Question 1

Demand for the Brazilian real is

Accepted Answer

A)  determined by how well the real maintains its value. 
B)  a function of the Brazilian banking system. 
C)  derived from the supply of U.S. dollars. 
D)  derived from the demand for Brazilian goods. 
A)  determined by how well the real maintains its value. 
B)  a function of the Brazilian banking system. 
C)  derived from the supply of U.S. dollars. 
D)  derived from the demand for Brazilian goods.

Question 2

The U.S. balance of payments status may improve when

Accepted Answer

A)  the inflation rate increases in the United States relative to other countries. 
B)  political instability in other countries increases. 
C)  the world demand for U.S. products falls. 
D)  the American government increases its spending on foreign aid. 
A)  the inflation rate increases in the United States relative to other countries. 
B)  political instability in other countries increases. 
C)  the world demand for U.S. products falls. 
D)  the American government increases its spending on foreign aid.

Question 3

In a nation's balance of payments, the current account includes

Accepted Answer

A)  the changes in the official reserve transaction account. 
B)  the purchases of foreign assets. 
C)  the balance of the trade account, the balance of the services account, and net unilateral transfers. 
D)  all of the above. 
A)  the changes in the official reserve transaction account. 
B)  the purchases of foreign assets. 
C)  the balance of the trade account, the balance of the services account, and net unilateral transfers. 
D)  all of the above.

Question 4

The current account is

Accepted Answer

A)  the reserve assets created by the International Monetary Fund for countries to use in settling international payment obligations. 
B)  the price of one nation's currency in term of the currency of another country. 
C)  a category of the balance of payments transactions that measures flows of real and financial assets. 
D)  a category of the balance of payments transactions that measures the exchange of merchandise, the exchange of services, and unilateral transfers. 
A)  the reserve assets created by the International Monetary Fund for countries to use in settling international payment obligations. 
B)  the price of one nation's currency in term of the currency of another country. 
C)  a category of the balance of payments transactions that measures flows of real and financial assets. 
D)  a category of the balance of payments transactions that measures the exchange of merchandise, the exchange of services, and unilateral transfers.

Question 5

Someone in Germany has just ordered a U.S. car to be exported to Germany. In the U.S. balance of payments, this purchase is a(n)

Accepted Answer

A)  accounting identity. 
B)  special draw. 
C)  surplus item. 
D)  deficit item. 
A)  accounting identity. 
B)  special draw. 
C)  surplus item. 
D)  deficit item.

Question 6

An appreciation of the U.S. dollar relative to the Japanese yen causes

Accepted Answer

A)  a lower dollar-price of Japanese goods which induces the U.S. to increase their purchasing of Japanese goods. 
B)  the quantity demanded of U.S. dollars to increase because the Japanese want to buy more U.S. goods. 
C)  the Japanese to buy more U.S. goods, causing the dollars to appreciate further. 
D)  the U.S. to buy less Japanese goods, causing the U.S. to depreciate. 
A)  a lower dollar-price of Japanese goods which induces the U.S. to increase their purchasing of Japanese goods. 
B)  the quantity demanded of U.S. dollars to increase because the Japanese want to buy more U.S. goods. 
C)  the Japanese to buy more U.S. goods, causing the dollars to appreciate further. 
D)  the U.S. to buy less Japanese goods, causing the U.S. to depreciate.

Question 7

If the dollar used to buy 360 yen and now buys 100 yen, there has been

Accepted Answer

A)  a decrease in the demand for yen. 
B)  depreciation of the yen. 
C)  depreciation of the dollar. 
D)  appreciation of the dollar. 
A)  a decrease in the demand for yen. 
B)  depreciation of the yen. 
C)  depreciation of the dollar. 
D)  appreciation of the dollar.

