Question 1

The balance-of-payments adjustment mechanism developed during the 1700s by the English economist David Hume is the:

Accepted Answer

A)  Income-adjustment mechanism 
B)  Flexible-exchange-rate-adjustment mechanism 
C)  Price-adjustment mechanism 
D)  Rank-reserve-adjustment mechanism

Question 2

Under the gold standard, a nation with a current-account surplus would realize gold outflows, a decrease in its money supply, and a fall in its domestic price level.

Accepted Answer

A) True 
 B)False

Question 3

Figure 13.1. U.S. Capital and Financial Account
 
-Refer to Figure 13.1. The U.S. capital and financial account schedule would shift upward from CA0 to CA1 if:

Accepted Answer

A)  U.S. residents receive subsidies to invest in foreign nations 
B)  U.S. interest rates rise relative to foreign interest rates 
C)  Taxes are reduced on income earned by U.S. residents from their foreign investments 
D)  Expected profits decline on U.S. investments in foreign manufacturing

Question 4

Compared to classical economists, how did Keynesian economics change the discussion of trade adjustment?

Accepted Answer

The answer of Compared to classical economists, how did Keynesian...

Question 5

Table 13.1. Canada's Saving, Investment, Import, and Export Functions (in billions of dollars) Under a System of Fixed Exchange Rates
 $\begin{array} { l l } 
\text { Eraport Function } & X = 3000 \
\text { Investuent Function } & I = 1000 \
\text { Saving Function } & S= - 1000 + 0.2 \mathrm { Y } \
\text { Import Function } & M = 500 + 0.25 \mathrm { Y }
\end{array}$
-Refer to Table 13.1. If weak economic conditions abroad result in Canada's exports falling from $3000 billion to $2500 billion, Canada's equilibrium income falls by approximately:

Accepted Answer

A)  $888 billion 
B)  $990 billion 
C)  $1110 billion 
D)  $1220 billion

Question 6

Prices, interest rates, and income are the automatic adjustment variables that help restore current-account equilibrium under a system of fixed exchange rates.

Accepted Answer

A) True 
 B)False

Question 7

The price-adjustment mechanism's relevance to the real world has been questioned on the grounds that national output is generally not at the full-employment level and that the velocity of money is not always constant.

Accepted Answer

A) True 
 B)False

Question 8

Exhibit 13.1
Assume the marginal propensity to consume for U.S. households equals 0.9, and the marginal propensity to import for the United States equals 0.1. Suppose there occurs an increase in investment of $10 billion at each level of income.
-Refer to Exhibit 13.1. The change in the level of U.S. income resulting from the additional investment spending equals

Accepted Answer

A)  $20 billion 
B)  $30 billion 
C)  $40 billion 
D)  $50 billion

Question 9

Starting from a position where the nation's money demand equals the money supply and its balance of payments is in equilibrium, economic theory suggests that the nation's balance of payments would move into a surplus position if there occurred in the nation:

Accepted Answer

A)  A decrease in the money supply 
B)  An increase in the money supply 
C)  A decrease in the money demand 
D)  None of the above

Question 10

The value of the foreign trade multiplier equals the reciprocal of the sum of the marginal propensities to:

Accepted Answer

A)  Save plus import 
B)  Import plus invest. 
C)  Consume plus export, 
D)  Save plus import,.

Question 11

Starting from a position where the nation's money demand equals the money supply, and its balance of payments is in equilibrium, economic theory suggests that the nation's balance of payments would move into a deficit position if there occurred in the nation a:

Accepted Answer

A)  Decrease in the money supply 
B)  Increase in the money demand 
C)  Decrease in the money demand 
D)  None of the above

Question 12

Exhibit 13.1
Assume the marginal propensity to consume for U.S. households equals 0.9, and the marginal propensity to import for the United States equals 0.1. Suppose there occurs an increase in investment of $10 billion at each level of income.
-Refer to Exhibit 13.1. The change in the level of U.S. imports resulting from the rise in U.S. income equals:

Accepted Answer

A)  $5 billion 
B)  $10 billion 
C)  $15 billion 
D)  $20 billion

Question 13

The classical gold standard

Accepted Answer

A)  Existed from early 1800's to early 1900's 
B)  Did not allow for imports and exports of gold 
C)  Led to the outflow of gold from surplus nations 
D)  Led to the inflow of gold to deficit nations

Question 14

Assume identical interest rates on comparable securities in the United States and foreign countries. Suppose investors anticipate that in the future the U.S. dollar will depreciate against foreign currencies. Investment funds would tend to:

Accepted Answer

A)  Flow from the United States to foreign countries 
B)  Flow from foreign countries to the United States 
C)  Remain totally in foreign countries 
D)  Remain totally in the United States

Question 15

Which of the following does not represent an automatic adjustment in balance-of-payments disequilibrium? Variations in:

Accepted Answer

A)  Domestic income 
B)  Foreign prices 
C)  Domestic prices 
D)  Foreign par values

Question 16

Under the price-adjustment mechanism, a government's efforts to maintain a current-account surplus is self defeating over the long run because a nation's current account automatically moves toward equilibrium.

Accepted Answer

A) True 
 B)False

Question 17

Figure 13.2. Australian Economy Under a Fixed Exchange Rate System
 
-Refer to Figure 13.2. Starting at equilibrium income $50 billion, where (S-I)0 intersects (X-M)0, suppose that changing preferences lead to an autonomous increase in Australian imports of $5 billion. Australian income thus ____ which leads to Australia's trade account moving to a ____.

