Question 1

If the U.S. government increased its holdings of British pounds, definitely

Accepted Answer

A)  the capital and financial account would increase. 
B)  the capital and financial account would decrease. 
C)  there would be an increase in U.S. official reserves. 
D)  there would be a decrease in U.S. official reserves.

Question 2

In the foreign exchange market, how does a change in the expected future U.S. exchange rate affect the demand for dollars?

Accepted Answer

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

Question 3

-Suppose the United States initially has a trade deficit. Then U.S. firms increase their imports from Canada, financing that increase by borrowing from Canada. The current account deficit is now ________ and the capital and financial account surplus is now ________.

Accepted Answer

A)  larger; larger 
B)  larger; smaller 
C)  smaller; larger 
D)  smaller; smaller

Question 4

The U.S. dollar will depreciate in value if

Accepted Answer

A)  the demand for the dollar increases. 
B)  the demand for the dollar decreases. 
C)  the supply of foreign exchange decreases. 
D)  U.S. citizens choose to buy fewer foreign goods.

Question 5

Since the mid-1980s, the United States has been a net ________ and a ________ nation.

Accepted Answer

A)  borrower; creditor 
B)  lender; creditor 
C)  borrower; debtor 
D)  lender; debtor

Question 6

-Using the table above, if the current market value of the dollar is 90 francs

Accepted Answer

A)  investor A expects dollar appreciation, but B and C expect depreciation. 
B)  investor C expects dollar depreciation, but A and B expect appreciation. 
C)  all three investors expect the dollar to appreciate. 
D)  all three investors expect the dollar to depreciate.

Question 7

The Fed ________ intervene in the foreign exchange market by supplying dollars and the Fed ________ intervene in the foreign exchange market by demanding dollars.

Accepted Answer

A)  can; can 
B)  cannot; can 
C)  can; cannot 
D)  cannot; cannot

Question 8

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

Question 9

Suppose $1 will buy 150 yen in January and 200 yen the following December. This change could have occurred if the

Accepted Answer

A)  demand curve for dollars shifted rightward. 
B)  demand curve for dollars shifted leftward. 
C)  supply curve of dollars shifted rightward. 
D)  demand curve for yen shifted rightward.

Question 10

If 100 Japanese yen buy more U.S. dollars today than yesterday, the dollar has ________ and the yen has ________.

Accepted Answer

A)  depreciated; appreciated 
B)  appreciated; depreciated 
C)  depreciated; depreciated 
D)  appreciated; appreciated

Question 11

In June 2008, the dollar bought 1.6 Brazilian reals and in October, the dollar bought 2.4 reals. This resulted in a

Accepted Answer

A)  a movement upward along the supply curve for dollars. 
B)  a movement downward along the supply curve for dollars. 
C)  rightward shift in the supply curve for dollars. 
D)  leftward shift in the supply curve for dollars.

Question 12

Which of the following is recorded in the U.S. balance of payments account?
I.foreign investment in the United States
II.U.S. investment abroad
III.the U.S. government deficit or surplus

Accepted Answer

A)  III only 
B)  I and II 
C)  I and III 
D)  I, II and III

Question 13

-Using the data in the above table, if exports = $1,150 billion and the private sector runs a surplus of $300 billion, the government sector will run

Accepted Answer

A)  a surplus of $150 billion. 
B)  a surplus of $450 billion. 
C)  a deficit of $150 billion. 
D)  a deficit of $450 billion.

Question 14

A small country is an international borrower and its domestic supply of loanable funds increases. Consequently, the equilibrium quantity of loanable funds used in the country ________ and the country's international borrowing ________.

Accepted Answer

A)  does not change; decreases 
B)  does not change; does not change 
C)  does not change; increases 
D)  increases; does not change

Question 15

Today the U.S. dollar is worth 1.5 Canadian dollars. Because of changes in economic conditions, people come to believe that by the end of the month the U.S. dollar will be worth 1.2 Canadian dollars. This belief

Accepted Answer

A)  increases the demand for U.S. dollars today. 
B)  decreases the demand for U.S. dollars today. 
C)  decreases the demand for Canadian dollars today. 
D)  decreases the value of exports to Canada.

Question 16

The real exchange rate is the

Accepted Answer

A)  relative price of U.S. produced output relative to foreign-produced output. 
B)  price of foreign goods relative to the price of domestic goods. 
C)  trade-weighted index. 
D)  current account balance.

Question 17

A debtor nation means a nation

Accepted Answer

A)  whose imports exceeds its exports. 
B)  whose current account is less than its capital account. 
C)  who-through its history-has invested less in the rest of the world than other countries have invested in it. 
D)  whose current lending to the rest of the world exceeds its borrowing from the rest of the world.

Question 18

Looking at the U.S. balance of payments for the last two decades, how have the current account and the capital account changed?

Accepted Answer

The answer of Looking at the U.S. balance of payments...

Question 19

In late 2010 the National Bank of Australia offered a 4 percent interest rate on a savings account while Bank of America offered 2 percent. This difference means that

Accepted Answer

A)  people expect the U.S. dollar to appreciate to 8 percent against the Australian dollar and interest rate parity to occur. 
B)  there will be a surplus of U.S. dollars in the foreign exchange market. 
C)  people expect the U.S. dollar to appreciate by 2 percent against the Australian dollar and interest rate parity to occur. 
D)  there will be a shortage of Australian dollars in the foreign exchange markets.

Question 20

The demand for Mexican tomatoes by an American food grocery chain creates a

Accepted Answer

A)  demand for the U.S. dollar. 
B)  demand for an interest rate differential. 
C)  supply of Mexican pesos. 
D)  supply of U.S. dollars.

Exam 9: The Exchange Rate and the Balance of Payments