Question 1

U.S. businesses are demanders of foreign currencies because they need them to

Accepted Answer

A)   sell goods and services exported to foreign countries.
B)   pay for goods and services imported from foreign countries.
C)   receive interest payments from foreign governments.
D)   receive interest payments from foreign businesses.E) B) and C)
F) A) and D)

Question 2

Which of the following would tend to raise the value of the U.S. dollar in foreign exchange markets?

Accepted Answer

A)   a rise in U.S. interest rates
B)   an easy monetary policy in the United States
C)   a contractionary ﬁscal policy in the United States
D)   an increase in the U.S. demand for foreign oilE) A) and B)
F) None of the above

Question 3

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.E) A) and B)
F) B) and D)

Question 4

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.E) A) and B)
F) B) and C)

Question 5

Which of the following have substantially equivalent effects on a nation's volume of exports and imports?

Accepted Answer

A)   exchange rate appreciation and a decrease in the domestic supply of money
B)   exchange rate appreciation and domestic deﬂation
C)   exchange rate depreciation and domestic deﬂation
D)   exchange rate depreciation and domestic inﬂationE) B) and C)
F) A) and C)

Question 6

In 1985, the exchange rate between the U.S. dollar and the Japanese yen was $1 = 262 yen; in 2003, the rate was $1 = 110 yen. Between 1985 and 2003, the

Accepted Answer

A)   dollar appreciated in value relative to the yen.
B)   yen appreciated in value relative to the dollar.
C)   dollar price of yen fell.
D)   yen price of dollars rose.E) A) and D)
F) A) and B)

Question 7

Which of the following would call for outﬂows of money from the United States?

Accepted Answer

A)   The United States exports computer software.
B)   The United States purchases assets abroad.
C)   Foreigners purchase assets in the United States.
D)   Foreign tourists spend money in the United States.E) B) and D)
F) A) and C)

Question 8

If the United States has full employment and the dollar dramatically depreciates in value, we can expect (other things equal)

Accepted Answer

A)   both U.S. imports and U.S. exports to rise.
B)   both U.S. imports and U.S. exports to fall.
C)   U.S. exports to fall and U.S. imports to increase.
D)   inﬂation to occur.E) B) and C)
F) A) and C)

Question 9

French and German farmers wanting to buy equipment from an American manufacturer based in the U.S. will be

Accepted Answer

A)   supplying dollars and also supplying euros in the foreign exchange market.
B)   demanding dollars and also demanding euros in the foreign exchange market.
C)   supplying dollars and demanding euros in the foreign exchange market.
D)   supplying euros and demanding dollars in the foreign exchange market.E) B) and C)
F) A) and B)

Question 10

Quantity of Euros  Supplied  Price  Quantity of Euros  Demanded 400$1.101003601.002003000.903002860.804002870.70500\begin{array} { | c | c | c | } \hline \begin{array} { c } 	ext { Quantity of Euros } \	ext { Supplied }\end{array} & 	ext { Price } & \begin{array} { c } 	ext { Quantity of Euros } \	ext { Demanded }\end{array} \\hline 400 & \$ 1.10 & 100 \\hline 360 & 1.00 & 200 \\hline 300 & 0.90 & 300 \\hline 286 & 0.80 & 400 \\hline 287 & 0.70 & 500 \\hline\end{array} Quantity of Euros  Supplied ​400360300286287​ Price $1.101.000.900.800.70​ Quantity of Euros  Demanded ​100200300400500​​  The table shows the supply and demand schedules for the European euro. Under a ?exible exchange-rate system, what will be the euro rate of exchange for one U.S. dollar?

Accepted Answer

A)   0.95 euro
B)   1.00 euros
C)   1.11 euros
D)   1.23 euros E) A) and C)
F) B) and C)

Question 11

Under ﬂexible (ﬂoating) exchange rates, if the dollar price of pounds rises, the pound price of dollars
will fall.

Accepted Answer

A) True 
 B)False

Question 12

Under a system of ﬂexible exchange rates, an increase in the international value of a nation's currency will

Accepted Answer

A)   cause an international surplus of its currency.
B)   contribute to disequilibrium in its balance of payments.
C)   cause gold to ﬂow into that country.
D)   improve its terms of trade.E) None of the above
F) B) and C)

Question 13

If several nations decide to adopt and use a common currency, then each of these nations would lose the following, except

Accepted Answer

A)   the ability to set its own interest rates.
B)   the ability to set its own tax rates.
C)   control of its own exchange rate.
D)   the use of "external adjustment" tools to deal with current-account balance problems.E) All of the above
F) A) and B)

Question 14

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.E) A) and B)
F) None of the above

Question 15

The U.S. supply of Japanese yen is

Accepted Answer

A)   downsloping because a lower dollar price of yen means U.S. goods are cheaper to the Japanese.
B)   upsloping because when the dollar price of yen rises (and the yen price of a dollar falls)  it means that U.S. goods are cheaper to the Japanese.
C)   upsloping because when the dollar price of yen falls (and the yen price of a dollar rises)  it means that U.S. goods are cheaper to the Japanese.
D)   downsloping because a higher dollar price of yen means U.S. goods are cheaper to the Japanese.E) None of the above
F) C) and D)

Question 16

In a nation's balance of payments, which one of the following items is always recorded as a positive entry?

Accepted Answer

A)   goods imports
B)   balance on capital account
C)   U.S. purchases of assets abroad
D)   exports of servicesE) None of the above
F) C) and D)

Question 17

The graph shows the supply and demand curves for dollars in the pound/dollar market. 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 Britain.E) None of the above
F) C) and D)

Question 18

Which of the following is not included in the current account of a nation's balance of payments?

Accepted Answer

A)   its goods exports
B)   its goods imports
C)   its net investment income
D)   its purchases of real assets abroad.E) All of the above
F) None of the above

Question 19

If the dollar depreciates, U.S. exports will eventually rise and U.S. imports will eventually fall.

Accepted Answer

A) True 
 B)False

Question 20

The accompanying diagram represents a ﬂexible exchange market for foreign currency. Other things equal, a leftward shift of the demand curve would

Accepted Answer

A)   depreciate the dollar.
B)   appreciate the euro.
C)   reduce the equilibrium quantity of euros.
D)   cause a surplus of euros.E) A) and C)
F) A) and D)

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

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

Correct Answer
verified

Which of the following have substantially equivalent effects on a nation's volume of exports and imports?

Correct Answer
verified

Under ﬂexible (ﬂoating) exchange rates, if the dollar price of pounds rises, the pound price of dollars will fall.

Correct Answer
verified

If the dollar depreciates, U.S. exports will eventually rise and U.S. imports will eventually fall.

Correct Answer
verified

U.S. businesses are demanders of foreign currencies because they need them to

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

If several nations decide to adopt and use a common currency, then each of these nations would lose the following, except

Correct Answer
verified

In 1985, the exchange rate between the U.S. dollar and the Japanese yen was $1 = 262 yen; in 2003, the rate was $1 = 110 yen. Between 1985 and 2003, the

Correct Answer
verified

If the United States has full employment and the dollar dramatically depreciates in value, we can expect (other things equal)

Correct Answer
verified

The graph shows the supply and demand curves for dollars in the pound/dollar market. 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,

Correct Answer
verified

The U.S. supply of Japanese yen is

Correct Answer
verified

Under a system of ﬂexible exchange rates, an increase in the international value of a nation's currency will

Correct Answer
verified

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

Correct Answer
verified

In a nation's balance of payments, which one of the following items is always recorded as a positive entry?

Correct Answer
verified

French and German farmers wanting to buy equipment from an American manufacturer based in the U.S. will be

Correct Answer
verified

The accompanying diagram represents a ﬂexible exchange market for foreign currency. Other things equal, a leftward shift of the demand curve would

Correct Answer
verified

Which of the following would tend to raise the value of the U.S. dollar in foreign exchange markets?

Correct Answer
verified

Correct Answer
verified

Which of the following is not included in the current account of a nation's balance of payments?

Correct Answer
verified

Which of the following would call for outﬂows of money from the United States?

Correct Answer
verified

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

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

Correct AnswerverifiedShow Answer

Which of the following have substantially equivalent effects on a nation's volume of exports and imports?

Correct AnswerverifiedShow Answer

Under ﬂexible (ﬂoating) exchange rates, if the dollar price of pounds rises, the pound price of dollars will fall.

Correct AnswerverifiedShow Answer

If the dollar depreciates, U.S. exports will eventually rise and U.S. imports will eventually fall.

Correct AnswerverifiedShow Answer

U.S. businesses are demanders of foreign currencies because they need them to

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

If several nations decide to adopt and use a common currency, then each of these nations would lose the following, except

Correct AnswerverifiedShow Answer

In 1985, the exchange rate between the U.S. dollar and the Japanese yen was $1 = 262 yen; in 2003, the rate was $1 = 110 yen. Between 1985 and 2003, the

Correct AnswerverifiedShow Answer

If the United States has full employment and the dollar dramatically depreciates in value, we can expect (other things equal)

Correct AnswerverifiedShow Answer

The graph shows the supply and demand curves for dollars in the pound/dollar market. 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,

Correct AnswerverifiedShow Answer

The U.S. supply of Japanese yen is

Correct AnswerverifiedShow Answer

Under a system of ﬂexible exchange rates, an increase in the international value of a nation's currency will

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

In a nation's balance of payments, which one of the following items is always recorded as a positive entry?

Correct AnswerverifiedShow Answer

French and German farmers wanting to buy equipment from an American manufacturer based in the U.S. will be

Correct AnswerverifiedShow Answer

The accompanying diagram represents a ﬂexible exchange market for foreign currency. Other things equal, a leftward shift of the demand curve would

Correct AnswerverifiedShow Answer

Which of the following would tend to raise the value of the U.S. dollar in foreign exchange markets?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Which of the following is not included in the current account of a nation's balance of payments?

Correct AnswerverifiedShow Answer

Which of the following would call for outﬂows of money from the United States?

Correct AnswerverifiedShow Answer

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