The Balance of Payments, Exchange Rates, and Trade Deficits

*Graph #1* At the price $.80 for 1 euro: A. the quantity of euros demanded equals the quantity supplied. B. the dollar-euro exchange rate is unstable. C. the dollar price of 1 euro equals the euro price of 1 dollar. D. there will be a surplus of euros in the foreign exchange market.

A

*Graph #1* Other things equal, a leftward shift of the supply curve would: A. appreciate the euro. B. cause a shortage of euros. C. increase the equilibrium quantity of euros. D. appreciate the dollar.

A

*Graph #1* Other things equal, a rightward shift of the demand curve would: A. depreciate the dollar. B. appreciate the dollar. C. reduce the equilibrium quantity of euros. D. depreciate the euro.

A

The current account in a nation's balance of payments includes: A. its goods exports and imports, and its services exports and imports. B. foreign purchases of domestic assets. C. purchases of foreign assets. D. all of these.

A

The following are hypothetical exchange rates: 2 euros = 1 pound; $1 = 2 pounds. We can conclude that: A. $1 = 4 euros. B. $1 = .5 euros. C. 1 euro = $.50. D. 1 euro = $2.

A

Under an international gold standard: A. a nation sacrifices an independent monetary policy. B. gold flows between nations would always promote macroeconomic stability. C. exchange rates would fluctuate with changes in demand and supply. D. balance of payments imbalances would be magnified.

A

Under an international gold standard: A. a nation's exchange rate is virtually fixed. B. domestic output and the price level will fall in those nations receiving international gold flows. C. a nation's balance of payments surplus will be corrected by an outflow of gold. D. a nation's balance of payments deficit will be corrected by an inflow of gold

A

Which of the following has contributed to large U.S. trade deficits in recent years? A. China fixing its exchange rate. B. Rapid decreases in the price of oil that have triggered dramatic increases in oil imports. C. A rising U.S. saving rate. D. All of these have contributed.

A

Which of the following is not a condition of the international gold standard? A. A nation must be willing to accept very wide fluctuations in its exchange rate. B. A nation must allow gold to be freely exported and imported. C. A nation must be willing to convert gold into paper money and vice versa at a stipulated rate. D. A nation must define its monetary unit in terms of a certain quantity of gold.

A

Which of the following problems will most likely occur with a system of flexible exchange rates? A. Macroeconomic instability as exports and imports fluctuate with the exchange rates. B. Government favoritism toward selected importers of goods and services. C. The emergence of black markets for foreign currency. D. Distortions in trade patterns away from the pattern suggested by comparative advantage

A

If the dollar price of yen rises, then: A. the yen price of dollars also rises. B. the dollar depreciates relative to the yen. C. the yen depreciates relative to the dollar. D. the dollar will buy fewer U.S. goods

B

If the exchange rate changes so that more Mexican pesos are required to buy a dollar, then: A. the peso has appreciated in value. B. Americans will buy more Mexican goods and services. C. more U.S. goods and services will be demanded by the Mexicans. D. the dollar has depreciated in value.

B

*Graph #2* The initial demand for and supply of pesos are shown by D1 and S1. The exchange rate will be: A. M dollars for one peso. B. B pesos for one dollar. C. A dollars for one peso. D. C dollars for one peso.

B

Assume that Brazil and Mexico have floating exchange rates. Other things unchanged, if the price level is stable in Mexico but Brazil experiences rapid inflation: A. gold bullion will flow into Brazil. B. the Brazilian real will depreciate. C. the Mexican peso will depreciate. D. the Brazilian real will appreciate.

B

Assume that Japan and South Korea have flexible exchange rates. Other things equal, if economic growth is more rapid in Japan than in South Korea: A. gold bullion will flow out of Japan. B. the Japanese yen will depreciate. C. the South Korean won will depreciate. D. the yen and won exchange rate will stay constant.

