Question 1

As the incomes in foreign nations rise, their imports from the United States will

Accepted Answer

A)  fall as they become less dependent on other countries. 
B)  rise. 
C)  not be affected. 
D)  rise and the U.S. dollar exchange rate will fall.

Question 2

Consider two countries, Mondrain and Davenport that are on the gold standard exchange
Rate system. The exchange rate implied by the gold standard is 5 divas (Davenport's
Currency) per mond (Mondrain's currency). Suppose at this exchange rate, the quantity supplied of monds exceeds the quantity demanded. Which of the following is true?

Accepted Answer

A)  Spending flowing out of Mondrain exceeded spending flowing into Mondrain. 
B)  Spending flowing into Mondrain exceeded spending flowing out of Mondrain. 
C)  Mondrain's exports to Davenport exceeded its imports from Davenport. 
D)  Residents of Davenport acquired more assets in Mondrain than residents of Mondrain purchased in Davenport.

Question 3

Suppose Boulinas' exports equal $50 billion, its purchases of foreign assets equal $100
Billion, and foreign purchase of Boulinas' assets equal $200 billion. What is Boulinas'
Balance on its current account?

Accepted Answer

A)  $100 billion 
B)  -$100 billion 
C)  $150 billion 
D)  -$150 billion

Question 4

Which of the following is not a trade barrier?

Accepted Answer

A)  Tariffs 
B)  Quota 
C)  An embargo 
D)  A growing sentiment in favor of "buying local"

Question 5

The U.S. and Canada are major trading partners. Suppose the Canadian dollar rises sharply in
Value against the U.S. dollar. At the same time, strong income growth in the U.S. increases the demand for Canadian exports. What happens to Canada's net exports if the effect of Canadian dollar appreciation dominates that of strong income growth in the U.S.?

Accepted Answer

A)  Net exports will rise. 
B)  Net exports will fall. 
C)  Net exports will remain constant. 
D)  The effect on net exports is indeterminate.

Question 6

A current account surplus exists if the balance on the

Accepted Answer

A)  capital account is zero. 
B)  capital account is positive. 
C)  current account is negative. 
D)  current account is positive.

Question 7

The negative relationship between the price level and

Accepted Answer

A)  net exports is one reason that the aggregate supply curve slopes downward. 
B)  net exports is one reason that the aggregate demand curve slopes downward. 
C)  imports is one reason that the aggregate supply curve slopes downward. 
D)  imports is one reason that the aggregate demand curve slopes downward.

Question 8

Managed floating is typically undertaken by a country to

Accepted Answer

A)  maximize a country's net exports. 
B)  attract foreign investors to invest in the country. 
C)  keep inflation moderate. 
D)  prevent sudden large swings in the value of a nation's currency.

Question 9

All of the following are determinants of net exports except

Accepted Answer

A)  domestic and foreign incomes. 
B)  relative price levels. 
C)  domestic and foreign trade policies. 
D)  producers' expectations about future prices.

Question 10

What are the three broad categories of exchange rate systems?

Accepted Answer

A)  Private market system, government (public) system, fixed exchange rate system 
B)  Fixed exchange rate system, flexible exchange rate system, gold-standard system 
C)  Managed float system, flexible exchange rate system, fixed exchange rate system 
D)  Central bank system, flexible exchange rate system, fixed exchange rate system

Question 11

Which of the following statements is true?

Accepted Answer

A)  A positive balance on capital account is a capital account surplus. 
B)  A negative balance on capital account is a capital account surplus. 
C)  A positive balance on capital account is a capital account deficit. 
D)  A positive balance on capital account means a positive balance on current account.

Question 12

Trade between two nations is mutually beneficial if each specializes in the good in which it has a comparative advantage.

Accepted Answer

A) True 
 B)False

Question 13

Under the simplifying assumption made in the text, a current account deficit exists when

Accepted Answer

A)  net exports are positive. 
B)  financial flows out of a country for goods and services is less than financial flows into the country for its goods and services. 
C)  a country has a trade deficit. 
D)  an economy buys less from foreigners than it sells to them.

Question 14

Comparative advantage in production of a good occurs

Accepted Answer

A)  when a country can produce that good using fewer resources than could other countries. 
B)  when a country can produce that good at a greater opportunity cost than could other countries. 
C)  when a country can produce that good at a lower opportunity cost than could other countries. 
D)  when a country has a greater supply of natural resources required to produce that good, compared to other countries.

Question 15

Suppose Boulinas' exports equal $50 billion, its purchases of foreign assets equal $100
Billion, and foreign purchase of Boulinas' assets equal $200 billion. What is Boulinas'
Balance on its capital account?

Accepted Answer

A)  $100 billion 
B)  -$100 billion 
C)  $150 billion 
D)  -$150 billion

Question 16

Suppose Townsend's exports equal $1,000 billion, its imports equal $950 billion, and
Purchases of foreign assets by its citizens equals $900 billion. What is the value of
Townsends' assets purchased by foreigners?

Accepted Answer

A)  $50 billion 
B)  -$50 billion 
C)  $850 billion 
D)  -$850 billion

Question 17

Employment in the long run does not depend on the trade deficit.

Accepted Answer

A) True 
 B)False

Question 18

Suppose Salvania's exports equal $500 billion and its imports equal $400 billion.
Foreigners purchased $200 billion worth of assets in Salvania. What is Salvania's balance in
Its capital account?

Accepted Answer

A)  $100 billion 
B)  -$100 billion 
C)  $300 billion 
D)  -$300 billion

Question 19

When U.S. residents purchase foreign assets,

Accepted Answer

A)  there is an outflow of funds from abroad and this is recorded as a negative item in the current account. 
B)  there is an outflow of funds from the U.S. and this is recorded as a negative item in the capital account. 
C)  there is an outflow of funds from abroad and this is recorded as a positive item in the current account. 
D)  there is an outflow of funds from abroad and this is recorded as a positive item in the capital account.

Question 20

Suppose Townsend's exports equal $1,000 billion, its imports equal $950 billion, and
Purchases of foreign assets by its citizens equals $900 billion. What is Townsend's balance on its current account?

Accepted Answer