Econ Unit 6 Take Home Test

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:

+$295 billion

If the exchange rate changes so that more Mexican pesos are required to buy a dollar, then:

Americans will buy more Mexican goods and services

With which of the following countries does the US have its largest goods and services deficit

China

Research studies indicate that:

US consumers lose more from tariffs than US producers gain

According to the purchasing power parity theory of exchange rates:

a dollar, when converted to other currencies at the prevailing floating exchange rate, has the same purchasing power in various countries

US export transactions create:

a foreign demand for dollars and the satisfaction of this demand increases the supplies of foreign monies held by US banks

Under an international gold standard

a nation's exchange rate is virtually fixed

The fact that international specialization and trade based on comparative advantage can increase world output is demonstrated by the reality that

a nations trading possibilities line lies to the right of its production possibilities line

Differences in production efficiencies among nations in producing a particular good result from: -different endowments of fertile soil -different amounts of skilled labor -different levels of technological knowledge -all of the above

all of the above

The basis for the Bretton Woods international monetary system was

an adjustable peg system of exchange rates

A tariff can best be described as

an excise tax on an imported good

The increased domestic employment argument for tariff protection holds that:

an increase in tariffs will increase net exports and stimulate domestic employment

Under a system of freely flexible (floating) exchange rates a US trade deficit with Mexico will tend to cause:

an increase in the dollar price of pesos

In considering euros and dollars, the rates of exchange for the euro and the dollar

are inversely related

Other things equal, the financing of a US import transaction

decreases the supplies of foreign currency held by US banks

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:

deficit in its capital and financial account

Evidence of a chronic balance of payments deficit is

diminishing reserves of foreign currencies

Under the managed floating system of exchange rates

exchange rates are essentially flexible, but the governments intervene to offset disorderly fluctuations in rates

In the US balance of payments, foreign purchases of assets in the US are a

foreign currency inflow

Other things equal, economists would prefer

free trade to tariffs and tariffs to import quotas

Which of the following lists of exchange rates is arranged in proper historical order (bw, gold, mf)

gold standard, Bretton Woods system, managed float

Critics of the World Trade Organization (WTO) say that liberalized world trade does all of the following except:

helps developing nations escape from poverty

Country A limits other nation's exports to Country A to 1,000 tons of coal annually. This is an example of a(n):

import quota

A protective tariff will:

increase the price and sales of domestic producers

Depreciation of the dollar will

increase the prices of US imports but decrease the prices to foreigners of US exports

Suppose interest rates fall sharply in the US buy 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 US to:

increase, the supply of pounds to decrease, and the dollar to depreciate relative to the pound

Two of the implications of large US trade deficits for the US are

increased current consumption and increased indebtedness to foreigners

In the theory of comparative advantage, a good should be produced in that nation where:

its cost is least in terms of alternative goods that might otherwise be produced

The current system of exchange rates can best be described as

managed floating exchange rates

The gain from international trade is:

more goods than would be attainable through domestic production alone

The financial account balance is a nation's:

sale of real and financial assets to people living abroad minus its purchases of real and financial assets from foreigners

In effect tariffs on imports are

subsidies for domestic producers

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

the desire of foreigners to buy stocks and bonds of firms in country X

If two nations have straight line production possibilities curves

there will be a basis for mutually advantageous trade provided the slopes differ

In the past, Canada has agreed to set an upper limit on the total amount of softwood lumber sold to the US. This is an example of a(n):

voluntary export restriction