B

Mainly because of large current account deficits, the United States: A. is the leading exporting nation in the world. B. has the world's largest external debt. C. has the world's highest saving rate. D. is experiencing an increase in its net inflow of investment income

B

One of the consequences of the U.S. trade deficit is that: A. domestic inflation has resulted. B. the accumulation of American dollars in foreign hands has enabled foreign firms to build factories in America. C. the distribution of income in the United States has become less unequal. D. the system of flexible exchange rates has been abandoned in favor of a new gold standard

B

Suppose the G8 nations decide that the dollar is too strong (high in value) relative to the yen. These nations might: A. use official reserves of yen to buy dollars. B. use official reserves of dollars to buy yen. C. encourage Japan to print more yen. D. encourage the United States to increase interest rates.

B

Suppose the balance on the financial account is + $200 billion and the balance on the capital account is + $2 billion. The size of the current account is: A. + $200 billion. B. -$ 202 billion. C. - $198 billion. D. + $2 billion.

B

The Group of Eight (G8) nations which periodically have jointly intervened to influence the value of the dollar include: A. Canada, U.S., France, Britain, Russia, Mexico, Germany, and Brazil. B. Canada, U.S., France, Japan, Italy, Germany, Russia, and Great Britain. C. Canada, U.S., Mexico, Brazil, Argentina, Peru, Uruguay, and Chile. D. Italy, France, Britain, Germany, Netherlands, Norway, Russia, and Sweden

B

The U.S. supply of Japanese yen is: A. downsloping because a lower dollar price of yen means U.S. goods are cheaper to the Japanese. B. upsloping because a higher dollar price of yen means U.S. goods are cheaper to the Japanese. C. upsloping because a lower dollar price of yen means 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.

B

The basis for the Bretton Woods international monetary system was: A. a completely fixed system of exchange rates. B. an adjustable peg system of exchange rates. C. the gold standard. D. a freely flexible system of exchange rates.

B

The current system of exchange rates can best be described as: A. freely fluctuating exchange rates. B. managed floating exchange rates. C. rigidly fixed exchange rates. D. an adjustable peg system.

B

The large trade deficit that the U.S. has with China persists in part because: A. the U.S. economy has grown slowly in recent years. B. China has fixed its exchange rate and not allowed the yuan to appreciate relative to the U.S. dollar. C. China has experienced rapid economic growth over the past decade. D. China has recently imposed or increased tariffs on most goods imported from the U.S.

B

There must always be a balance of a nation's: A. goods exports and gold imports. B. total international payments. C. imports and exports of goods and services. D. net transfers and net investment income.

B

Under the gold standard: A. nations can protect their domestic price and employment levels from changes in the volume and direction of world trade. B. exchange rates are virtually fixed. C. differences in exports and imports will be precisely balanced by capital account flows, excluding gold. D. exchange rates fluctuate freely in response to changes in the supply of, and demand for, foreign currencies.

B

Which of the following would call for inpayments to the United States? A. gold flows into the United States B. U.S. firms sell insurance to Brazilian shippers C. U.S. sends foreign aid to developing countries D. U.S. imports German automobiles

B

Which of the following would call for outpayments from the United States? A. U.S. exports computer software B. U.S. purchases assets abroad C. foreigners purchase assets in the United States D. foreign tourists spend money in the United States

B

Which of the following would contribute to a United States balance of payments deficit? A. Kawasaki builds a motorcycle manufacturing plant in Kansas City B. United States tourists travel in large numbers to Europe C. a wealthy Mexican citizen builds a mansion in Beverly Hills D. Zaire pays interest on its debt to the United States

B

Which one of the following, other things equal, will directly alter the United States balance of trade? A. an increase in the balance on capital account B. a decrease in U.S. goods exports C. an increase in net transfers D. a decrease in U.S. purchases of assets abroad

B

*Chart #1* Item (5) indicates: A. that the United States' current account was in surplus. B. the size of the net inflow of foreign investment to the United States that occurred in 2010. C. the net amount Americans received as interest and dividends on existing U.S. investments abroad. D. the net amount Americans paid as interest and dividends on existing foreign investments in the United States.

C

*Chart #1* Item (6) indicates that: A. the United States used $15 billion of its international monetary reserves to balance its international payments. B. the United States provided $15 billion of foreign aid to developing nations. C. Americans provided a net amount of $15 billion in remittances to the rest of the world. D. Americans received a net amount of $15 billion in remittances from the rest of the world.

