Question 1

Exchanging dollars for euros to pay a computer manufacturer in Belgium would occur

Accepted Answer

A)  in the foreign exchange market. 
B)  at the Federal Reserve. 
C)  at the European Central Bank. 
D)  in the letter of credit market. 
A)  in the foreign exchange market. 
B)  at the Federal Reserve. 
C)  at the European Central Bank. 
D)  in the letter of credit market.

Question 2

The supply of U.S. dollars on foreign exchange markets is

Accepted Answer

A)  determined directly by open market operations at the Federal Reserve Bank. 
B)  derived from the demand for U.S. products by foreigners. 
C)  derived from the supply of U.S. goods. 
D)  derived from the demand by United States for imported goods and services. 
A)  determined directly by open market operations at the Federal Reserve Bank. 
B)  derived from the demand for U.S. products by foreigners. 
C)  derived from the supply of U.S. goods. 
D)  derived from the demand by United States for imported goods and services.

Question 3

What brought about the end of the Bretton Woods Agreement?

Accepted Answer

Under the Bretton Woods Agreement, the d

Question 4

A citizen of Mexico who has lived in El Paso during the past three years has just sent $100 to relatives in Mexico for Christmas. This transaction is

Accepted Answer

A)  counted in the U.S. balance of payments as a current account item. 
B)  counted in the U.S. balance of payments as a surplus item. 
C)  counted in the U.S. balance of payments as an export item. 
D)  none of the above. 
A)  counted in the U.S. balance of payments as a current account item. 
B)  counted in the U.S. balance of payments as a surplus item. 
C)  counted in the U.S. balance of payments as an export item. 
D)  none of the above.

Question 5

Which of the following will lead to an appreciation of the U.S. dollar against the British pound?

Accepted Answer

A)  an increase in British demand for U.S. imports 
B)  an increase in U.S. demand for British imports 
C)  an increase in British interest rates 
D)  a decrease in British demand for U.S. assets 
A)  an increase in British demand for U.S. imports 
B)  an increase in U.S. demand for British imports 
C)  an increase in British interest rates 
D)  a decrease in British demand for U.S. assets

Question 6

Net unilateral transfers would appear in a nation's

Accepted Answer

A)  current account. 
B)  capital account. 
C)  official reserve transaction account. 
D)  financial account. 
A)  current account. 
B)  capital account. 
C)  official reserve transaction account. 
D)  financial account.

Question 7

Caitlin has just decided to order a computer that is made in Japan. She needs to convert U.S. dollars for Japanese yen. This conversion takes place in the

Accepted Answer

A)  International Monetary Fund. 
B)  target zone. 
C)  foreign exchange markets. 
D)  SDRs. 
A)  International Monetary Fund. 
B)  target zone. 
C)  foreign exchange markets. 
D)  SDRs.

Question 8

Suppose the foreign exchange market is in equilibrium. Then, the U.S. government increases borrowing, causing American interest rates to increase. What will happen to the price of the Japanese yen? Why?

Accepted Answer

The higher U.S. interest rates induce fo

Question 9

-Refer to the above figure. Suppose E is the original equilibrium. An increase in the demand for dollars will be reflected in this figure by

Accepted Answer

A)  an increase in the demand for yen as both imports and exports increase. 
B)  a decrease in the demand for yen as the U.S. balance of payments improves. 
C)  an increase in the supply of yen as Japan tries to buy more U.S. goods. 
D)  a decrease in the supply of yen as Japan is able to pay less for U.S. goods. 
A)  an increase in the demand for yen as both imports and exports increase. 
B)  a decrease in the demand for yen as the U.S. balance of payments improves. 
C)  an increase in the supply of yen as Japan tries to buy more U.S. goods. 
D)  a decrease in the supply of yen as Japan is able to pay less for U.S. goods.

Question 10

Suppose the exchange rate was $0.50 for one British pound. If the exchange rate falls to $0.20 for one pound, we would expect to see

Accepted Answer

A)  more exports to the U.K. since the price of the pound has risen. 
B)  fewer exports to the U.K. since the price of the pound has risen. 
C)  more U.S. imports from the U.K. since the price of the pound has fallen. 
D)  more U.S. exports since the price of the dollar has fallen. 
A)  more exports to the U.K. since the price of the pound has risen. 
B)  fewer exports to the U.K. since the price of the pound has risen. 
C)  more U.S. imports from the U.K. since the price of the pound has fallen. 
D)  more U.S. exports since the price of the dollar has fallen.

Question 11

-Refer to the above figure. Suppose E is the original equilibrium. Japanese residents have increased their demand for U.S. goods. This will lead to

Accepted Answer

A)  a depreciation of the yen and an increase in the quantity of yens sold per week. 
B)  a depreciation of the yen and a decrease in the quantity of yens sold per week. 
C)  an appreciation of the yen and an increase in the quantity of yens sold per week. 
D)  an appreciation of the yen and a decrease in the quantity of yens sold per week. 
A)  a depreciation of the yen and an increase in the quantity of yens sold per week. 
B)  a depreciation of the yen and a decrease in the quantity of yens sold per week. 
C)  an appreciation of the yen and an increase in the quantity of yens sold per week. 
D)  an appreciation of the yen and a decrease in the quantity of yens sold per week.

Question 12

Which of the following statements is TRUE about the role that service exports and imports have in the balance of payments?

Accepted Answer

A)  Service exports and imports are not included in the balance of payments because it is impossible to transport a service to another country. 
B)  Service exports and imports are included in the balance of payments in the labor account. 
C)  Service exports and imports are included in the balance of payments in the official reserve transactions account. 
D)  Service exports and imports are included in the balance of payments in the current account. 
A)  Service exports and imports are not included in the balance of payments because it is impossible to transport a service to another country. 
B)  Service exports and imports are included in the balance of payments in the labor account. 
C)  Service exports and imports are included in the balance of payments in the official reserve transactions account. 
D)  Service exports and imports are included in the balance of payments in the current account.

Question 13

Flexible exchange rates occur when

Accepted Answer

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

Question 14

An increase in a country's rate of inflation is apt to

Accepted Answer

A)  reduce its imports and improve its trade balance. 
B)  lower its nominal rate of interest and encourage an inflow of capital. 
C)  worsen its balance of trade and balance of payments. 
D)  decrease demand for the country's currency. 
A)  reduce its imports and improve its trade balance. 
B)  lower its nominal rate of interest and encourage an inflow of capital. 
C)  worsen its balance of trade and balance of payments. 
D)  decrease demand for the country's currency.

Question 15

Under the gold standard, because all currencies had values fixed in units of gold

Accepted Answer

A)  exchange rates were effectively fixed. 
B)  there were no exchange rates. 
C)  exchange rates were set to a crawling peg. 
D)  none of the above 
A)  exchange rates were effectively fixed. 
B)  there were no exchange rates. 
C)  exchange rates were set to a crawling peg. 
D)  none of the above

Question 16

Exchange rates that are allowed to fluctuate in response to changes in supply and demand is known as

Accepted Answer

A)  the foreign exchange markets. 
B)  standard drawing rights. 
C)  fixed exchange rates. 
D)  flexible exchange rates. 
A)  the foreign exchange markets. 
B)  standard drawing rights. 
C)  fixed exchange rates. 
D)  flexible exchange rates.

Question 17

Which agreement was signed in 1944 with the purpose of creating a new international payment system?

Accepted Answer

A)  Philadelphia Accord 
B)  Bretton Woods 
C)  Camp David 
D)  Lake Geneva 
A)  Philadelphia Accord 
B)  Bretton Woods 
C)  Camp David 
D)  Lake Geneva

Question 18

Which of the following transactions leads to an inflow of funds on the U.S. financial account?

Accepted Answer

A)  A U.S. resident purchases a share of stock on the Hong Kong exchange. 
B)  A U.S. resident sells wheat to an African nation. 
C)  A resident of China purchases U.S. government bonds. 
D)  A resident of Mexico visits the United States. 
A)  A U.S. resident purchases a share of stock on the Hong Kong exchange. 
B)  A U.S. resident sells wheat to an African nation. 
C)  A resident of China purchases U.S. government bonds. 
D)  A resident of Mexico visits the United States.

Question 19

As the dollar price of a euro falls

Accepted Answer

A)  U.S. residents will purchase fewer French imports. 
B)  the quantity of euros supplied will increase. 
C)  French goods will be less expensive to U.S. residents. 
D)  French residents will increase their purchases of U.S. assets. 
A)  U.S. residents will purchase fewer French imports. 
B)  the quantity of euros supplied will increase. 
C)  French goods will be less expensive to U.S. residents. 
D)  French residents will increase their purchases of U.S. assets.

Question 20

Which of the following will cause a change in the exchange rate?

Accepted Answer

A)  changes in real interest rates 
B)  changes in consumer preferences 
C)  changes in the perception of economic stability 
D)  all of the above 
A)  changes in real interest rates 
B)  changes in consumer preferences 
C)  changes in the perception of economic stability 
D)  all of the above

Exam 33: Exchange Rates and the Balance of Payments

Exchanging dollars for euros to pay a computer manufacturer in Belgium would occur

The supply of U.S. dollars on foreign exchange markets is

What brought about the end of the Bretton Woods Agreement?

A citizen of Mexico who has lived in El Paso during the past three years has just sent $100 to relatives in Mexico for Christmas. This transaction is

Which of the following will lead to an appreciation of the U.S. dollar against the British pound?

Net unilateral transfers would appear in a nation's

Caitlin has just decided to order a computer that is made in Japan. She needs to convert U.S. dollars for Japanese yen. This conversion takes place in the

Suppose the foreign exchange market is in equilibrium. Then, the U.S. government increases borrowing, causing American interest rates to increase. What will happen to the price of the Japanese yen? Why?

-Refer to the above figure. Suppose E is the original equilibrium. An increase in the demand for dollars will be reflected in this figure by

Suppose the exchange rate was $0.50 for one British pound. If the exchange rate falls to $0.20 for one pound, we would expect to see

-Refer to the above figure. Suppose E is the original equilibrium. Japanese residents have increased their demand for U.S. goods. This will lead to

Which of the following statements is TRUE about the role that service exports and imports have in the balance of payments?

Flexible exchange rates occur when

An increase in a country's rate of inflation is apt to

Under the gold standard, because all currencies had values fixed in units of gold

Exchange rates that are allowed to fluctuate in response to changes in supply and demand is known as

Which agreement was signed in 1944 with the purpose of creating a new international payment system?

Which of the following transactions leads to an inflow of funds on the U.S. financial account?

As the dollar price of a euro falls

Which of the following will cause a change in the exchange rate?

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

Funding the Public Sector

The Macroeconomy: Unemployment, Inflation, and Deflation

Measuring the Economys Performance

Global Economic Growth and Development

Real GDP and the Price Level in the Long Run

Classical and Keynesian Macro Analyses

Consumption, Real GDP, and the Multiplier

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Deficit Spending and the Public Debt

Money, Banking, and Central Banking

Domestic and International Dimensions of Monetary Policy

Stabilization in an Integrated World Economy

Policies and Prospects for Global Economic Growth

Demand and Supply Elasticity

Consumer Choice

Rents, Profits, and the Financial Environment of Business

The Firm: Cost and Output Determination

Perfect Competition

Monopoly

Monopolistic Competition

Oligopoly and Strategic Behavior

Regulation and Antitrust Policy in a Globalized Economy

The Labor Market: Demand, Supply and Outsourcing

Unions and Labor Market Monopoly Power

Income, Poverty, and Health Care

Environmental Economics

Comparative Advantage and the Open Economy

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