Question 1

The current account records all transactions below EXCEPT for

Accepted Answer

A)  net interest income. 
B)  net exports of goods and services. 
C)  net foreign investment. 
D)  net transfers.

Question 2

-The table above gives some of the accounts of the United States in 2020.
a) What is the private sector balance?
b) What is the government sector balance?
c) What is net exports?

Accepted Answer

The answer of 
-The table above gives some of the...

Question 3

What is the difference between a net borrower nation, a net lender nation, a debtor nation and a creditor nation?

Accepted Answer

The answer of What is the difference between a net...

Question 4

Suppose the exchange rate between the dollar and the euro is 2 euros per dollar. The price of clocks in Europe is 20 euros while the price of the same clock in the United States is $5. It can be concluded that

Accepted Answer

A)  purchasing power parity exists. 
B)  money buys more in Europe. 
C)  interest rate parity exists. 
D)  money buys more in the United States.

Question 5

-In the figure above, an increase in the U.S. interest rate relative to that in Canada shifts the demand curve for U.S. dollars _ and shifts the supply curve of U.S. dollars _ .

Accepted Answer

A)  leftward; rightward 
B)  rightward; leftward 
C)  rightward; rightward 
D)  leftward; leftward

Question 6

The demand curve for U.S. dollars slopes downward because as the dollar _ U.S. goods become expensive to foreign residents, so they purchase fewer U.S. goods, and the quantity of dollars demanded decreases.

Accepted Answer

A)  appreciates; less 
B)  depreciates; more 
C)  appreciates; more 
D)  depreciates; less

Question 7

-In the table above, what does the private sector surplus equal?

Accepted Answer

A)  $0 
B)  $350 billion 
C)  $500 billion 
D)  $150 billion

Question 8

People come to expect the exchange rate for the dollar to rise from 90 yen per dollar to 111 yen per dollar in a month. As a result,

Accepted Answer

A)  the supply curve of dollars shifts leftward. 
B)  the supply curve of dollars shifts rightward. 
C)  there is a downward movement along the supply curve of dollars. 
D)  the demand curve for dollars shifts leftward.

Question 9

Suppose that the U.S. government gives foreign aid to Turkey. This transaction would directly

Accepted Answer

A)  decrease the U.S. capital account. 
B)  increase the U.S. current account. 
C)  increase the U.S. capital account. 
D)  decrease the U.S. current account.

Question 10

In the foreign exchange market, how does a fall in the U.S. interest rate affect the supply of dollars?

Accepted Answer

The answer of In the foreign exchange market, how does...

Question 11

-In the figure above, the shift in the supply curve for U.S. dollars from S0 to S1 could occur when

Accepted Answer

A)  the U.S. interest rate differential decreases. 
B)  the U.S. interest rate differential increases. 
C)  the expected future exchange rate falls. 
D)  the current exchange rate falls.

Question 12

In 2008, the U.S. capital account had a

Accepted Answer

A)  surplus of $115 billion. 
B)  deficit of $721 billion. 
C)  deficit of $115 billion. 
D)  surplus of $721 billion.

Question 13

Which of the following examples definitely illustrates a depreciation of the U.S. dollar?

Accepted Answer

A)  The dollar exchanges for 200 yen and then exchanges for 250 yen. 
B)  The dollar exchanges for 250 yen and then exchanges for 200 euros. 
C)  The dollar exchanges for 2,000 pesos and then exchanges for 3,400 pesos. 
D)  The dollar exchanges for 120 yen and then exchanges for 100 yen.

Question 14

As the value of U.S. exports _ , the quantity of _ _ demanded increases.

Accepted Answer

A)  decreases; dollars 
B)  increases; foreign currencies 
C)  increases; dollars 
D)  None of the above is correct because the value of U.S. exports has nothing to do with the quantity of dollars or foreign currency demanded.

Question 15

-The above table shows some of the balance of payments accounts for Urland. What is Urland's balance in the official settlements account?

Accepted Answer

A)  $37 billion 
B)  $62 billion 
C)  $99 billion 
D)  $405 billion

Question 16

Suppose the current exchange rate between the Chinese yuan and the United States dollar is 25 yuan per dollar. If the Fed sought to drive up the exchange rate to 30 yuan per dollar then it would

Accepted Answer

A)  sell dollars. 
B)  buy yuan. 
C)  buy dollars. 
D)  sell dollars and buy yuan.

Question 17

-In the above table, the government sector surplus or deficit is a and net exports is a
)

Accepted Answer

A)  deficit of $100 billion; deficit of $200 billion 
B)  surplus of $100 billion; deficit of $200 billion 
C)  deficit of $100 billion; surplus of $200 billion 
D)  surplus of $100 billion; surplus of $200 billion

Question 18

Americans demand Japanese yen in order to

Accepted Answer

A)  supply American goods in Japanese markets. 
B)  balance the current account. 
C)  allow the Japanese to buy U.S. products. 
D)  buy Japanese products.

Question 19

On the island country of Sunshine where the unit of currency is fish, net exports are 50 fish, saving is 250 fish, net taxes are 100 fish, and the government budget deficit is 175 fish. The private sector has a .

Accepted Answer

A)  surplus of 225 fish 
B)  deficit of 225 fish 
C)  deficit of 125 fish 
D)  surplus of 125 fish

Question 20

Suppose your firm wants to import sugarcane from Brazil. The exchange rate is 3 Brazilian reals per U.S. dollar and sugarcane costs 36 reals per ton. How much is a ton of sugarcane in U.S. dollars?

Accepted Answer

A)  $108 
B)  $109 
C)  $39 
D)  $12

Exam 9: The Exchange Rate and the Balance of Payments