C

*Chart #2* Zabella has a balance of trade (goods): A. deficit of $10 billion. B. surplus of $5 billion. C. surplus of $10 billion. D. deficit of $5 billion.

C

*Chart #3* The financial account items for Zippo are: A. 1, 2, 3, and 4. B. 1, 3, 4, 5, 7, and 9. C. 6 and 8. D. 1, 2, 4, 7, and 9

C

A nation's capital and financial account: A. contains inpayment items, but not outpayment items. B. includes service exports and service imports. C. includes both inpayments and outpayments. D. includes net investment income and net transfers.

C

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

C

*Chart #1* The U.S. balance on goods and services is a: A. $10 billion deficit. B. $20 billion deficit. C. $30 billion surplus. D. $30 billion deficit.

D

*Graph #1* Other things equal, a rightward shift of the supply curve would: A. appreciate the euro. B. cause a surplus of euros. C. decrease the equilibrium quantity of euros. D. appreciate the dollar.

D

*Graph #3* D and S are the United States' demand for and supply of Swiss francs. At the equilibrium exchange rate, E, the United States' balance of payments is in equilibrium. Given a change in demand from D to D' the United States could maintain the dollar price of Swiss francs by: A. shifting the S curve to the right through the use of domestic expansionary policies. B. instituting exchange controls to ration Ed Swiss francs to U.S. importers who want Ec francs. C. using international monetary reserves to cover the Ec shortage of Swiss francs. D. using international monetary reserves to cover the cd shortage of Swiss francs.

D

People who buy foreign currency for the sole goal of selling it at a profit are called: A. numismatics. B. currency hedgers. C. currency manipulators. D. currency speculators.

D

Under a gold standard a balance of payments disequilibrium would be corrected automatically by: A. the depreciation of that country's currency. B. an increase in the gold content of that nation's monetary unit. C. the appreciation of that country's currency. D. an outflow or inflow of gold.

D

Under a system of freely flexible (floating) exchange, rates a U.S. trade deficit with Mexico will tend to cause: A. the United States government to ration pesos to U.S. importers. B. a flow of gold from the United States to Mexico. C. an increase in the peso price of dollars. D. an increase in the dollar price of pesos.

D

Under a system of freely floating exchange rates, an increase in the international value of a nation's currency will: 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. cause its imports to rise.

D

Which of the following is not included in the current account of a nation's balance of payments? A. its goods exports B. its goods imports C. its net investment income D. its purchases of real assets abroad

D

Which of the following lists of exchange-rate systems is arranged in proper historical order, from earliest to most current? A. Bretton Woods system, gold standard, managed float B. gold standard, managed float, Bretton Woods system C. managed float, Bretton Woods system, gold standard D. gold standard, Bretton Woods system, managed float

D

Which one of the following is not one of the so-called G8 nations? A. Japan B. Canada C. United States D. China

D

With which of the following countries does the United States have its largest goods and services deficit? A. Canada. B. Germany. C. Japan. D. China.

D

"International trade" refers to: A. purchasing or selling currently produced goods or services across an international border. B. any transaction across an international border. C. any financial transaction across an international border. D. buying or selling of preexisting assets across an international border

A

*Chart #1* The United States' balance on financial account is a: A. $20 billion surplus. B. $15 billion surplus. C. $30 billion deficit. D. $20 billion deficit.

A

*Chart #2* Zabella's balance on capital and financial account shows a: A. deficit of $5 billion. B. surplus of $10 billion. C. deficit of $10 billion. D. surplus of $5 billion.

A

*Chart #2* Zabella's balance on financial account shows a: A. deficit of $10 billion. B. surplus of $5 billion. C. deficit of $28 billion. D. surplus of $13 billion.

A

*Chart #3* Zippo has a: A. current account deficit. B. capital account deficit. C. balance of payments deficit. D. trade surplus on goods and services.

A

*Graph #2* The initial demand for and supply of pesos are shown by D1 and S1. Suppose the United States reduces its imports of Mexican goods, shifting its demand for pesos from D1 to D2. If the United States and Mexico were both on the international gold standard: A. gold would flow from Mexico to the United States. B. the exchange rate would rise from B dollars equals 1 peso to C dollars equals 1 peso. C. gold would flow from the United States to Mexico. D. the exchange rate would fall from B dollars equals 1 peso to A dollars equals 1 peso.

A

*Graph #2*The initial demand for and supply of pesos are shown by D1 and S1. Suppose the United States reduces its imports of Mexican goods, shifting its demand for pesos from D1 to D2. If the United States was operating under a system of exchange controls, the U.S. government would: A. find that, at the controlled exchange rate, pesos would be in surplus. B. be faced with deteriorating terms of trade. C. be faced with the problem of rationing BG pesos to U.S. importers who want BF pesos. D. be faced with the problem of rationing BF pesos to U.S. importers who want BG pesos.

A

A balance-of-payments deficit occurs: A. when a nation must make an inpayment of official reserves to its capital and financial account. B. whenever a nation has a goods and services deficit. C. whenever a nation has a goods and services surplus. D. when a nation must make an outpayment of official reserves from its capital and financial account.

A

A deficit on the current account: A. normally causes a surplus on the capital and financial account. B. normally causes a deficit on the capital and financial account. C. has no relationship to the capital and financial account. D. means that a nation is making international transfers.

A

A government may be able to reduce the international value of its currency by: A. selling its currency in the foreign exchange market. B. buying its currency in the foreign exchange market. C. selling foreign currencies in the foreign exchange market. D. increasing its domestic interest rates.

A

A nation's official reserves: A. compensates for differences in the current and capital and financial accounts. B. consist of all domestic and foreign currency held by a nation's central bank. C. is always zero. D. is always negative.

A

According to the purchasing power parity theory of exchange rates: A. a dollar, when converted to other currencies at the prevailing floating exchange rate, has the same purchasing power in various countries. B. in equilibrium, national currencies have equal value in terms of gold. C. the higher a nation's price level in terms of its own currency, the greater is the amount of foreign exchange it can obtain for a unit of its currency. D. nominal currency values will tend to equalize (become 1 = 1) in the long run

A

Currency speculators aid international trade by: A. absorbing exchange rate risk that others do not want to bear. B. increasing the volatility of exchange rates. C. making the demand for imports less elastic. D. promoting barter.

A

If a nation has a current account deficit and it does not have to make any inpayments or outpayments of official reserves, it must have a: A. surplus in its capital and financial account. B. balance of payments deficit. C. balance of payments surplus. D. deficit in its capital and financial account.

A

If a nation's goods exports are $55 billion, while its goods imports are $50 billion, we can conclude with certainty that this nation has a: A. balance of trade (goods) surplus. B. balance of payments surplus. C. positive balance on current account. D. positive balance on goods and services.

A

If the exchange rate between the U.S. dollar and the Japanese yen is $1 = 200 yen, then the dollar price of yen is: A. $.005. B. $.05. C. $.50. D. $5.

A

If the rate of exchange for a pound is $4, the rate of exchange for the dollar is: A. 1/4pound. B. 4 pounds. C. $.25. D. $1.00.

A

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. Which one of the following might be a plausible explanation for the change in the dollar-yen exchange rate from 1985 to 2003? A. Japan exported much more to the United States during this period than it imported from the United States. B. Japan greatly increased its purchases of military equipment from the United States during this period. C. Japan's economy grew far faster than the U.S. economy during this period. D. Japan's government devalued the yen during this period.

A

In considering yen and dollars, when the dollar rate of exchange for the yen rises: A. the yen rate of exchange for the dollar will fall. B. the yen rate of exchange for the dollar will also rise. C. the yen rate of exchange for the dollar may either fall or rise. D. U.S. net exports to Japan will fall.

A

In the U.S. balance of payments, U.S. purchases of assets abroad are a(n): A. U.S. dollar outflow. B. U.S. dollar inflow. C. current account item. D. inpayment.

A

In the balance of payments of the United States, inflows of foreign currencies to the United States are recorded as: A. a positive entry. B. a current account entry. C. a negative entry. D. net investment income.

A

Suppose the balance on the current account is +$50 billion and the balance on the capital account is +$1 billion. The balance on the financial account is: A. $51 billion. B. $50 billion. C. $49 billion. D. + $51 billion.

A

Suppose the balance on the financial account is -$300 billion and the balance on the capital account is +$5 billion. The size of the current account is: A. +$295 billion. B. $295 billion. C. +$305 billion. D. +$5 billion.

A

The U.S. demand for euros is: A. downsloping because, at lower dollar prices for euros, Americans will want to buy more European goods and services. B. downsloping because, at higher dollar prices for euros, Americans will want to buy more European goods and services. C. downsloping because the dollar price of euros and the euro price of dollars are directly related. D. upsloping because a higher dollar price of euros makes European goods and services more attractive to Americans.

A

The United States' current account deficit reached a new high in: A. 2006. B. 2007. C. 2008. D. 2009.

A

*Chart #1* The U.S. balance on current account is a: A. $40 billion surplus. B. $25 billion deficit. C. $25 billion surplus. D. $30 billion deficit.

B

*Chart #2* Zabella's balance on goods and services shows a: A. $5 billion deficit. B. $5 billion surplus. C. $10 billion surplus. D. $15 billion deficit.

B

*Chart #3* The current account items for Zippo are: A. 1, 2, 3, and 4. B. 1, 3, 4, 5, 7, and 9. C. 6 and 8. D. 1, 2, 4, 7, and 9.

B

*Chart #4* The equilibrium dollar price of libras is: A. $5. B. $4. C. $3. D. $2.

B

*Chart #4* The exchange rate is: A. 4 libras for one dollar. B. .25 libras for one dollar. C. .40 libras for one dollar. D. 3 libras for one dollar.

B

*Graph #2* The initial demand for and supply of pesos are shown by D1 and S1. Suppose the United States reduces its imports of Mexican goods, shifting its demand for pesos from D1 to D2. Under a system of freely floating exchange rates: A. gold would flow from Mexico to the United States. B. the peso price of dollars would rise from B pesos equals $1 to A pesos equals $1. C. a problem of rationing a shortage of pesos would arise in the United States. D. the dollar price of pesos would increase to C dollars equals 1 peso.

B

Assume that Switzerland and Britain have floating exchange rates. Other things unchanged, if a tight money policy raises interest rates in Britain as compared to Switzerland: A. gold bullion will flow into Switzerland. B. the Swiss franc will depreciate. C. the pound will depreciate. D. the Swiss franc will appreciate.

B

If a U.S. importer can purchase 10,000 British pounds for $20,000, the rate of exchange is: A. $1 = 2 British pounds in the United States. B. $2 = 1 British pound in the United States. C. $1 = 2 British pounds in Great Britain. D. $.5 = 1 British pound in Great Britain.

B

If in a system of fixed exchange rates the dollar price of euros is above the market equilibrium level: A. gold will flow from the United States to Europe. B. there will be a surplus of euros. C. the United States government will have to ration euros to U.S. importers. D. there will be a shortage of euros.

B

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: 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.

B

In 2009, the capital and financial account in the U.S. balance of payments was in: A. deficit, and smaller than the current account deficit. B. surplus, and equal to the current account deficit. C. balance, with no deficit or surplus. D. surplus, and smaller than the current account deficit.

B

In considering euros and dollars, the rates of exchange for the euro and the dollar: A. are directly related. B. are inversely related. C. are unrelated. D. move in the same direction.

B

In recent years, the United States has had large: A. current account surpluses. B. current account deficits. C. balance of trade surpluses. D. balance of payments surpluses.

B

In the U.S. balance of payments account for a certain year, a positive number in the financial account means a: A. net buildup of assets held by the U.S. B. net reduction in the ownership of assets by U.S. interests. C. buildup of total foreign debt. D. reduction of total foreign debt.

B

In the U.S. balance of payments, foreign purchases of assets in the United States are a: A. foreign currency outflow. B. foreign currency inflow. C. current account item. D. debit, or outpayment.

B

International transactions fall into what two broad categories? A. Manufacturing trade and services trade. B. International trade and international asset transactions. C. Currency transactions and services trade. D. Newly created assets and preexisting assets

B

Which of the following combinations is plausible, as it relates to a nation's balance of payments? A. Current account = $ + 40 billion; capital account = $ + 20 billion; financial account = $ - 50 billion. B. Current account = $ - 50 billion; capital account = $ + 20 billion; financial account = $ + 30 billion. C. Current account = $ + 10 billion; capital account = $ + 40 billion; financial account = $ + 50 billion. D. Current account = $ + 30 billion; capital account = $ - 20 billion; financial account = $ - 50 billion.

