Question 1

Assume that Japan and the United States are engaged in a system of flexible exchange rates.  Refer to the graph above. If more people in the United States decide to purchase Japanese cars, what effect will this have on the market for yen?

Accepted Answer

A)   The price of yen will increase
B)   The price of yen will decrease
C)   The supply of yen will increase
D)   The supply of yen will decreaseE) A) and B)
F) B) and C)

Question 2

U.S. exports create a:

Accepted Answer

A)   Supply of foreign currencies and a demand for dollars in the foreign exchange markets
B)   Demand for foreign currencies and a supply of dollars in the foreign exchange markets
C)   Supply of foreign currencies and a supply of dollars in the foreign exchange markets
D)   Demand for foreign currencies and a demand for dollars in the foreign exchange marketsE) All of the above
F) A) and D)

Question 3

The expectations of speculators in the United States that the exchange rate for the euro will fall in the future will increase the supply of euros in the foreign exchange market and decrease the exchange rate for the euros.

Accepted Answer

A) True 
 B)False

Question 4

The table below shows the supply and demand schedules for the European euro.  Refer to the table above. If the U.S. government decides to fix or peg the price of the euro at $1.00, it would have to:

Accepted Answer

A)   Buy 100 euros
B)   Buy 360 euros
C)   Sell 160 euros
D)   Sell 360 eurosE) A) and C)
F) C) and D)

Question 5

Proponents of the managed floating exchange rate system argue that it has:

Accepted Answer

A)   Added the volatility needed by the exchange rate market
B)   Been effective because it is a "non-system" without fixed rules
C)   Been sufficiently flexible to weather major economic turbulence
D)   Resolved major problems in balance of payments surpluses and deficitsE) C) and D)
F) A) and C)

Question 6

Remittances of Mexican workers in the U.S. to their families in Mexico are included in the U.S. balance of payments as a debit in the section on:

Accepted Answer

A)   Trade in services
B)   Net international transfers
C)   Financial accounts
D)   Capital accountsE) None of the above
F) A) and D)

Question 7

Other things being equal, an increase in the U.S. rate of inflation is likely to cause an increase in the:

Accepted Answer

A)   Quantity of U.S. exports
B)   Quantity of U.S. imports
C)   Demand for U.S. dollars
D)   International value of the U.S. dollarE) B) and D)
F) C) and D)

Question 8

During the period 2002-2009, U.S. trade deficits:

Accepted Answer

A)   Increased from 2002 to 2006 and increased even faster in the recession of 2007-2009
B)   Initially decreased, but then increased significantly in the recession of 2007-2009
C)   Increased from 2002 to 2006, but then decreased in the recession of 2007-2009
D)   Decreased throughout the entire decadeE) A) and B)
F) A) and C)

Question 9

If there is a recession in the United Kingdom and a reduction in British imports, and an economic boom in the United States and an increase in U.S. imports, then these events are most likely to cause the British pound to:

Accepted Answer

A)   Appreciate and the U.S. dollar to appreciate
B)   Depreciate and the U.S. dollar to depreciate
C)   Appreciate and the U.S. dollar to depreciate
D)   Depreciate and the U.S. dollar to appreciateE) All of the above
F) C) and D)

Question 10

The following table contains data for the U.S. balance of payments in a prior year. Answer the question on the basis of this information. All figures are in billions of dollars. U.S. goods exports +$793
U.S. goods imports -1573
U.S. exports of service +280
U.S. imports of services -222
Net investment income +5
Net transfers -81
Capital account -5
Foreign purchases of assets in the U.S. +1198
U.S. purchases of foreign assets -395
Refer to the table above. There was a:

Accepted Answer

A)   Trade deficit, but a current account surplus
B)   Trade surplus, but a current account deficit
C)   Trade surplus, and a current account surplus
D)   Trade deficit, and a current account deficitE) B) and D)
F) B) and C)

Question 11

When a nation is experiencing a balance-of-payments deficit, its treasury or central bank will engage in a net sale of its official reserves.

Accepted Answer

A) True 
 B)False

Question 12

When the exchange rate between pounds and dollars moves from $2 = 1 pound to $1 = 1 pound, we say that the dollar has:

Accepted Answer

A)   Depreciated
B)   Appreciated
C)   Inflated
D)   DeflatedE) All of the above
F) A) and D)

Question 13

A trade deficit means a net:

Accepted Answer

A)   Inflow of payments for goods and services
B)   Outflow of goods and services
C)   Inflow of goods and services
D)   Excess of exports over importsE) All of the above
F) B) and C)

Question 14

If Japanese autos surge in popularity in the United States, then this event is most likely to cause the Japanese yen to:

Accepted Answer

A)   Appreciate and the U.S. dollar to depreciate
B)   Depreciate and the U.S. dollar to appreciate
C)   Appreciate and the U.S. dollar to appreciate
D)   Depreciate and the U.S. dollar to depreciateE) A) and D)
F) A) and C)

Question 15

Assume an exchange rate of $1 = .60 British pounds. A U.S. product sells in Britain for 18 pounds. By what percentage will dollar revenues change if the dollar price of a pound falls to .50 pounds?

Accepted Answer

A)   -20 percent
B)   -16 percent
C)   +16 percent
D)   +20 percentE) B) and D)
F) None of the above

Question 16

Which one of the following is not a major factor that contributed to large trade deficits in the United States in the period 2002-2007?

Accepted Answer

A)   A declining saving rate coupled with a rising investment rate in the U.S.
B)   A U.S. economy growing faster than its trading partners
C)   Large trade deficits with OPEC economies
D)   Flexible exchange rate between the U.S. dollar and the Chinese yuanE) A) and C)
F) B) and C)

Question 17

1 and S1 represent the initial demand and supply curves. If there is a large increase in the number of American tourists visiting Britain because of a major event like the Olympics or the World Cup, then what should the British government do if it wants to fix the exchange rate at its initial level? A)  Shift D1 to D2 B)  Shift D1 to D3 C)  Shift S1 to S2 D)  Shift S1 to S3" class="answers-bank-image d-inline" rel="preload" > Refer to the graph above, which shows the supply and demand for British pounds. D1 and S1 represent the initial demand and supply curves. If there is a large increase in the number of American tourists visiting Britain because of a major event like the Olympics or the World Cup, then what should the British government do if it wants to fix the exchange rate at its initial level?

Accepted Answer

A)   Shift D1 to D2
B)   Shift D1 to D3
C)   Shift S1 to S2
D)   Shift S1 to S3E) A) and B)
F) B) and D)

Question 18

The current monetary system for conducting international trade is usually described as a system of:

Accepted Answer

A)   Fixed exchange rates
B)   Freely floating exchange rates
C)   A managed gold standard
D)   Managed floating exchange ratesE) None of the above
F) A) and B)

Question 19

The graph below shows the supply and demand curves for dollars in the pound/dollar market. 1 and S1 are the initial demand for and supply of dollars. Now suppose that Great Britain increases its imports of American products. Assuming freely floating exchange rates: A)  The pound price of dollars will fall to 1/5 pound equals $1 B)  The pound price of dollars will rise to 1/4 pound equals $1 C)  The dollar price of pounds will increase to $5 equals 1 pound D)  A dollar shortage of MN will result in Britain" class="answers-bank-image d-inline" rel="preload" > Refer to the graph above. Assume that D1 and S1 are the initial demand for and supply of dollars. Now suppose that Great Britain increases its imports of American products. Assuming freely floating exchange rates:

Accepted Answer

A)   The pound price of dollars will fall to 1/5 pound equals $1
B)   The pound price of dollars will rise to 1/4 pound equals $1
C)   The dollar price of pounds will increase to $5 equals 1 pound
D)   A dollar shortage of MN will result in BritainE) None of the above
F) A) and C)

Question 20

The settling of any net deficit in the combined current, and capital and financial accounts is done with:

Accepted Answer

A)   Capital reserves
B)   Official reserves
C)   Net transfers
D)   Net investment incomeE) All of the above
F) B) and C)

Exam 21: The Balance of Payments, Exchange Rates, and Trade Deficits

Assume an exchange rate of $1 = .60 British pounds. A U.S. product sells in Britain for 18 pounds. By what percentage will dollar revenues change if the dollar price of a pound falls to .50 pounds?

Correct Answer
verified

When the exchange rate between pounds and dollars moves from $2 = 1 pound to $1 = 1 pound, we say that the dollar has:

Correct Answer
verified

Which one of the following is not a major factor that contributed to large trade deficits in the United States in the period 2002-2007?

Correct Answer
verified

When a nation is experiencing a balance-of-payments deficit, its treasury or central bank will engage in a net sale of its official reserves.

Correct Answer
verified

The table below shows the supply and demand schedules for the European euro. Refer to the table above. If the U.S. government decides to fix or peg the price of the euro at $1.00, it would have to:

Correct Answer
verified

A trade deficit means a net:

Correct Answer
verified

Assume that Japan and the United States are engaged in a system of flexible exchange rates. Refer to the graph above. If more people in the United States decide to purchase Japanese cars, what effect will this have on the market for yen?

Correct Answer
verified

Correct Answer
verified

Proponents of the managed floating exchange rate system argue that it has:

Correct Answer
verified

If Japanese autos surge in popularity in the United States, then this event is most likely to cause the Japanese yen to:

Correct Answer
verified

Other things being equal, an increase in the U.S. rate of inflation is likely to cause an increase in the:

Correct Answer
verified

The expectations of speculators in the United States that the exchange rate for the euro will fall in the future will increase the supply of euros in the foreign exchange market and decrease the exchange rate for the euros.

Correct Answer
verified

Correct Answer
verified

U.S. exports create a:

Correct Answer
verified

During the period 2002-2009, U.S. trade deficits:

Correct Answer
verified

Correct Answer
verified

The current monetary system for conducting international trade is usually described as a system of:

Correct Answer
verified

If there is a recession in the United Kingdom and a reduction in British imports, and an economic boom in the United States and an increase in U.S. imports, then these events are most likely to cause the British pound to:

Correct Answer
verified

Remittances of Mexican workers in the U.S. to their families in Mexico are included in the U.S. balance of payments as a debit in the section on:

Correct Answer
verified

The settling of any net deficit in the combined current, and capital and financial accounts is done with:

Correct Answer
verified

Exam 21: The Balance of Payments, Exchange Rates, and Trade Deficits

Assume an exchange rate of $1 = .60 British pounds. A U.S. product sells in Britain for 18 pounds. By what percentage will dollar revenues change if the dollar price of a pound falls to .50 pounds?

Correct AnswerverifiedShow Answer

When the exchange rate between pounds and dollars moves from $2 = 1 pound to $1 = 1 pound, we say that the dollar has:

Correct AnswerverifiedShow Answer

Which one of the following is not a major factor that contributed to large trade deficits in the United States in the period 2002-2007?

Correct AnswerverifiedShow Answer

When a nation is experiencing a balance-of-payments deficit, its treasury or central bank will engage in a net sale of its official reserves.

Correct AnswerverifiedShow Answer

The table below shows the supply and demand schedules for the European euro. Refer to the table above. If the U.S. government decides to fix or peg the price of the euro at $1.00, it would have to:

Correct AnswerverifiedShow Answer

A trade deficit means a net:

Correct AnswerverifiedShow Answer

Assume that Japan and the United States are engaged in a system of flexible exchange rates. Refer to the graph above. If more people in the United States decide to purchase Japanese cars, what effect will this have on the market for yen?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Proponents of the managed floating exchange rate system argue that it has:

Correct AnswerverifiedShow Answer

If Japanese autos surge in popularity in the United States, then this event is most likely to cause the Japanese yen to:

Correct AnswerverifiedShow Answer

Other things being equal, an increase in the U.S. rate of inflation is likely to cause an increase in the:

Correct AnswerverifiedShow Answer

The expectations of speculators in the United States that the exchange rate for the euro will fall in the future will increase the supply of euros in the foreign exchange market and decrease the exchange rate for the euros.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

U.S. exports create a:

Correct AnswerverifiedShow Answer

During the period 2002-2009, U.S. trade deficits:

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

The current monetary system for conducting international trade is usually described as a system of:

Correct AnswerverifiedShow Answer

If there is a recession in the United Kingdom and a reduction in British imports, and an economic boom in the United States and an increase in U.S. imports, then these events are most likely to cause the British pound to:

Correct AnswerverifiedShow Answer

Remittances of Mexican workers in the U.S. to their families in Mexico are included in the U.S. balance of payments as a debit in the section on:

Correct AnswerverifiedShow Answer

The settling of any net deficit in the combined current, and capital and financial accounts is done with:

Correct AnswerverifiedShow Answer

Correct Answer
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