Unit 14

The U.S. balance of payments deficit would decrease in all of the following scenarios except

a decrease in purchases of U.S. securities by foreign investors. (just adds to the deficit instead of decreasing it)

A deficit in the U.S. balance of payments can occur if interest rates in foreign countries are higher than U.S. domestic rates. interest rates in foreign countries are lower than U.S. domestic rates. U.S. consumers are purchasing (importing) foreign goods. foreign consumers are purchasing (importing) U.S. goods.

B) I and III Anything that sends money out of our domestic economy leads to a deficit (more money flowing out than coming in). When interest rates abroad are higher, money flows out of the United States to those foreign locations. When U.S. consumers are purchasing more foreign goods and services, money flows out of the United States to those foreign markets.

match the following statement to the best expression: A well-controlled, moderately increasing money supply leads to price stability and a healthy economy.

Monetarist Theory

A weak U.S. dollar leads to more

U.S. exports and a balance of payments surplus.

A weak U.S. dollar leads to more

U.S. exports and a balance of payments surplus. When the dollar is weak relative to other currencies, it makes U.S. goods more affordable for foreign consumers to buy, so U.S. exports increase. As more goods flow out of the U.S., more money flows in—surplus.

A strong U.S. dollar leads to more

U.S. imports and a balance of payments deficit. When the dollar is strong, it is more affordable for U.S. consumers to buy more foreign goods, so U.S. imports increase. As more imported goods flow in, more money flows out—deficit.

Which of the following is a true statement with regard to either U.S. securities laws or the description of international economic factors?

When the U.S. dollar is strong, foreign currency buys fewer U.S. goods.

Higher interest rates in other countries

attract the flow of money because investors receive higher interest payments! Essentially higher yield = bigger reward

as product flows out...

money flows in

If the U.S. dollar is relatively strong against the Japanese yen, it can be assumed that

the U.S. dollar will buy more goods produced in Japan, while the Japanese yen buys fewer goods produced in the United States. The strength of one country's currency against another impacts trade in between the two. The stronger currency (in this case the U.S. dollar) will buy more foreign goods, and the weaker currency (in this case the JY) will buy fewer goods produced in other countries.