Question 1

The balance of payments is

Accepted Answer

A)  a summary record of the financial transactions of a country's government with foreign governments. 
B)  a summary record of a country's imports and exports of goods with foreign residents and governments. 
C)  a summary record of a country's economic transactions with foreign residents and governments. 
D)  a summary record of a country's purchases and sales of goods and services in the world market. 
A)  a summary record of the financial transactions of a country's government with foreign governments. 
B)  a summary record of a country's imports and exports of goods with foreign residents and governments. 
C)  a summary record of a country's economic transactions with foreign residents and governments. 
D)  a summary record of a country's purchases and sales of goods and services in the world market.

Question 2

An increase in the inflation rate of one country relative to another country will probably cause

Accepted Answer

A)  an increase in exports for the inflating country. 
B)  a balance of trade deficit for the inflating country. 
C)  a current account surplus for the inflating country. 
D)  an increase in the amount of official reserves held by the inflating country's central bank. 
A)  an increase in exports for the inflating country. 
B)  a balance of trade deficit for the inflating country. 
C)  a current account surplus for the inflating country. 
D)  an increase in the amount of official reserves held by the inflating country's central bank.

Question 3

When a dinner in Bulgaria costs 150 Bulgarian levas, it will cost a U.S. resident ________ dollars, if the exchange rate is 1.5 Bulgarian levas to the dollar.

Accepted Answer

A)  $10 
B)  $100 
C)  $120 
D)  $150 
A)  $10 
B)  $100 
C)  $120 
D)  $150

Question 4

A nation's official reserve transaction account

Accepted Answer

A)  is always a positive number. 
B)  is always a negative number. 
C)  is always equal to zero. 
D)  compensates for the differences in the current and capital accounts. 
A)  is always a positive number. 
B)  is always a negative number. 
C)  is always equal to zero. 
D)  compensates for the differences in the current and capital accounts.

Question 5

-Using the above figure. A rightward shift of the supply curve, ceteris paribus, would result in

Accepted Answer

A)  dollar appreciation. 
B)  euro appreciation. 
C)  dollar depreciation. 
D)  decreasing the equilibrium quantity of euros. 
A)  dollar appreciation. 
B)  euro appreciation. 
C)  dollar depreciation. 
D)  decreasing the equilibrium quantity of euros.

Question 6

Which of the following is included in both the balance of trade and the balance of payments?

Accepted Answer

A)  exports 
B)  earnings on domestic assets owned by foreign residents 
C)  international capital movements 
D)  earnings by domestic residents on assets located abroad 
A)  exports 
B)  earnings on domestic assets owned by foreign residents 
C)  international capital movements 
D)  earnings by domestic residents on assets located abroad

Question 7

Under a flexible exchange rate system, one factor that does NOT directly affect rates of exchange is

Accepted Answer

A)  changes in the inflation rate in each country. 
B)  changes in productivity in each country. 
C)  changes in gold holdings in each country. 
D)  changes in economic stability in each country. 
A)  changes in the inflation rate in each country. 
B)  changes in productivity in each country. 
C)  changes in gold holdings in each country. 
D)  changes in economic stability in each country.

Question 8

If the Mexican peso appreciates against the U.S. dollar

Accepted Answer

A)  Mexican exports will become cheaper in the United States. 
B)  Mexican exports will become more expensive in the United States. 
C)  U.S. exports will become more expensive in Mexico. 
D)  there will be no change in the price of Mexican imports in the United States. 
A)  Mexican exports will become cheaper in the United States. 
B)  Mexican exports will become more expensive in the United States. 
C)  U.S. exports will become more expensive in Mexico. 
D)  there will be no change in the price of Mexican imports in the United States.

Question 9

The U.S. government suspended the convertibility of the dollar into gold in

Accepted Answer

A)  the 1930s. 
B)  the 1950s. 
C)  the 1970s. 
D)  1991, when the first Gulf War broke out. 
A)  the 1930s. 
B)  the 1950s. 
C)  the 1970s. 
D)  1991, when the first Gulf War broke out.

Question 10

If interest rates in Sweden go up relative to the rest of the world, the

Accepted Answer

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

Question 11

Checking exchange rates, you find $1 equals 0.75 euros. Then the price of 1 euro is

Accepted Answer

A)  $0.25. 
B)  $0.75. 
C)  $1.33. 
D)  $4.30. 
A)  $0.25. 
B)  $0.75. 
C)  $1.33. 
D)  $4.30.

Question 12

The balance of trade is defined as

Accepted Answer

A)  the difference between the value of goods and services exported and the value of goods and services imported. 
B)  the difference between the value of goods exported and the value of goods imported. 
C)  the difference between the value of services exported and the value of services imported. 
D)  none of the above. 
A)  the difference between the value of goods and services exported and the value of goods and services imported. 
B)  the difference between the value of goods exported and the value of goods imported. 
C)  the difference between the value of services exported and the value of services imported. 
D)  none of the above.

Question 13

Which of the following is a deficit item on the U.S. balance of payments accounts?

Accepted Answer

A)  A U.S. firm sells a product to a Mexican firm. 
B)  An Italian tourist in Miami purchases a beach ball. 
C)  A Spaniard buys 100 shares of Ford stock. 
D)  A U.S. resident buys a smartphone in Japan. 
A)  A U.S. firm sells a product to a Mexican firm. 
B)  An Italian tourist in Miami purchases a beach ball. 
C)  A Spaniard buys 100 shares of Ford stock. 
D)  A U.S. resident buys a smartphone in Japan.

Question 14

-In the above figure, which of the following is a possible explanation for the reduction in the equilibrium value of the European euro from P2 to P1?

Accepted Answer

A)  an increase in demand for French automobiles 
B)  the European central bank's decision to buy euros on the world market 
C)  a decrease in the price of California wines, assuming that French wines and California wines are substitutes 
D)  an increase in the price of California wines, assuming that French wines and California wine are substitutes 
A)  an increase in demand for French automobiles 
B)  the European central bank's decision to buy euros on the world market 
C)  a decrease in the price of California wines, assuming that French wines and California wines are substitutes 
D)  an increase in the price of California wines, assuming that French wines and California wine are substitutes

Question 15

Flexible exchange rates exist when

Accepted Answer

A)  no one knows what the true value of a currency is. 
B)  governments and central banks spend foreign reserves to prop up an exchange rate at a certain level. 
C)  exchange rates are determined by forces of supply and demand. 
D)  speculators bet that a currency will soon be depreciated. 
A)  no one knows what the true value of a currency is. 
B)  governments and central banks spend foreign reserves to prop up an exchange rate at a certain level. 
C)  exchange rates are determined by forces of supply and demand. 
D)  speculators bet that a currency will soon be depreciated.

Question 16

The balance of trade is

Accepted Answer

A)  the difference between exports and imports of goods and services. 
B)  the difference between exports and imports of services. 
C)  the summary record of a country's economic transactions with foreigners in a year. 
D)  none of the above. 
A)  the difference between exports and imports of goods and services. 
B)  the difference between exports and imports of services. 
C)  the summary record of a country's economic transactions with foreigners in a year. 
D)  none of the above.

Question 17

An example of a transaction that will be a surplus item on the U.S. balance of payments is

Accepted Answer

A)  a U.S. resident purchasing French wine. 
B)  a French subsidiary's plant in New Jersey purchasing parts from the main plant in Paris. 
C)  a gift of wheat from the U.S. government to India. 
D)  a tourist from Germany buying a ticket to fly from New York to Chicago on American Airlines. 
A)  a U.S. resident purchasing French wine. 
B)  a French subsidiary's plant in New Jersey purchasing parts from the main plant in Paris. 
C)  a gift of wheat from the U.S. government to India. 
D)  a tourist from Germany buying a ticket to fly from New York to Chicago on American Airlines.

Question 18

All of the following are surplus items in the balance of payments EXCEPT

Accepted Answer

A)  purchases of foreign assets. 
B)  exports of merchandise. 
C)  foreign tourist expenditures. 
D)  funds deposited in this country by foreign residents. 
A)  purchases of foreign assets. 
B)  exports of merchandise. 
C)  foreign tourist expenditures. 
D)  funds deposited in this country by foreign residents.

Question 19

Suppose a central bank tries to keep exchange rates fixed. When there is an increase in the demand for foreign goods, the central bank will most likely

Accepted Answer

A)  buy foreign currency in exchange for the domestic currency. 
B)  do nothing. 
C)  sell the domestic currency in exchange for foreign reserves. 
D)  use foreign reserves to buy the domestic currency. 
A)  buy foreign currency in exchange for the domestic currency. 
B)  do nothing. 
C)  sell the domestic currency in exchange for foreign reserves. 
D)  use foreign reserves to buy the domestic currency.

Question 20

A key objective of the gold standard was to

Accepted Answer

A)  create a flexible exchange rate system between countries. 
B)  create a fixed exchange rate system between countries. 
C)  allow nations to maintain their gold reserves. 
D)  allow nations to tax its citizens in gold. 
A)  create a flexible exchange rate system between countries. 
B)  create a fixed exchange rate system between countries. 
C)  allow nations to maintain their gold reserves. 
D)  allow nations to tax its citizens in gold.

Exam 33: Exchange Rates and the Balance of Payments

The balance of payments is

An increase in the inflation rate of one country relative to another country will probably cause

When a dinner in Bulgaria costs 150 Bulgarian levas, it will cost a U.S. resident ________ dollars, if the exchange rate is 1.5 Bulgarian levas to the dollar.

A nation's official reserve transaction account

-Using the above figure. A rightward shift of the supply curve, ceteris paribus, would result in

Which of the following is included in both the balance of trade and the balance of payments?

Under a flexible exchange rate system, one factor that does NOT directly affect rates of exchange is

If the Mexican peso appreciates against the U.S. dollar

The U.S. government suspended the convertibility of the dollar into gold in

If interest rates in Sweden go up relative to the rest of the world, the

Checking exchange rates, you find $1 equals 0.75 euros. Then the price of 1 euro is

The balance of trade is defined as

Which of the following is a deficit item on the U.S. balance of payments accounts?

-In the above figure, which of the following is a possible explanation for the reduction in the equilibrium value of the European euro from P2 to P1?

Flexible exchange rates exist when

The balance of trade is

An example of a transaction that will be a surplus item on the U.S. balance of payments is

All of the following are surplus items in the balance of payments EXCEPT

Suppose a central bank tries to keep exchange rates fixed. When there is an increase in the demand for foreign goods, the central bank will most likely

A key objective of the gold standard was to

The Nature of Economics

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