro tell you?

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