B

Which of the following will generate a demand for country X's currency in the foreign exchange market? A. travel by citizens of country X in other countries B. the desire of foreigners to buy stocks and bonds of firms in country X C. the imports of country X D. charitable contributions by country X's citizens to citizens of developing nations

B

*Chart #1* The United States' balance of capital and financial account is a: A. surplus of $5. B. deficit of $10. C. surplus of $25. D. deficit of $5.

C

*Chart #3* Zippo has a: A. current account surplus. B. financial account deficit. C. financial account surplus. D. surplus on goods and services.

C

*Chart #4* Suppose that Libra decided to import more U.S. products. We would expect the quantity of libras: A. demanded at each dollar price to rise and the dollar to depreciate relative to the libra. B. demanded at each dollar price to fall and the dollar to appreciate relative to the libra. C. supplied at each dollar price to rise and the dollar to appreciate relative to the libra. D. supplied at each dollar price to fall and the dollar to depreciate relative to the libra.

C

*Graph #1* At the equilibrium exchange rate: A. $8 will buy 1 euro. B. 0.8 euros will buy $1. C. 1.25 euros will buy $1. D. $1 will buy 8 euros.

C

*Graph #1* Other things equal, a leftward shift of the demand curve would: A. depreciate the dollar. B. appreciate the euro. C. reduce the equilibrium quantity of euros. D. cause a surplus of euros.

C

*Graph #3* D and S are the United States' demand for and supply of Swiss francs. At the equilibrium exchange rate, E, the United States' balance of payments is in equilibrium. Under a system of fixed exchange rates, the shift in demand from D to D' will cause: A. the United States to increase its stocks of international monetary reserves. B. a Swiss balance of payments deficit. C. a U.S. balance of payments deficit. D. a U.S. balance of payments surplus.

C

Appreciation of the Canadian dollar will: A. intensify an existing disequilibrium in Canada's balance of payments. B. make Canada's exports less expensive and its imports more expensive. C. make Canada's exports more expensive and its imports less expensive. D. make Canada's exports and imports both more expensive.

C

Assume that, under a system of floating exchange rates, Mexicans decide to increase their investments in the United States. As a result: A. the peso and the dollar will both depreciate. B. the peso and the dollar will both appreciate. C. the peso will depreciate and the dollar will appreciate. D. the peso will appreciate and the dollar will depreciate.

C

Evidence of a chronic balance of payments deficit is: A. a decline in amount of the nation's currency held by other nations. B. an excess of exports over imports. C. diminishing reserves of foreign currencies. D. an increase in the international value of the nation's currency

C

Firms engaged in international trade can reduce exchange-rate risk by: A. paying for foreign goods only when they are delivered. B. buying on credit. C. hedging in the futures market. D. dealing only with highly reputable firms.

C

If the dollar depreciates relative to the Russian ruble, the ruble: A. will be less expensive to Americans. B. may either appreciate or depreciate relative to the dollar. C. will appreciate relative to the dollar. D. will depreciate relative to the dollar.

C

If the equilibrium exchange rate changes so that fewer dollars are needed to buy a South Korean won, then: A. Americans will buy fewer Korean goods and services. B. the won has appreciated in value. C. fewer U.S. goods and services will be demanded by the South Koreans. D. the dollar has depreciated in value.

C

In 2009, the United States' balance on goods was about: A. - $420 billion. B. + $509 billion. C. - $517 billion. D. + $138 billion.

C

In international financial transactions, what are the only two things that individuals and firms can exchange? A. Currency and real assets. B. Services and manufactured goods. C. Preexisting assets and currently produced goods and services. D. Currency and currently produced goods and services.

C

In recent years, the United States has had large: A. current account surpluses. B. capital and financial account deficits. C. balance of trade deficits. D. balance of payments surpluses.

C

In terms of individual nations, the largest U.S. trade deficit is with: A. Japan. B. Mexico. C. China. D. Canada.

C

In the balance of payments of the United States, U.S. goods imports are recorded as a: A. positive entry. B. capital account entry. C. current account entry. D. financial account entry.

C

It may be misleading to label a trade deficit as unfavorable or adverse because: A. the multiplier does not apply to a trade deficit. B. a trade deficit increases a nation's aggregate output and employment. C. a nation's consumers benefit from a trade deficit during the period it occurs. D. a trade deficit precludes inflation.

C

On the basis of its balance of payments position, and other things equal, we can expect the international value of Zippo's currency to: A. increase. B. decrease. C. remain constant. D. gyrate up and down.

C

Suppose the balance on the current account is +$100 billion and the balance on the capital account is $1 billion. The balance on the financial account is: A. +$101 billion. B. -$100 billion. C. -$99 billion. D. -$101 billion.

C

The Bretton Woods system of exchange rates relied on: A. freely floating exchange rates. B. fixed exchange rates with no mechanism for changing them. C. fixed or pegged exchange rates, with occasional orderly adjustments to the rates. D. the United States to set and periodically review worldwide exchange rates

C

The exchange rate system currently used by the industrially advanced nations is: A. the gold standard. B. the Bretton Woods system. C. the managed float. D. a fixed rate system.

C

The financial account balance is a nation's: A. net investment income minus its net transfers. B. exports of goods and services minus its imports of goods and services. C. sale of real and financial assets to people living abroad minus its purchases of real and financial assets from foreigners. D. domestic investment spending minus domestic saving.

C

Under an international gold standard a flow of gold from country A into country B would be halted by: A. a rise in the price of B's currency measured in terms of A's currency. B. government export controls on gold. C. rising prices and incomes in B and falling prices and incomes in A. D. rising prices and incomes in A and falling prices and incomes in B.

C

Under an international gold standard: A. exchange rates would fluctuate inversely with the domestic interest rates of the participating countries. B. each nation must agree to depreciate its currency in direct proportion to the growth of its real GDP. C. gold would flow into a nation experiencing a balance of payments surplus. D. exchange rates would fluctuate directly with the domestic price levels of the various trading countries.

C

Under the managed floating system of exchange rates: A. all exchange rates vary with changes in the free-market prices of gold. B. industrialized nations meet once each year to negotiate readjustments in their exchange rates. C. exchange rates are essentially flexible, but governments intervene to offset disorderly fluctuations in rates. D. exchange rates are adjusted at the discretion of the IMF

C

Which of the following would contribute to a United States balance of payments surplus? A. the United States makes a unilateral tariff reduction on imported goods B. General Motors pays a dividend to a Swiss stockholder C. the United States cuts back on U.S. military personnel stationed in Germany D. Russian vodka becomes increasingly popular in the United States

C

Which one of the following will not directly affect the U.S. balance on current account? A. an increase in U.S. goods imports B. a decrease in U.S. net investment income C. an increase in U.S. purchases of assets abroad D. an increase in U.S. imports of services

C

*Chart #1* The United States has a balance of goods: A. deficit of $10 billion. B. surplus of $30 billion. C. deficit of $30 billion. D. surplus of $20 billion.

D

*Chart #3* Zippo has: A. a current account surplus. B. a financial account deficit. C. a trade surplus on goods and services. D. neither a balance of payments deficit nor a surplus.

D

*Graph #3* D and S are the United States' demand for and supply of Swiss francs. At the equilibrium exchange rate, E, the United States' balance of payments is in equilibrium. A shift of the demand curve to D' might be the result of: A. a relative decline in interest rates in Switzerland. B. a reduction in the United States' relative price level. C. a recession in the United States which slows its rate of growth. D. a relative decline in interest rates in the United States.

D

*Graph #3* D and S are the United States' demand for and supply of Swiss francs. At the equilibrium exchange rate, E, the United States' balance of payments is in equilibrium. Under a system of flexible exchange rates, the shift in demand from D to D' will: A. ultimately reduce U.S. exports and raise U.S. imports. B. cause the dollar to appreciate. C. cause the Swiss franc to depreciate. D. cause the dollar to depreciate.