Accepted Answer

A)  Rises to $60 billion, surplus of $2.5 billion 
B)  Rises to $60 billion, surplus of $5 billion 
C)  Falls to $40 billion, deficit of $2.5 billion 
D)  Falls to $40 billion, deficit of $5 billion

Question 18

Starting from a position where the nation's money demand equals the money supply and its balance of payments is in equilibrium, economic theory suggests that the nation's balance of payments would move into a surplus position if there occurred in the nation:

Accepted Answer

A)  An increase in the money demand 
B)  A decrease in the money demand 
C)  An increase in the money supply 
D)  None of the above

Question 19

Figure 13.1. U.S. Capital and Financial Account
 
-Refer to Figure 13.1. Downward movements along U.S. capital and financial account schedule CA0 would be caused by:

Accepted Answer

A)  U.S. interest rates rising relative to foreign interest rates 
B)  U.S. interest rates falling relative to foreign interest rates 
C)  Taxes placed on income earned by U.S. residents from their foreign investments 
D)  Taxes placed on income earned by foreign residents from their U.S. investments

Question 20

Explain David Hume's theory of automatic adjustment for balance of payments disequilibria.

Accepted Answer

The answer of Explain David Hume's theory of automatic adjustment...

Exam 13: Mechanisms of International Adjustment

The balance-of-payments adjustment mechanism developed during the 1700s by the English economist David Hume is the:

Under the gold standard, a nation with a current-account surplus would realize gold outflows, a decrease in its money supply, and a fall in its domestic price level.

Figure 13.1. U.S. Capital and Financial Account -Refer to Figure 13.1. The U.S. capital and financial account schedule would shift upward from CA₀ to CA₁ if:

Compared to classical economists, how did Keynesian economics change the discussion of trade adjustment?

Prices, interest rates, and income are the automatic adjustment variables that help restore current-account equilibrium under a system of fixed exchange rates.

The price-adjustment mechanism's relevance to the real world has been questioned on the grounds that national output is generally not at the full-employment level and that the velocity of money is not always constant.

Starting from a position where the nation's money demand equals the money supply and its balance of payments is in equilibrium, economic theory suggests that the nation's balance of payments would move into a surplus position if there occurred in the nation:

The value of the foreign trade multiplier equals the reciprocal of the sum of the marginal propensities to:

Starting from a position where the nation's money demand equals the money supply, and its balance of payments is in equilibrium, economic theory suggests that the nation's balance of payments would move into a deficit position if there occurred in the nation a:

The classical gold standard

Assume identical interest rates on comparable securities in the United States and foreign countries. Suppose investors anticipate that in the future the U.S. dollar will depreciate against foreign currencies. Investment funds would tend to:

Which of the following does not represent an automatic adjustment in balance-of-payments disequilibrium? Variations in:

Under the price-adjustment mechanism, a government's efforts to maintain a current-account surplus is self defeating over the long run because a nation's current account automatically moves toward equilibrium.

Starting from a position where the nation's money demand equals the money supply and its balance of payments is in equilibrium, economic theory suggests that the nation's balance of payments would move into a surplus position if there occurred in the nation:

Figure 13.1. U.S. Capital and Financial Account -Refer to Figure 13.1. Downward movements along U.S. capital and financial account schedule CA₀ would be caused by:

Explain David Hume's theory of automatic adjustment for balance of payments disequilibria.

Exam 13: Mechanisms of International Adjustment

The balance-of-payments adjustment mechanism developed during the 1700s by the English economist David Hume is the:

Under the gold standard, a nation with a current-account surplus would realize gold outflows, a decrease in its money supply, and a fall in its domestic price level.

Figure 13.1. U.S. Capital and Financial Account -Refer to Figure 13.1. The U.S. capital and financial account schedule would shift upward from CA0 to CA1 if:

Compared to classical economists, how did Keynesian economics change the discussion of trade adjustment?

Prices, interest rates, and income are the automatic adjustment variables that help restore current-account equilibrium under a system of fixed exchange rates.

The price-adjustment mechanism's relevance to the real world has been questioned on the grounds that national output is generally not at the full-employment level and that the velocity of money is not always constant.

Starting from a position where the nation's money demand equals the money supply and its balance of payments is in equilibrium, economic theory suggests that the nation's balance of payments would move into a surplus position if there occurred in the nation:

The value of the foreign trade multiplier equals the reciprocal of the sum of the marginal propensities to:

Starting from a position where the nation's money demand equals the money supply, and its balance of payments is in equilibrium, economic theory suggests that the nation's balance of payments would move into a deficit position if there occurred in the nation a:

The classical gold standard

Assume identical interest rates on comparable securities in the United States and foreign countries. Suppose investors anticipate that in the future the U.S. dollar will depreciate against foreign currencies. Investment funds would tend to:

Which of the following does not represent an automatic adjustment in balance-of-payments disequilibrium? Variations in:

Under the price-adjustment mechanism, a government's efforts to maintain a current-account surplus is self defeating over the long run because a nation's current account automatically moves toward equilibrium.

Starting from a position where the nation's money demand equals the money supply and its balance of payments is in equilibrium, economic theory suggests that the nation's balance of payments would move into a surplus position if there occurred in the nation:

Figure 13.1. U.S. Capital and Financial Account -Refer to Figure 13.1. Downward movements along U.S. capital and financial account schedule CA0 would be caused by:

Explain David Hume's theory of automatic adjustment for balance of payments disequilibria.

Figure 13.1. U.S. Capital and Financial Account -Refer to Figure 13.1. The U.S. capital and financial account schedule would shift upward from CA₀ to CA₁ if:

Figure 13.1. U.S. Capital and Financial Account -Refer to Figure 13.1. Downward movements along U.S. capital and financial account schedule CA₀ would be caused by: