chapter 8 econ
current account + financial account MUST ALWAYS EQUAL:
0
If the British pound appreciates against the dollar, this will make:
British exports more expensive but lower the price of American exports to Britain.
American retailers import toys from China. In the U.S. balance of payments account, this transaction would be entered as:
a payment to foreigners in the current account.
When the value of a nation's imports exceeds the value of that nation's exports, the nation is said to have:
a trade deficit.
demand goes up:
appreciate
If foreign countries are increasing their demand for U.S. financial assets, then we can expect the U.S. dollar to ______ and the current account balance to _____, all other things equal.
appreciate; decrease
The value of a euro, the currency for most of Europe, goes from 1€ = US$1.25 to 1€ = US$1.50. French exports to the United States will:
be more expensive.
Demand goes down
depreciate
When a Japanese investor buys stock in General Motors, which of the following balance of payments accounts is affected?
financial account
This question refers to the accounting for U.S. international transactions. Suppose that a financial investor from Los Angeles purchases bonds issued by the government of Peru. Which of the following best indicates the account in which this transaction would appear and how it would appear in that account?
financial account; payments to foreigners
when the interest rate rises in one country:
foreign investment increase as foreigners seek higher returns
trade balance
gap between exports and imports
The trade balance is the difference between the value of the:
goods and services that one country sells to other countries and the value of the goods and services it buys in return.
trade deficit
situation in which a country imports more than it exports
4 shifters of foreign exchange
tastes/preferences, price level, income, interest rates
A currency has depreciated when:
that currency buys fewer foreign goods than it did previously.
The equilibrium exchange rate is:
the exchange rate at which the quantity of U.S. dollars demanded in the foreign exchange market is equal to the quantity of U.S. dollars supplied.
Purchasing power parity refers to:
the nominal exchange rate for which a market basket would cost the same in each country.
financial account
the part of the balance of payments that records purchases of assets a country has made abroad and foreign purchases of assets in the country
exchange rate:
the price of one nation's currency in terms of another nation's currency
current account
the section in a nation's international balance of payments that records its exports and imports of goods and services, its net investment income, and its net transfers FLOWS IN AND OUT OF COUNTRY
depreciate
to decrease in value
appreciate
to increase in value
Which of the following would be included in the U.S. current account?
trade balance
If a country sold more goods and services to the rest of the world than they purchased from the other countries, then the country has a:
trade surplus.
When the dollar value of the euro is high:
travel in the U.S. is less expensive for Europeans.
The value of a euro, the currency for most of Europe, goes from 1€ = US$1.25 to 1€ = US$1.50. In the United States, exports to Europe:
will increase, and imports from Europe will decrease.