D

A market in which the money of one nation is exchanged for the money of another nation is a: A. resource market. B. bond market. C. stock market. D. foreign exchange market

D

Depreciation of the dollar will: A. decrease the prices of both U.S. imports and exports. B. increase the prices of both U.S. imports and exports. C. decrease the prices of U.S. imports, but increase the prices to foreigners of U.S. exports. D. increase the prices of U.S. imports, but decrease the prices to foreigners of U.S. exports.

D

If a nation has a current account surplus and it does not have to make any inpayments or outpayments of official reserves, it must have a: A. surplus in its capital and financial account. B. balance of payments deficit. C. balance of payments surplus. D. deficit in its capital and financial account.

D

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

D

In 2009, the capital account in the U.S. balance of payments was in: A. deficit, and larger than the current account deficit. B. surplus, and larger than the current account surplus. C. balance, with no deficit or surplus. D. deficit, and smaller than the current account deficit.

D

In a nation's balance of payments, which one of the following items is always recorded as a positive entry? A. goods imports B. changes in foreign currency reserves C. U.S. purchases of assets abroad D. exports of services

D

In saying that the present system of floating exchange rates is managed we mean that: A. countries that allow their exchange rate to move freely will lose their borrowing privileges with the IMF. B. the value of any IMF member's currency can only vary 2 percent from its par value. C. IMF officials determine exchange rates on a day-to-day basis. D. the central banks of various countries sometimes buy and sell foreign exchange to alter undesirable trends in exchange rates.

D

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

D

Relatively rapid U.S. growth between 2001 and 2007, contributed to large U.S. trade deficits by: A. increasing U.S. national income, which decreased U.S. exports. B. reducing real interest rates in the United States. C. increasing U.S. tax revenues and reducing the Federal budget deficit. D. increasing U.S. national income, which increased U.S. imports

D

Suppose interest rates fall sharply in the United States but are unchanged in Great Britain. Other things equal, under a system of freely floating exchange rates we can expect the demand for pounds in the United States to: A. decrease, the supply of pounds to increase, and the dollar to appreciate relative to the pound. B. increase, the supply of pounds to increase, and the dollar may either appreciate or depreciate relative to the pound. C. increase, the supply of pounds to decrease, and the dollar to depreciate relative to the pound. D. decrease, the supply of pounds to increase, and the dollar to depreciate relative to the pound.

D

The Bretton Woods system of exchange rates: A. is also known as the gold standard and met its demise in the 1930s. B. relied heavily on floating exchange rates determined in the market for foreign exchange. C. was abandoned in the 1930s. D. was a system of fixed or pegged exchange rates, which occasionally could be adjusted.

D

The U.S. demand for British pounds is: A. downsloping because a higher dollar price of pounds means British goods are cheaper to Americans. B. downsloping because a lower dollar price of pounds means British goods are more expensive to Americans. C. upsloping because a lower dollar price of pounds means British goods are cheaper to Americans. D. downsloping because a lower dollar price of pounds means British goods are cheaper to Americans.

D

The following are hypothetical exchange rates: $1 = 140 yen; 1 Swiss franc = $.10. We can conclude that: A. 1 yen = 280 Swiss francs. B. 1 yen = 14 Swiss francs. C. 1 Swiss franc = 28 yen. D. 1 Swiss franc = 14 yen.

D

The idea that freely floating exchange rates equate the buying power of national currencies is called: A. the equation of exchange. B. the balance of payments. C. Say's Law. D. the purchasing power parity theory.

D

The world's largest debtor nation in terms of debt owed to foreign citizens and governments is: A. Russia. B. Argentina. C. Japan. D. The United States.

D

Two of the implications of large U.S. trade deficits for the United States are: A. decreased current consumption and decreased indebtedness to foreigners. B. reduced budget deficits and decreased indebtedness to foreigners. C. reduced current consumption and higher saving. D. increased current consumption and increased indebtedness to foreigners.

D

Which of the following combinations is plausible, as it relates to a nation's balance of payments? A. Current account = $ + 40 billion; capital account = $ - 10 billion; financial account = $ - 50 billion. B. Current account = $ + 50 billion; capital account = $ - 20 billion; financial account = $ + 30 billion. C. Current account = $ + 10 billion; capital account = $ + 40 billion; financial account = $ + 50 billion. D. Current account = $ + 30 billion; capital account = $ - 20 billion; financial account = $ - 10 billion.

D