Question 1

A country's balance of payments accounts include all of the following EXCEPT the

Accepted Answer

A)  military account. 
B)  current account. 
C)  capital and financial account. 
D)  official settlements account.

Question 2

According to purchasing power parity, a rise in inflation in the United States. relative to the rest of the world will lead to

Accepted Answer

A)  a balance of payments surplus. 
B)  a balance of payments deficit. 
C)  an exchange rate appreciation. 
D)  an exchange rate depreciation.

Question 3

Over the last 25 years, according to the United States balance of payments

Accepted Answer

A)  the current account and the capital and financial account balances tend to move in the same direction. 
B)  the current account and the capital and financial account balances tend to move in opposite directions. 
C)  there is no clear relationship between the current account balance and the capital and financial account balance. 
D)  the official settlements balance fluctuates greatly from year to year.

Question 4

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

Accepted Answer

A)  the foreign interest rates rises. 
B)  the expected future exchange rate rises. 
C)  the U.S. interest rate rises. 
D)  the current exchange rate falls.

Question 5

If U.S. official reserves increase, is the official settlements account balance positive, negative, or unaffected?

Accepted Answer

The answer of If U.S. official reserves increase, is the...

Question 6

A country that borrows more from the rest of the world than it lends to it in a year is called a ________, and a country that lends more to the rest of the world than it borrows from it in a year is called a ________.

Accepted Answer

A)  borrower; lender 
B)  importer; exporter 
C)  net borrower; net lender 
D)  gross borrower; gross lender

Question 7

With everything else the same, in the foreign exchange market which of the following increases the supply of U.S. dollars?
I.a fall in the U.S. interest rate
II.a fall in interest rates in foreign countries
III.a rise in expected future exchange rate

Accepted Answer

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

Question 8

Over the past decade, the United States has had a current account deficit and capital account deficit.

Accepted Answer

A) True 
 B)False

Question 9

As the expected profit from holding dollars ________, the quantity of ________.

Accepted Answer

A)  increases; dollars demanded increases 
B)  increases; dollars demanded decreases 
C)  decrease; foreign currency demanded decreases 
D)  None of the above answers is correct.

Question 10

If X - M = $0 and the government sector has a deficit of $250 billion, the private sector

Accepted Answer

A)  has a deficit that equals $250 billion. 
B)  has a deficit that equals $500 billion. 
C)  has a surplus that equals $250 billion. 
D)  has a surplus that equals $500 billion.

Question 11

Last year the exchange rate between U.S. dollars and Mexican pesos was 10 pesos per dollar. Today is it 11 pesos per dollar. Here, the dollar ________ against the peso, and the peso ________ against the dollar

Accepted Answer

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

Question 12

If the expected future exchange rate rises, the currency's

Accepted Answer

A)  quantity supplied increases. 
B)  supply decreases. 
C)  supply increases. 
D)  exchange rate falls.

Question 13

The ________ the exchange rate, the ________ are foreign-produced goods and hence the smaller the quantity of dollars supplied.

Accepted Answer

A)  lower; more expensive 
B)  lower; cheaper 
C)  greater; cheaper 
D)  greater; more expensive

Question 14

Other things remaining the same, the U.S. interest rate differential increases if the U.S. interest rate

Accepted Answer

A)  remains constant and foreign interest rates fall. 
B)  falls and foreign interest rates remain constant. 
C)  falls and foreign interest rates rise. 
D)  remains constant and foreign interest rates rise.

Question 15

In the foreign exchange market, the supply curve for dollars slopes upwards because

Accepted Answer

A)  as the exchange rate rises, imports become more expensive, and more dollars are supplied to pay for the imports. 
B)  as the exchange rate rises, imports become cheaper, and more dollars are supplied to pay for the increase in the quantity of imports. 
C)  as the exchange rate rises, more dollars are supplied since the profit from selling dollars falls. 
D)  supply curves always slope upwards.

Question 16

In June 2008, $1 bought 0.5 pounds and in October, $1 bought 0.65 pounds. As a result of this change, ________ between June and October.

Accepted Answer

A)  the demand for dollars increased 
B)  the dollar appreciated and the quantity of dollars demanded decreased 
C)  the dollar depreciated and the quantity of dollars demanded decreased 
D)  the demand for dollars decreased

Question 17

In the foreign exchange market, a change in which of the following will result in a movement along the demand curve for U.S. dollars?

Accepted Answer

A)  the exchange rate 
B)  the U.S. interest rate 
C)  the interest rate in the foreign country 
D)  the expected future exchange rate

Question 18

Purchasing power parity means equal rates of return.

Accepted Answer

A) True 
 B)False

Question 19

Relative to the yen, from 2007-2012 the U.S. dollar

Accepted Answer

A)  appreciated due to an increase in the interest rate differential and expectations of a higher future exchange rate. 
B)  appreciated due to a decrease in the interest rate differential and expectations of a lower future exchange rate. 
C)  depreciated due to an increase in the interest rate differential and expectations of a higher future exchange rate. 
D)  depreciated due to a decrease in the interest rate differential and expectations of a lower future exchange rate.

Question 20

Suppose the Fed wants to fix the U.S. dollar/Mexican peso rate at 11 pesos per dollar under a fixed exchange rate policy. If the exchange rate falls to 10 pesos per dollar, the Fed can

Accepted Answer

A)  buy dollars. 
B)  sell dollars. 
C)  attempt to freeze all sales of dollars. 
D)  any of the above actions could take place.

Exam 9: The Exchange Rate and the Balance of Payments