Question 8

When there is a negative entry for unilateral transfers in the balance of payments, it means that

Accepted Answer

A)  there must be an offsetting positive sign in the financial account. 
B)  U.S. residents gave more to foreign residents than foreign residents gave to U.S. residents. 
C)  U.S. residents purchased less services from foreign countries than foreign countries purchased from U.S. residents. 
D)  U.S. residents purchased more services from foreign countries than foreign countries purchased from U.S. residents. 
A)  there must be an offsetting positive sign in the financial account. 
B)  U.S. residents gave more to foreign residents than foreign residents gave to U.S. residents. 
C)  U.S. residents purchased less services from foreign countries than foreign countries purchased from U.S. residents. 
D)  U.S. residents purchased more services from foreign countries than foreign countries purchased from U.S. residents.

Question 9

If the exchange rate measured in euros per dollar increases, then

Accepted Answer

A)  the dollar depreciates relative to the euro. 
B)  the euro appreciates relative to the dollar. 
C)  the euro depreciates relative to the dollar. 
D)  neither currency appreciates or depreciates. 
A)  the dollar depreciates relative to the euro. 
B)  the euro appreciates relative to the dollar. 
C)  the euro depreciates relative to the dollar. 
D)  neither currency appreciates or depreciates.

Question 10

An important problem with the gold standard was that

Accepted Answer

A)  it was too complicated and restricted business activity. 
B)  a country did not have control of its domestic monetary policy. 
C)  exchange rates tended to fluctuate a great deal, making it difficult for businesses to make long-run plans. 
D)  one country could easily manipulate the system to its advantage and the disadvantage of other countries. 
A)  it was too complicated and restricted business activity. 
B)  a country did not have control of its domestic monetary policy. 
C)  exchange rates tended to fluctuate a great deal, making it difficult for businesses to make long-run plans. 
D)  one country could easily manipulate the system to its advantage and the disadvantage of other countries.

Question 11

In July 2011, $1 was worth 45 Indian rupees and in July 2012, $1 was worth 55 Indian rupees. We can therefore conclude that

Accepted Answer

A)  the Indian rupee depreciated. 
B)  the Indian rupee appreciated. 
C)  the U.S. dollar has depreciated. 
D)  the value of the U.S. dollar has fluctuated. 
A)  the Indian rupee depreciated. 
B)  the Indian rupee appreciated. 
C)  the U.S. dollar has depreciated. 
D)  the value of the U.S. dollar has fluctuated.

Question 12

-Refer to the above table. The current account balance is

Accepted Answer

A)  $140. 
B)  $155. 
C)  $170. 
D)  -$45. 
A)  $140. 
B)  $155. 
C)  $170. 
D)  -$45.

Question 13

Which of the following will cause an increase in the demand for the Venezuelan currency, the Venezuelan bolivar?

Accepted Answer

A)  real interest rates in Venezuela fall 
B)  U.S. residents change preferences in favor of goods produced in the United States 
C)  real interest rates in the United States increase 
D)  none of the above 
A)  real interest rates in Venezuela fall 
B)  U.S. residents change preferences in favor of goods produced in the United States 
C)  real interest rates in the United States increase 
D)  none of the above

Question 14

Suppose there was a substantial increase in political instability in the rest of the world. What would be the effects on the U.S. current account? Explain.

Accepted Answer

Increased instability in the rest of the

Question 15

Assume the U.S. government wants to hold the value of the dollar at $1.00 U.S. equals 120 Japanese yen, but it finds that the value of yen is appreciating against the U.S. dollar. What would be an appropriate policy to reverse this trend?

Accepted Answer

A)  Buy more Japanese goods. 
B)  Buy U.S. dollars. 
C)  Sell U.S. dollars. 
D)  Encourage U.S. investments abroad. 
A)  Buy more Japanese goods. 
B)  Buy U.S. dollars. 
C)  Sell U.S. dollars. 
D)  Encourage U.S. investments abroad.

Question 16

Under the Bretton Woods system, a country could alter its exchange rate

Accepted Answer

A)  by changing its value relative to gold. 
B)  whenever it determined that there was a fundamental disequilibrium. 
C)  only when the IMF permitted due to a fundamental disequilibrium. 
D)  under no circumstances. 
A)  by changing its value relative to gold. 
B)  whenever it determined that there was a fundamental disequilibrium. 
C)  only when the IMF permitted due to a fundamental disequilibrium. 
D)  under no circumstances.

Question 17

If a central bank wants to keep the value of its home currency fixed in the foreign exchange market, then an increase in the demand for its home currency will lead the central bank to

Accepted Answer

A)  do nothing. 
B)  sell its home currency. 
C)  buy its home currency. 
D)  sell foreign currencies. 
A)  do nothing. 
B)  sell its home currency. 
C)  buy its home currency. 
D)  sell foreign currencies.

Question 18

An accounting identity

Accepted Answer

A)  ensures that all balances will be in equilibrium. 
B)  is useless in analyzing balance of payments since one cannot tell from the identity whether an equilibrium exists or not. 
C)  ensures a balance but does not ensure an equilibrium. 
D)  applies only to plans of economic agents and not to their actual actions. 
A)  ensures that all balances will be in equilibrium. 
B)  is useless in analyzing balance of payments since one cannot tell from the identity whether an equilibrium exists or not. 
C)  ensures a balance but does not ensure an equilibrium. 
D)  applies only to plans of economic agents and not to their actual actions.

Question 19

Suppose the current account of a country is initially in balance. A new transaction occurs so that the current account is now in surplus. Official reserve balance is maintained before and after the transaction occurs. From this, we know that

Accepted Answer

A)  the balance of trade is now in surplus. 
B)  the balance of goods and services is now in surplus. 
C)  the financial account is now in deficit. 
D)  the government must make official reserve transactions. 
A)  the balance of trade is now in surplus. 
B)  the balance of goods and services is now in surplus. 
C)  the financial account is now in deficit. 
D)  the government must make official reserve transactions.

Question 20

The largest portion of any nation's current account is typically

Accepted Answer

A)  imports and exports. 
B)  gold sales. 
C)  the sale of U.S. assets. 
D)  foreign currency reserves. 
A)  imports and exports. 
B)  gold sales. 
C)  the sale of U.S. assets. 
D)  foreign currency reserves.

Exam 33: Exchange Rates and the Balance of Payments

Demand for the Brazilian real is

The U.S. balance of payments status may improve when

In a nation's balance of payments, the current account includes

The current account is

Someone in Germany has just ordered a U.S. car to be exported to Germany. In the U.S. balance of payments, this purchase is a(n)

An appreciation of the U.S. dollar relative to the Japanese yen causes

If the dollar used to buy 360 yen and now buys 100 yen, there has been

When there is a negative entry for unilateral transfers in the balance of payments, it means that

If the exchange rate measured in euros per dollar increases, then

An important problem with the gold standard was that

In July 2011, $1 was worth 45 Indian rupees and in July 2012, $1 was worth 55 Indian rupees. We can therefore conclude that

-Refer to the above table. The current account balance is

Which of the following will cause an increase in the demand for the Venezuelan currency, the Venezuelan bolivar?

Suppose there was a substantial increase in political instability in the rest of the world. What would be the effects on the U.S. current account? Explain.

Assume the U.S. government wants to hold the value of the dollar at $1.00 U.S. equals 120 Japanese yen, but it finds that the value of yen is appreciating against the U.S. dollar. What would be an appropriate policy to reverse this trend?

Under the Bretton Woods system, a country could alter its exchange rate

If a central bank wants to keep the value of its home currency fixed in the foreign exchange market, then an increase in the demand for its home currency will lead the central bank to

An accounting identity

Suppose the current account of a country is initially in balance. A new transaction occurs so that the current account is now in surplus. Official reserve balance is maintained before and after the transaction occurs. From this, we know that

The largest portion of any nation's current account is typically

The Nature of Economics

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