Question 1

-Refer to the above table. Suppose the transactions in the table are added to a balance of payments account that is already in balance. What will have to take place to keep the balance of payments in balance?

Accepted Answer

A)  Nothing will have to be done as the accounts are in balance.
B)  Nothing will have to be done as the accounts are in equilibrium.
C)  The U.S. government will have to make official reserve transactions equal to $10,000.
D)  Foreign governments will have to make official reserve transactions equal to -$10,000.

Question 2

Which of the following is NOT a deficit item on the international accounts balance sheet for a country?

Accepted Answer

A)  imports of merchandise
B)  military spending abroad
C)  purchases of foreign currency
D)  exports of merchandise

Question 3

When a dinner in Bulgaria costs 150 Bulgarian levas, it will cost a U.S. resident ________ dollars, if the exchange rate is 1.5 Bulgarian levas to the dollar.

Accepted Answer

A)  $10
B)  $100
C)  $120
D)  $150

Question 4

-In the above figure, suppose the value of the European euro is P₁ and U.S. demand for French wine declines. The effect on the franc can be shown by

Accepted Answer

A)  an increase in the value of the euro to P₂.
B)  the excess demand of euro equal to Q₃ - Q₁.
C)  the decrease in the value of the euro to P₀.
D)  a shift in the demand for euros from D₁ to D₀, but no change in the value of the euro.

Question 5

One problem associated with the gold standard was that

Accepted Answer

A)  nations gave up control of their money supply.
B)  there was an incentive for individuals to hold gold at all interest rates.
C)  there was no fluctuation in exchange rates.
D)  nations could not determine their current account balances.

Question 6

-Refer to the above figure. Suppose E is the original equilibrium. An increase in the demand for dollars will be reflected in this figure by

Accepted Answer

A)  an increase in the demand for yen as both imports and exports increase.
B)  a decrease in the demand for yen as the U.S. balance of payments improves.
C)  an increase in the supply of yen as Japan tries to buy more U.S. goods.
D)  a decrease in the supply of yen as Japan is able to pay less for U.S. goods.

Question 7

In the balance of payments, if there are no statistical errors or discrepancies, which of the following is TRUE of the sum of the capital account balance, the current account balance, and the official reserve transactions account balance?

Accepted Answer

A)  This sum is either positive or negative, depending on whether the sum of all surplus and deficit items associated with cross-border transactions is positive or negative.
B)  This sum must always be zero, because the sum of all surplus and deficit items associated with cross-border transactions must equal zero.
C)  This sum is positive only if the U.S. government operates with a budget surplus.
D)  This sum is positive only if the U.S. government operates with a budget deficit.

Question 8

Suppose the currency price of the U.S. dollar in terms of the Japanese yen starts to fall. To prevent that from occurring, the U.S. central bank should

Accepted Answer

A)  use U.S. dollars to buy Japanese goods.
B)  use yen reserves to buy U.S. dollars in the foreign exchange market.
C)  sell U.S. dollars in the foreign exchange market in exchange for yen.
D)  buy both U.S. dollars and yen in the foreign exchange market.

Question 9

An important problem with the gold standard was that

Accepted Answer

A)  it was too complicated and restricted business activity.
B)  a country did not have control of its domestic monetary policy.
C)  exchange rates tended to fluctuate a great deal, making it difficult for businesses to make long-run plans.
D)  one country could easily manipulate the system to its advantage and the disadvantage of other countries.

Question 10

Suppose the foreign exchange market is in equilibrium. Then, the U.S. government increases borrowing, causing American interest rates to increase. What will happen to the price of the Japanese yen?
 Why?

Accepted Answer

The higher U.S. interest rates induce fo...

Question 11

Why does the supply curve of Japanese yen slope up?

Accepted Answer

Japanese residents supply yen when they ...

Question 12

Other things being constant, if the U.S. real rate of interest exceeds that of its trading partners, we expect

Accepted Answer

A)  political instability in the United States.
B)  a worsening of the U.S. balance of payments.
C)  an appreciation of U.S. currency.
D)  that a "dirty float" will emerge.

Question 13

The International Monetary Fund was created

Accepted Answer

A)  in 1945 by the Bretton Woods Agreement.
B)  to collect money from member countries that were running balance of payments deficits.
C)  in 1971 when President Richard Nixon signed the Bretton Woods Agreement.
D)  in the aftermath of World War II to help nations move off of the gold standard.

Question 14

The total of all economic transactions between a nation and the rest of the world is referred to as the

Accepted Answer

A)  balance of payments.
B)  balance of trade.
C)  balance of power.
D)  exchange rate.

