Question 1

The largest portion of any nation's balance of payments current account is the

Accepted Answer

A)  importing and exporting of merchandise goods. 
B)  importing and exporting of services. 
C)  importing and exporting of gold. 
D)  importing and exporting of capital goods. 
A)  importing and exporting of merchandise goods. 
B)  importing and exporting of services. 
C)  importing and exporting of gold. 
D)  importing and exporting of capital goods. A

Question 2

Under the gold standard, when a nation had a deficit in its balance of payments

Accepted Answer

A)  interest rates would rise which would reduce foreign investment. 
B)  interest rates would fall which would increase foreign investment. 
C)  gold would flow to foreign residents and the domestic money supply would decrease. 
D)  gold would flow into the country leading to an increase in the domestic money supply. 
A)  interest rates would rise which would reduce foreign investment. 
B)  interest rates would fall which would increase foreign investment. 
C)  gold would flow to foreign residents and the domestic money supply would decrease. 
D)  gold would flow into the country leading to an increase in the domestic money supply. C

Question 3

Why does the supply curve of Japanese yen slope up?

Accepted Answer

Japanese residents supply yen when they want to buy U.S. goods and services. The higher the price of the yen, the lower the Japanese price for the dollar. So, as the yen price of the dollar falls, Japanese residents demand more dollars and supply more yen.

Question 4

If there is an increase in the demand for U.S. automobiles, the

Accepted Answer

A)  demand for dollars will fall. 
B)  demand for dollars will rise. 
C)  supply of dollars will fall. 
D)  supply of dollars will rise. 
A)  demand for dollars will fall. 
B)  demand for dollars will rise. 
C)  supply of dollars will fall. 
D)  supply of dollars will rise.

Question 5

If the exchange rate is such that $1 equals 10 Mexican pesos, then the price of a peso is

Accepted Answer

A)  $10. 
B)  $1. 
C)  $0.20. 
D)  $0.10. 
A)  $10. 
B)  $1. 
C)  $0.20. 
D)  $0.10.

Question 6

The foreign exchange market is

Accepted Answer

A)  a market in which exchange rates are allowed to fluctuate in the open market in response to changes in supply and demand. 
B)  the increase in the exchange value of one nation's currency in terms of an other nation. 
C)  a market in which households, firms, and governments buy and sell national currencies. 
D)  the decrease in the exchange value of one nation's currency in terms of another nation. 
A)  a market in which exchange rates are allowed to fluctuate in the open market in response to changes in supply and demand. 
B)  the increase in the exchange value of one nation's currency in terms of an other nation. 
C)  a market in which households, firms, and governments buy and sell national currencies. 
D)  the decrease in the exchange value of one nation's currency in terms of another nation.

Question 7

The major factor affecting a nation's balance of payments is

Accepted Answer

A)  an increase in its rate of unemployment. 
B)  its rate of inflation relative to the rate of inflation of its trading partners. 
C)  a change in the productivity of its labor. 
D)  its stock market movements. 
A)  an increase in its rate of unemployment. 
B)  its rate of inflation relative to the rate of inflation of its trading partners. 
C)  a change in the productivity of its labor. 
D)  its stock market movements.

Question 8

-Refer to the above table. The overall balance of payments of Nation "A" is

Accepted Answer

A)  +85. 
B)  - 85. 
C)  0. 
D)  +25. 
A)  +85. 
B)  - 85. 
C)  0. 
D)  +25.

Question 9

The total of all economic transactions between a nation and the rest of the world is referred to as the

Accepted Answer

A)  balance of payments. 
B)  balance of trade. 
C)  balance of power. 
D)  exchange rate. 
A)  balance of payments. 
B)  balance of trade. 
C)  balance of power. 
D)  exchange rate.

Question 10

If the foreign exchange rate is one dollar for 10 South African rand, then how many dollars are needed to purchase an item that costs 400 rand?

Accepted Answer

A)  10 
B)  40 
C)  400 
D)  4,000 
A)  10 
B)  40 
C)  400 
D)  4,000

Question 11

Jane has just sent a gift that was made in the U.S. to her relatives in Italy. As far as the balance of payments is concerned this gift will

Accepted Answer

A)  have no influence on the balance of payments since it was made in the U.S. 
B)  be part of the capital account since the gift is a physical item. 
C)  be considered an export since it has left the U.S. 
D)  be part of the current account as a unilateral transfer. 
A)  have no influence on the balance of payments since it was made in the U.S. 
B)  be part of the capital account since the gift is a physical item. 
C)  be considered an export since it has left the U.S. 
D)  be part of the current account as a unilateral transfer.

Question 12

An increase in the demand for the Brazilian real induces

Accepted Answer

A)  an increase in the demand for Brazilian goods. 
B)  a decrease in the supply of dollars. 
C)  an increase in the real price of a dollar. 
D)  an increase in the dollar price of a real. 
A)  an increase in the demand for Brazilian goods. 
B)  a decrease in the supply of dollars. 
C)  an increase in the real price of a dollar. 
D)  an increase in the dollar price of a real.

Question 13

One source of the supply of dollars in the foreign exchange market is

Accepted Answer

A)  U.S. companies importing foreign goods. 
B)  foreign citizens buying U.S. goods. 
C)  SDRs being converted into dollars. 
D)  the U.S. Mint buying dollars from the Bank of England. 
A)  U.S. companies importing foreign goods. 
B)  foreign citizens buying U.S. goods. 
C)  SDRs being converted into dollars. 
D)  the U.S. Mint buying dollars from the Bank of England.

Question 14

-Refer to the above table. Nation "A" has a current account

Accepted Answer

A)  deficit of 15. 
B)  surplus of 15. 
C)  deficit of 60. 
D)  surplus of 60. 
A)  deficit of 15. 
B)  surplus of 15. 
C)  deficit of 60. 
D)  surplus of 60.

Question 15

If a country moves from fixed to flexible exchange rates, its macroeconomic policy

Accepted Answer

A)  is no longer restricted. 
B)  is restricted, as it can only use fiscal policy to achieve its economic goals. 
C)  is restricted, as it can only use monetary policy to achieve its economic goals. 
D)  must follow policy directives from the IMF. 
A)  is no longer restricted. 
B)  is restricted, as it can only use fiscal policy to achieve its economic goals. 
C)  is restricted, as it can only use monetary policy to achieve its economic goals. 
D)  must follow policy directives from the IMF.

Question 16

An appreciation of a nation's currency is

Accepted Answer

A)  a situation in which exchange rates are allowed to fluctuate in the open market in response to changes in supply and demand. 
B)  the increase in the exchange value of one nation's currency in terms of an other nation. 
C)  a nation in which households, firms, and governments buy and sell national currencies. 
D)  the decrease in the exchange value of one nation's currency in terms of another nation. 
A)  a situation in which exchange rates are allowed to fluctuate in the open market in response to changes in supply and demand. 
B)  the increase in the exchange value of one nation's currency in terms of an other nation. 
C)  a nation in which households, firms, and governments buy and sell national currencies. 
D)  the decrease in the exchange value of one nation's currency in terms of another nation.

Question 17

If a country wants to keep the value of its currency fixed, then its central bank should

Accepted Answer

A)  sell domestic goods when there is an increase in the supply of its domestic currency. 
B)  buy domestic goods when there is an increase in the supply of its domestic currency. 
C)  sell its domestic currency when there is an increase in the supply of that currency. 
D)  buy its domestic currency when there is an increase in the supply of that currency. 
A)  sell domestic goods when there is an increase in the supply of its domestic currency. 
B)  buy domestic goods when there is an increase in the supply of its domestic currency. 
C)  sell its domestic currency when there is an increase in the supply of that currency. 
D)  buy its domestic currency when there is an increase in the supply of that currency.

Question 18

When a Mexican resident buys a ukulele from a U.S. producer, there is a(n)

Accepted Answer

A)  increase in the supply of dollars in the foreign exchange market. 
B)  decrease in the supply of dollars in the foreign exchange market. 
C)  increase in the demand for dollars in the foreign exchange market. 
D)  decrease in the demand for dollars in the foreign exchange market. 
A)  increase in the supply of dollars in the foreign exchange market. 
B)  decrease in the supply of dollars in the foreign exchange market. 
C)  increase in the demand for dollars in the foreign exchange market. 
D)  decrease in the demand for dollars in the foreign exchange market.

Question 19

A system of accounts that measures the transactions of goods, services, income, and financial assets between domestic households, businesses, and governments and residents of the rest of the world during a specific time period is the

Accepted Answer

A)  capital account. 
B)  current account. 
C)  balance of payments. 
D)  balance of trade. 
A)  capital account. 
B)  current account. 
C)  balance of payments. 
D)  balance of trade.

Question 20

One problem associated with the gold standard was that

Accepted Answer

A)  nations gave up control of their money supply. 
B)  there was an incentive for individuals to hold gold at all interest rates. 
C)  there was no fluctuation in exchange rates. 
D)  nations could not determine their current account balances. 
A)  nations gave up control of their money supply. 
B)  there was an incentive for individuals to hold gold at all interest rates. 
C)  there was no fluctuation in exchange rates. 
D)  nations could not determine their current account balances.

Exam 33: Exchange Rates and the Balance of Payments

The largest portion of any nation's balance of payments current account is the

Under the gold standard, when a nation had a deficit in its balance of payments

Why does the supply curve of Japanese yen slope up?

If there is an increase in the demand for U.S. automobiles, the

If the exchange rate is such that $1 equals 10 Mexican pesos, then the price of a peso is

The foreign exchange market is

The major factor affecting a nation's balance of payments is

-Refer to the above table. The overall balance of payments of Nation "A" is

The total of all economic transactions between a nation and the rest of the world is referred to as the

If the foreign exchange rate is one dollar for 10 South African rand, then how many dollars are needed to purchase an item that costs 400 rand?

Jane has just sent a gift that was made in the U.S. to her relatives in Italy. As far as the balance of payments is concerned this gift will

An increase in the demand for the Brazilian real induces

One source of the supply of dollars in the foreign exchange market is

-Refer to the above table. Nation "A" has a current account

If a country moves from fixed to flexible exchange rates, its macroeconomic policy

An appreciation of a nation's currency is

If a country wants to keep the value of its currency fixed, then its central bank should

When a Mexican resident buys a ukulele from a U.S. producer, there is a(n)

A system of accounts that measures the transactions of goods, services, income, and financial assets between domestic households, businesses, and governments and residents of the rest of the world during a specific time period is the

One problem associated with the gold standard was that

The Nature of Economics

Scarcity and the World of Trade-Offs

Demand and Supply

Extensions of Demand and Supply Analysis

Public Spending and Public Choice

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The Macroeconomy: Unemployment, Inflation, and Deflation

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Money, Banking, and Central Banking

Domestic and International Dimensions of Monetary Policy

Stabilization in an Integrated World Economy

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The Firm: Cost and Output Determination

Perfect Competition

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Regulation and Antitrust Policy in a Globalized Economy

The Labor Market: Demand, Supply and Outsourcing

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Environmental Economics

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