Microeconomics Chapter 27

An attempt by the U.S. government to maintain a fixed exchange rate between the dollar and the British pound by requiring that all pounds obtained by U.S. exporters be sold to the federal government is an example of which of the following?

An exchange control

What is the name for the difference between a country's exports and imports of goods?

Balance of trade on goods

Critics of exchange controls argue that they do which of the following?

Create black markets Distort international trade Limit consumer choice

The balance on the current account and the balance on the capital and financial account assume trade occurs in which of the following categories?

Currently produced goods Currently produced services Preexisting assets

Which of the following involves the government allocating limited supplies of foreign currency to U.S. importers?

Exchange controls

What is the exchange-rate system in which the government sets the exchange rates?

Fixed

The fact that an exchange rate may shift unfavorably between the time an international order is placed and the time it is delivered is a risk associated with which type of exchange rate?

Flexible

What kind of exchange rates may destabilize the domestic economy because wider fluctuations stimulate and then depress industries producing exported goods?

Flexible

Which of the following are part of a central bank's official reserves that it uses to maintain a fixed exchange rate?

Foreign currency Gold Foreign bonds

What is the result for the United States when the sale of U.S. goods and services abroad is significantly lower than its purchase of imported goods and services?

Foreign debt increases.

If the U.S. economy is operating at full employment and its currency depreciates, the results will be inflationary for which of the following reasons?

Foreign demand for U.S. goods may rise, increasing total spending and pulling up U.S. prices. U.S. import prices will increase.

What is another name for the stockpiles of foreign currencies held by governments that maintain a fixed exchange rate?

Foreign-exchange reserves

Which of the following are listed as net transfers under the current account section of a balance-of-payments statement?

Immigrant remittances Foreign aid

Which type of international trade transaction involves the transfer of property rights to either real or financial assets between the citizens of one country and the citizens of another country?

International asset transaction

The capital account and financial account sections of the balance-of-payments statement summarizes which of the following?

International asset transactions

Which of the following are the two broad categories of international financial transactions?

International asset transactions International trade

In general, what factors are responsible for a nation's currency either appreciating or depreciating in foreign exchange markets?

The demand for its currency increasing The supply of its currency increasing

What does a higher dollar price for pounds caused by a shift in either demand or supply mean?

The dollar has depreciated and the pound has appreciated

If the same group of products costs 100,000 U.S. dollars and 50,000 British pounds, what would be the theoretical effect on the exchange rate between the two currencies?

The exchange rate should shift until it reaches the rate of two U.S. dollars equaling one British pound.

Because a country's imports vary directly with its income level, a rise in Canada's income level relative to that of the United States results in which of the following?

The purchase of more U.S. goods by Canadians and the depreciation of the Canadian dollar

What is an alternative approach that some nations use to circumvent the disadvantages associated with flexible exchange rates?

They fix or peg their exchange rates to the value of another currency.

A country experiences a trade surplus under which of the following conditions?

When it exports more goods and services than it imports

When the dollar price of a pounds falls, for example, from $2 = 1 pound to $1 = 1 pound, the dollar has__________ relative to the pound.

appreciated

The capital and financial account concerns international_______ exchanges.

asset

The sum of all the financial transactions that take place between a country's residents and the residents of foreign nations is called the ______.

balance of payments

Because it can be thought of as dealing with international financial flows, net investment income is included as part of the ______.

current account

A change in consumer tastes or preferences for the products of a foreign country may alter the__________ for that nation's currency and change its exchange rate.

demand

A nation's currency is likely to__________ if its national income grows more rapidly than that of other countries.

depreciate

If a nation's currency appreciates, some foreign currency relative to it__________.

depreciates, weakens, or falls

The current exchange-rate system is considered to be a mostly__________ exchange-rate system because of the periodic currency interventions by governments.

flexible

An exchange-rate system in which rates are determined by supply and demand without government intervention is called a(n)_______ -exchange-rate system.

flexible or floating

Risks and uncertainties associated with__________ exchange rates may discourage the flow of trade.

flexible or floating

One objection to the rationing of foreign exchange is that it might lead to governments' favoring certain__________.

importers

Which of the following have contributed to large U.S. trade deficits over the past 20 years?

The U.S. economy growing more rapidly than those of its trading partners The large trade imbalance the U.S. has with China

Remittance payments sent by immigrants to their home countries are included in which of the following?

The balance of payments

Which section of the balance-of-payments statement summarizes U.S. trade in currently produced goods and services?

The current account

What would happen to the U.S. demand-for-pounds curve if British textiles became fashionable in the United States?

The curve would shift to the right, causing the British pound to appreciate.

Which type of exchange-rate system requires governments to meet demand for its currency by purchasing it at a set rate that it determines in advance?

A fixed exchange-rate system

Since 1971, most countries have used which type of exchange-rate system?

A flexible exchange-rate system with occasional government intervention

Which of the following describes a scenario where U.S. imports of goods and services exceeds U.S. exports of goods and services?

A trade deficit

What has occurred in the economic relationship between the United States and China as a result of the United States being China's largest export market and China's standard of living not increasing enough for its citizens to afford large quantities of U.S. goods and services?

Large trade deficits

What is the theory that states that exchange rates will adjust such that a given broad market basket of goods and services will cost the same in all countries?

Purchasing-power-parity

A trade deficit is considered unfavorable because it must be financed by which of the following?

Selling off assets Dipping into official reserves

The balance on the current account and the balance on the capital and financial account must always sum to__________ because any deficit or surplus in the current account automatically creates an offsetting entry in the capital and financial account.

zero or 0