SIE unit 14 Qbank

A deficit in the U.S. balance of payments can occur if 1) interest rates in foreign countries are higher than U.S. domestic rates. 2) interest rates in foreign countries are lower than U.S. domestic rates. 3) U.S. consumers are purchasing (importing) foreign goods. 4) foreign consumers are purchasing (importing) U.S. goods.

1 & 3 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.

A surplus in the U.S. balance of payments can occur if 1) interest rates in foreign countries are higher than U.S. domestic rates. 2) interest rates in foreign countries are lower than U.S. domestic rates. 3) U.S. consumers are purchasing (importing) foreign goods. 4) foreign consumers are purchasing (importing) U.S. goods.

2 & 4 Anything that brings money into our domestic economy leads to a surplus (more money coming in than going out). When interest rates abroad are comparatively lower, money flows into the United States to earn a better rate. When foreign consumers are purchasing more U.S. domestic goods and services, money flows into the United States as well.

A surplus in the U.S. balance of payments can occur if 1) interest rates in foreign countries are higher than U.S. domestic rates. 2) interest rates in foreign countries are lower than U.S. domestic rates. 3)U.S. consumers are purchasing (importing) foreign goods. 4) foreign consumers are purchasing (importing) U.S. goods.

2 & 4 Anything that brings money into our domestic economy leads to a surplus (more money coming in than going out). When interest rates abroad are comparatively lower, money flows into the United States to earn a better rate. When foreign consumers are purchasing more U.S. domestic goods and services, money flows into the United States as well.

Of the statements listed, which best characterizes the potential impact of factors occurring outside our domestic economy and markets? A) Factors outside the United States have little impact on our securities and trade markets and thus our domestic economy. B) Factors outside the United States can impact our securities and trade markets, but the effects are always short term and thus impact our domestic economy very little. C) Factors outside the United States can have immediate and prolonged impact on our securities and trade markets and thus our domestic economy. D) Factors outside the United States never have immediate impact on our securities and trade markets, but over time can impact our domestic economy.

Factors outside the United States can have immediate and prolonged impact on our securities and trade markets and thus our domestic economy.

You should expect which of these to occur when the dollar strengthens against other currencies? Imports will become more expensive Imports will become less expensive Inflation will go down Inflation will rise

II and III As the dollar gains strength against other currencies, the cost of imports goes down in dollar terms. Domestic producers will need to compete with the less expensive imports. That keeps prices overall from rising, reducing inflationary pressures.

The principles of demand-side theory were laid out in the 1936 book, The General Theory of Employment, Interest, and Money written by who? A) Adam Smith B) Arthur Laffer C) Milton Friedman D) John Keynes

John Keynes

Match the following statement to the best expression: A well-controlled, moderately increasing money supply leads to price stability and a healthy economy. A) Keynesian Theory B) Monetarist Theory C) Socialism D) Balance of payments

Monetarist Theory Monetarists judge that a well-controlled, moderately increasing money supply leads to price stability. Price stability allows business managers (considered to be more efficient allocators of resources than the government) to plan and invest, which in turn keeps the economy healthy.

Select the two distinctive types of policies that impact the U.S. economy. A) Monetary and fiscal B) Balance of payments and balance of trade C) Federal and municipal D) M1 and M2

Monetary and fiscal The two distinctive types of policies that impact our economy are monetary and fiscal. Monetary policy is what the Federal Reserve Board (FRB) engages in when it attempts to influence the money supply via the Federal Open Market Committee (FOMC). Fiscal policy refers to governmental budget decisions enacted by the president and Congress including increases or decreases in federal spending, money raised through taxes, and federal budget deficits or surpluses.

Match the following statement to the best expression: Government should allow market forces to determine prices of all goods and that the federal government should reduce government spending as well as taxes. A) Keynesian Theory B) Socialism C) Monetarist Theory D) Supply-side Economic Theory

Supply-side Economic Theory Supply-side economics holds that governments should allow market forces to determine prices of all goods. Supply-side adherents judge that the federal government should decrease government spending and taxes. In this way, sellers of goods will price them at a rate that allows them to meet market demand and still sell them profitably.

A weak U.S. dollar leads to more A) U.S. exports and a balance of payments deficit. B) U.S. exports and a balance of payments surplus. C) U.S. imports and a balance of payments deficit. D) U.S. imports and a balance of payments surplus.

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.

All of the following would decrease the U.S. balance of payments deficit except A) a decrease in imports of foreign goods into the United States. B) a decrease in purchases of U.S. securities by foreign investors. C) a decrease in dividend payments by U.S. companies to foreign investors. D) an increase in exports of domestic goods from the United States.

a decrease in purchases of U.S. securities by foreign investors. Anything that will bring foreign money to the U.S. will decrease the balance of payments. Foreign investors pulling their money out of the U.S., or investing less in the U.S. will increase the U.S. deficit.

To grow or expand the economy, U.S. fiscal policy should be to A) raise taxes and cut all government spending for programs and development. B) raise taxes and government spending for programs and development. C) cut taxes and government spending for programs and development. D) cut taxes and increase government spending for programs and development.

cut taxes and increase government spending for programs and development. Fiscal policies to grow or expand the economy would encompass cuts in taxes allowing consumers to have more money to spend, spurring the economy forward, and increasing government spending for programs and development that creates jobs, again spurring the economy forward.

A supply-side approach to fiscal policy will use all of these tools except A) decreasing government regulatory costs. B) decreasing tax rates on business entities. C) personal income tax rebates. D) providing tax credits to small business.

personal income tax rebates. Supply-side fiscal policy seeks to create a better environment for business to thrive. The end goal is a growing economy that creates jobs. Sometimes called trickle-down economics, the emphasis is on the business side much more than the consumer side.

The flow of money between the United States and other countries is known as A) the surplus. B) the balance of trade. C) the balance of payments. D) the payment reserves.

the balance of payments.

Your client, Ann Porter, likes fast cars and has been saving for a high-end Italian sports car. She recently saw a report that said the dollar was likely to drop in the near future. She is concerned that this might affect her plans to buy her dream car next year. You tell her A) yes, it will likely cost her less if the dollar drops. B) yes, it will likely cost her more to buy the car if the dollar drops. C) she should not waste her money on a fancy car. D) no, it should have no impact on her plans at all.

yes, it will likely cost her more to buy the car if the dollar drops. A weakening dollar will likely cause the cost of her foreign made car to increase in dollar terms.