Question 15

Under the gold standard, when a nation had a deficit in its balance of payments,

Accepted Answer

A)  interest rates would rise which would reduce foreign investment.
B)  interest rates would fall which would increase foreign investment.
C)  gold would flow to foreign residents and the domestic money supply would decrease.
D)  gold would flow into the country leading to an increase in the domestic money supply.

Question 16

In July 2011, $1 was worth 45 Indian rupees and in July 2012, $1 was worth 55 Indian rupees. We can therefore conclude that

Accepted Answer

A)  the Indian rupee depreciated.
B)  the Indian rupee appreciated.
C)  the U.S. dollar has depreciated.
D)  the value of the U.S. dollar has fluctuated.

Question 17

An increase in the U.S. interest rate will most likely

Accepted Answer

A)  reduce the attractiveness of investment in the United States.
B)  lead to a decrease in the value of the U.S. dollar.
C)  lead to an inflow of funds to the United States and an appreciation of the dollar.
D)  provide a stimulus to U.S. export industries.

Question 18

The agency which functions as a "lender of last resort" for national governments is the

Accepted Answer

A)  International Trade Organization.
B)  International Monetary Fund.
C)  World Trade Organization.
D)  World Trade Fund.

Question 19

A U.S. family flies from Boston to Shanghai on a China Airlines plane. This transaction is

Accepted Answer

A)  considered an export of service in the U.S balance of payment accounts.
B)  a deficit item in the balance of payment accounts of China.
C)  Both of the above are correct.
D)  none of the above.

Question 20

-Refer to the above figure. Suppose the equilibrium moves from E' to point E. An event that could have caused this movement is

Accepted Answer

A)  an increase in the real interest rate in the United States.
B)  an increase in U.S. productivity.
C)  an increase in the perceived stability of the U.S. economy.
D)  an increase in demand for Japanese-produced goods by U.S. residents.

Exam 19: Exchange Rates and the Balance of Payments

One problem associated with the gold standard was that

Correct AnswerverifiedShow Answer

In the balance of payments, if there are no statistical errors or discrepancies, which of the following is TRUE of the sum of the capital account balance, the current account balance, and the official reserve transactions account balance?

Correct AnswerverifiedShow Answer

-In the above figure, suppose the value of the European euro is P₁ and U.S. demand for French wine declines. The effect on the franc can be shown by

Correct AnswerverifiedShow Answer

-Refer to the above figure. Suppose E is the original equilibrium. An increase in the demand for dollars will be reflected in this figure by

Correct AnswerverifiedShow Answer

The agency which functions as a "lender of last resort" for national governments is the

Correct AnswerverifiedShow Answer

Suppose the foreign exchange market is in equilibrium. Then, the U.S. government increases borrowing, causing American interest rates to increase. What will happen to the price of the Japanese yen? Why?

Correct AnswerverifiedThe higher U.S. interest rates induce fo...View AnswerShow Answer

Why does the supply curve of Japanese yen slope up?

Correct AnswerverifiedJapanese residents supply yen when they ...View AnswerShow Answer

The total of all economic transactions between a nation and the rest of the world is referred to as the

Correct AnswerverifiedShow Answer

A U.S. family flies from Boston to Shanghai on a China Airlines plane. This transaction is

Correct AnswerverifiedShow Answer

An increase in the U.S. interest rate will most likely

Correct AnswerverifiedShow Answer

Suppose the currency price of the U.S. dollar in terms of the Japanese yen starts to fall. To prevent that from occurring, the U.S. central bank should

Correct AnswerverifiedShow Answer

Under the gold standard, when a nation had a deficit in its balance of payments,

Correct AnswerverifiedShow Answer

An important problem with the gold standard was that

Correct AnswerverifiedShow Answer

Which of the following is NOT a deficit item on the international accounts balance sheet for a country?

Correct AnswerverifiedShow Answer

-Refer to the above table. Suppose the transactions in the table are added to a balance of payments account that is already in balance. What will have to take place to keep the balance of payments in balance?

Correct AnswerverifiedShow Answer

Other things being constant, if the U.S. real rate of interest exceeds that of its trading partners, we expect

Correct AnswerverifiedShow Answer

In July 2011, $1 was worth 45 Indian rupees and in July 2012, $1 was worth 55 Indian rupees. We can therefore conclude that

Correct AnswerverifiedShow Answer

The International Monetary Fund was created

Correct AnswerverifiedShow Answer

-Refer to the above figure. Suppose the equilibrium moves from E' to point E. An event that could have caused this movement is

Correct AnswerverifiedShow Answer

When a dinner in Bulgaria costs 150 Bulgarian levas, it will cost a U.S. resident ________ dollars, if the exchange rate is 1.5 Bulgarian levas to the dollar.

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
The higher U.S. interest rates induce fo...
View Answer

Correct Answer
verified
Japanese residents supply yen when they ...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified