Question 1

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 2

The "rules of the game" served to reinforce and speed up the interest-rate-adjustment mechanism under a system of fixed exchange rates.

Accepted Answer

A) True 
 B)False

Question 3

Under the classical gold standard,a trade surplus nation would realize gold inflows,an increase in its money supply,rising interest rates,and net investment inflows.

Accepted Answer

A) True 
 B)False

Question 4

The monetary approach contends that,under a fixed exchange rate system,an excess demand for money leads to a trade deficit.

Accepted Answer

A) True 
 B)False

Question 5

Under the gold standard,a surplus nation facing a gold inflow and an increase in its money supply would also experience a:

Accepted Answer

A)  Rise in its interest rate and a short-term financial inflow 
B)  Rise in its interest rate and a short-term financial outflow 
C)  Fall in its interest rate and a short-term financial inflow 
D)  Fall in its interest rate and a short-term financial outflow

Question 6

Suppose that rising U.S.income leads to higher sales and profits in the United States.This would likely result in:

Accepted Answer

A)  Increasing portfolio investment into the United States 
B)  Decreasing portfolio investment into the United States 
C)  Increasing direct investment into the United States 
D)  Decreasing direct investment into the United States

Question 7

Figure 13.3.U.S.Capital and Financial Account Under a Fixed Exchange Rate System 
-Refer to Figure 13.3.If the political and economic stability of foreign countries worsens relative to that of the United States,the U.S.capital and financial account schedule would shift downward from CA0 to CA1,resulting in net financial outflows from the United States.

Accepted Answer

A) True 
 B)False

Question 8

Figure 13.1.U.S.Capital and Financial Account 
-Refer to Figure 13.1.U.S.capital and financial account schedule CA0 would shift upwards,or downwards,for all of the following reasons except:

Accepted Answer

A)  U.S.residents being taxed on income earned from foreign investments 
B)  U.S.banks being restricted on loans that can be made abroad 
C)  U.S.political stability changing relative to foreign political stability 
D)  U.S.interest rates changing relative to foreign interest rates

Question 9

According to the Keynesian income-adjustment mechanism,income differentials among nations guarantee current-account equilibrium in a world of fixed exchange rates.

Accepted Answer

A) True 
 B)False

Question 10

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 worsening profit expectations lead to an autonomous decrease in Australian investment of $5 billion.Australian income thus ____ which leads to Australia's trade account moving to a ____.

Accepted Answer

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

Question 11

According to the "rules of the game" of the gold standard era,a country's central bank agreed to react to international gold flows so as to:

Accepted Answer

A)  Officially devalue a currency during eras of payments surpluses 
B)  Officially revalue a currency during eras of payments deficits 
C)  Offset the automatic-adjustment mechanism (e.g.,prices) 
D)  Reinforce the automatic-adjustment mechanism

Question 12

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 13

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 14

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...

Question 15

Under a fixed exchange rate system,adjustment mechanisms work for the automatic return to current-account balance after the initial balance has been disrupted.

Accepted Answer

A) True 
 B)False

Question 16

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 17

For an open economy subject to international trade,equilibrium income occurs where saving plus investment equals imports plus exports.

Accepted Answer

A) True 
 B)False

Question 18

The gold standard's "rules of the game" required central bankers in a surplus country to initiate contractionary monetary policies which lead to higher interest rates and net investment inflows.

Accepted Answer

A) True 
 B)False

Question 19

During the gold standard era,central bankers agreed to react positively to international gold flows so as to reinforce the automatic adjustment mechanism.Which of the following best represents the above statement?

Accepted Answer

A)  Income-adjustment mechanism 
B)  Price-adjustment mechanism 
C)  Rules of the game 
D)  Discretionary fiscal policy

Question 20

The monetary approach to balance-of-payments adjustments suggests that all payments surpluses are the result of:

Accepted Answer

A)  Too high interest rates in the home country 
B)  Too low interest rates in the home country 
C)  Excess money supply over money demand in the home country 
D)  Excess money demand over money supply in the home country

Exam 13: Mechanisms of International Adjustment

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 "rules of the game" served to reinforce and speed up the interest-rate-adjustment mechanism under a system of fixed exchange rates.

Under the classical gold standard,a trade surplus nation would realize gold inflows,an increase in its money supply,rising interest rates,and net investment inflows.

The monetary approach contends that,under a fixed exchange rate system,an excess demand for money leads to a trade deficit.

Under the gold standard,a surplus nation facing a gold inflow and an increase in its money supply would also experience a:

Suppose that rising U.S.income leads to higher sales and profits in the United States.This would likely result in:

Figure 13.1.U.S.Capital and Financial Account -Refer to Figure 13.1.U.S.capital and financial account schedule CA₀ would shift upwards,or downwards,for all of the following reasons except:

According to the Keynesian income-adjustment mechanism,income differentials among nations guarantee current-account equilibrium in a world of fixed exchange rates.

According to the "rules of the game" of the gold standard era,a country's central bank agreed to react to international gold flows so as to:

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.

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.

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

Under a fixed exchange rate system,adjustment mechanisms work for the automatic return to current-account balance after the initial balance has been disrupted.

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:

For an open economy subject to international trade,equilibrium income occurs where saving plus investment equals imports plus exports.

The gold standard's "rules of the game" required central bankers in a surplus country to initiate contractionary monetary policies which lead to higher interest rates and net investment inflows.

During the gold standard era,central bankers agreed to react positively to international gold flows so as to reinforce the automatic adjustment mechanism.Which of the following best represents the above statement?

The monetary approach to balance-of-payments adjustments suggests that all payments surpluses are the result of:

Exam 13: Mechanisms of International Adjustment

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 "rules of the game" served to reinforce and speed up the interest-rate-adjustment mechanism under a system of fixed exchange rates.

Under the classical gold standard,a trade surplus nation would realize gold inflows,an increase in its money supply,rising interest rates,and net investment inflows.

The monetary approach contends that,under a fixed exchange rate system,an excess demand for money leads to a trade deficit.

Under the gold standard,a surplus nation facing a gold inflow and an increase in its money supply would also experience a:

Suppose that rising U.S.income leads to higher sales and profits in the United States.This would likely result in:

Figure 13.1.U.S.Capital and Financial Account -Refer to Figure 13.1.U.S.capital and financial account schedule CA0 would shift upwards,or downwards,for all of the following reasons except:

According to the Keynesian income-adjustment mechanism,income differentials among nations guarantee current-account equilibrium in a world of fixed exchange rates.

According to the "rules of the game" of the gold standard era,a country's central bank agreed to react to international gold flows so as to:

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.

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.

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

Under a fixed exchange rate system,adjustment mechanisms work for the automatic return to current-account balance after the initial balance has been disrupted.

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:

For an open economy subject to international trade,equilibrium income occurs where saving plus investment equals imports plus exports.

The gold standard's "rules of the game" required central bankers in a surplus country to initiate contractionary monetary policies which lead to higher interest rates and net investment inflows.

During the gold standard era,central bankers agreed to react positively to international gold flows so as to reinforce the automatic adjustment mechanism.Which of the following best represents the above statement?

The monetary approach to balance-of-payments adjustments suggests that all payments surpluses are the result of:

Figure 13.1.U.S.Capital and Financial Account -Refer to Figure 13.1.U.S.capital and financial account schedule CA₀ would shift upwards,or downwards,for all of the following reasons except:

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: