Question 1

The accompanying diagram represents a flexible exchange market for foreign currency. At the equilibrium exchange rate,

Accepted Answer

A)  $8 will buy 1 euro.
B)  0.8 euros will buy $1.
C)  1.25 euros will buy $1.
D)  $1 will buy 8 euros.

Question 2

The table contains hypothetical data for the U.S. balance of payments. All figures are in billions of dollars. The U.S. balance on current account is a

Accepted Answer

A)  $40 billion surplus.
B)  $25 billion deficit.
C)  $25 billion surplus.
D)  $30 billion deficit.

Question 3

Which of the following was not something that several European nations did or experienced when they became members of the eurozone?

Accepted Answer

A)  They eliminated their own local currencies and adopted a single common currency.
B)  They in essence fixed their exchange rates with one another, at a 1-to-1 peg.
C)  Cross-border trade among members suffered a huge decline.
D)  They gave up control of their own individual monetary policy.

Question 4

If a Japanese importer could buy $1,000 U.S. for 122,000 yen, the rate of exchange for one dollar would be

Accepted Answer

A)  8.19 yen.
B)  122 yen.
C)  820 yen.
D)  1,220 yen.

Question 5

Which of the following is a disadvantage of belonging to a common currency?

Accepted Answer

A)  exchange-rate risk
B)  difficulty in comparing costs between trading partners
C)  deadweight loss from currency conversions
D)  the loss of monetary policy independence

Question 6

If the United States decided to fix its exchange rate with Japan, this would

Accepted Answer

A)  require the U.S. to fix its exchange rate with all other currencies.
B)  ensure that the U.S. dollar would always appreciate against the yen.
C)  prevent the U.S. from having a trade deficit with Japan.
D)  cause the U.S. government to become the dollar-yen foreign exchange market.

Question 7

Which statement is true of a world with a system of fixed exchange rates as opposed to one with floating rates?

Accepted Answer

A)  It requires less world liquidity or reserves.
B)  It creates less confidence about future values of currencies.
C)  It facilitates the transmission of shifts in economic conditions between countries.
D)  It increases the role of the central banks in foreign exchange markets.

Question 8

The table indicates the dollar price of libras, the currency used in the hypothetical nation of Libra. Assume that a system of flexible exchange rates is in place. The exchange rate is

Accepted Answer

A)  4 libras for one dollar.
B)  0.25 libra for one dollar.
C)  0.40 libra for one dollar.
D)  3 libras for one dollar.

Question 9

A nation's balance of trade on goods is equal to its exports of goods less its imports of

Accepted Answer

A)  goods.
B)  capital.
C)  financial assets.
D)  official reserves.

Question 10

Suppose that Econland adopts a fixed exchange-rate system and pegs the value of its peso to the U.S. dollar. If people's demand for pesos increases in the foreign exchange markets, then Econland's foreign-exchange reserves will

Accepted Answer

A)  increase.
B)  decrease.
C)  stay the same.
D)  equal the trade balance.

Question 11

When real interest rates in other countries rise relative to that in the U.S., other things being equal, we would expect the U.S. dollar to

Accepted Answer

A)  appreciate.
B)  depreciate.
C)  inflate.
D)  deflate.

Question 12

In 2018, the United States' balance on goods was

Accepted Answer

A)  −$891 billion.
B)  +$891 billion.
C)  −$486 billion.
D)  +$1,672 billion.

Question 13

Suppose that a U.S. firm converts dollars into pounds in order to invest in a British enterprise in the U.K. A year later, the return on the investment is 12 percent in terms of pounds. If, during that period, the dollar appreciated against the pound, then the return on the investment in dollar terms would be

Accepted Answer

A)  greater than 12 percent.
B)  less than 12 percent.
C)  also 12 percent.
D)  dependent on the inflation rate, not the exchange rate.

Question 14

When a government buys or sells foreign exchange in the foreign exchange market in order to alter the supply or demand for currency and push the exchange rate in a desired direction, this is known as

Accepted Answer

A)  monetary policy.
B)  an inflationary peg.
C)  sterilization.
D)  a currency intervention.

Question 15

Which one of the following will not directly affect the U.S. balance on the current account?

Accepted Answer

A)  an increase in U.S. goods imports
B)  a decrease in U.S. net investment income
C)  an increase in U.S. purchases of assets abroad
D)  an increase in U.S. imports of services

Question 16

If the United States wants to regain ownership of domestic assets sold to foreigners, it will have to

Accepted Answer

A)  increase domestic consumption.
B)  increase its national debt.
C)  export more than it imports.
D)  import more than it exports.

Question 17

Present consumption supported by large trade deficits may come at the expense of

Accepted Answer

A)  permanent debt to foreign interests.
B)  permanent foreign ownership of formerly U.S.-owned assets.
C)  large sacrifices of future consumption.
D)  all of these.

Question 18

What are the major components of the capital and financial account?

Accepted Answer

The capital and financial account consis...

Question 19

Which of the following shows the net difference between how much Americans forgave in debts owed to them by foreigners compared with how much foreigners forgave debts owed to them by Americans?

Accepted Answer

A)  current account
B)  capital account
C)  financial account
D)  net transfers

Question 20

Consider the currency market for British pounds and U.S. dollars. An increase in the demand for British pounds results in

Accepted Answer

A)  an appreciation of the pound and a depreciation of the dollar.
B)  a depreciation of the pound and a depreciation of the dollar.
C)  an appreciation of the pound and an appreciation of the dollar.
D)  a depreciation of the pound and an appreciation of the dollar.

Exam 27: The Balance of Payments, Exchange Rates, and Trade Deficits

Correct Answer
verified

Present consumption supported by large trade deficits may come at the expense of

Correct Answer
verified

If the United States wants to regain ownership of domestic assets sold to foreigners, it will have to

Correct Answer
verified

Which of the following was not something that several European nations did or experienced when they became members of the eurozone?

Correct Answer
verified

If the United States decided to fix its exchange rate with Japan, this would

Correct Answer
verified

The table contains hypothetical data for the U.S. balance of payments. All figures are in billions of dollars. The U.S. balance on current account is a

Correct Answer
verified

Which statement is true of a world with a system of fixed exchange rates as opposed to one with floating rates?

Correct Answer
verified

Suppose that Econland adopts a fixed exchange-rate system and pegs the value of its peso to the U.S. dollar. If people's demand for pesos increases in the foreign exchange markets, then Econland's foreign-exchange reserves will

Correct Answer
verified

If a Japanese importer could buy $1,000 U.S. for 122,000 yen, the rate of exchange for one dollar would be

Correct Answer
verified

Which of the following shows the net difference between how much Americans forgave in debts owed to them by foreigners compared with how much foreigners forgave debts owed to them by Americans?

Correct Answer
verified

What are the major components of the capital and financial account?

Correct Answer
verified
The capital and financial account consis...
View Answer

Consider the currency market for British pounds and U.S. dollars. An increase in the demand for British pounds results in

Correct Answer
verified

In 2018, the United States' balance on goods was

Correct Answer
verified

A nation's balance of trade on goods is equal to its exports of goods less its imports of

Correct Answer
verified

Which of the following is a disadvantage of belonging to a common currency?

Correct Answer
verified

The table indicates the dollar price of libras, the currency used in the hypothetical nation of Libra. Assume that a system of flexible exchange rates is in place. The exchange rate is

Correct Answer
verified

Which one of the following will not directly affect the U.S. balance on the current account?

Correct Answer
verified

When a government buys or sells foreign exchange in the foreign exchange market in order to alter the supply or demand for currency and push the exchange rate in a desired direction, this is known as

Correct Answer
verified

When real interest rates in other countries rise relative to that in the U.S., other things being equal, we would expect the U.S. dollar to

Correct Answer
verified

The accompanying diagram represents a flexible exchange market for foreign currency. At the equilibrium exchange rate,

Correct Answer
verified

Exam 27: The Balance of Payments, Exchange Rates, and Trade Deficits

Correct AnswerverifiedShow Answer

Present consumption supported by large trade deficits may come at the expense of

Correct AnswerverifiedShow Answer

If the United States wants to regain ownership of domestic assets sold to foreigners, it will have to

Correct AnswerverifiedShow Answer

Which of the following was not something that several European nations did or experienced when they became members of the eurozone?

Correct AnswerverifiedShow Answer

If the United States decided to fix its exchange rate with Japan, this would

Correct AnswerverifiedShow Answer

The table contains hypothetical data for the U.S. balance of payments. All figures are in billions of dollars. The U.S. balance on current account is a

Correct AnswerverifiedShow Answer

Which statement is true of a world with a system of fixed exchange rates as opposed to one with floating rates?

Correct AnswerverifiedShow Answer

Suppose that Econland adopts a fixed exchange-rate system and pegs the value of its peso to the U.S. dollar. If people's demand for pesos increases in the foreign exchange markets, then Econland's foreign-exchange reserves will

Correct AnswerverifiedShow Answer

If a Japanese importer could buy $1,000 U.S. for 122,000 yen, the rate of exchange for one dollar would be

Correct AnswerverifiedShow Answer

Which of the following shows the net difference between how much Americans forgave in debts owed to them by foreigners compared with how much foreigners forgave debts owed to them by Americans?

Correct AnswerverifiedShow Answer

What are the major components of the capital and financial account?

Correct AnswerverifiedThe capital and financial account consis...View AnswerShow Answer

Consider the currency market for British pounds and U.S. dollars. An increase in the demand for British pounds results in

Correct AnswerverifiedShow Answer

In 2018, the United States' balance on goods was

Correct AnswerverifiedShow Answer

A nation's balance of trade on goods is equal to its exports of goods less its imports of

Correct AnswerverifiedShow Answer

Which of the following is a disadvantage of belonging to a common currency?

Correct AnswerverifiedShow Answer

The table indicates the dollar price of libras, the currency used in the hypothetical nation of Libra. Assume that a system of flexible exchange rates is in place. The exchange rate is

Correct AnswerverifiedShow Answer

Which one of the following will not directly affect the U.S. balance on the current account?

Correct AnswerverifiedShow Answer

When a government buys or sells foreign exchange in the foreign exchange market in order to alter the supply or demand for currency and push the exchange rate in a desired direction, this is known as

Correct AnswerverifiedShow Answer

When real interest rates in other countries rise relative to that in the U.S., other things being equal, we would expect the U.S. dollar to

Correct AnswerverifiedShow Answer

The accompanying diagram represents a flexible exchange market for foreign currency. At the equilibrium exchange rate,

Correct AnswerverifiedShow Answer

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The capital and financial account consis...
View Answer

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