Question 1

The idea that freely floating exchange rates equate the buying power of national currencies is called

Accepted Answer

A)   the equation of exchange.
B)   the balance of payments.
C)   Say's Law.
D)   the purchasing power parity theory.

Question 2

Under freely flexible (floating) exchange rates, if the dollar price of pounds rises, the pound price of dollars will fall.

Accepted Answer

A) True 
 B)False

Question 3

International transactions fall into what two broad categories?

Accepted Answer

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

Question 4

It may be misleading to label a trade deficit as unfavorable or adverse, because

Accepted Answer

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.

Question 5

Suppose that Econland adopts a fixed exchange-rate system and pegs the value of its peso to the U.S. dollar. If people's demand for pesos increases in the foreign exchange markets, then Econland's foreign-exchange reserves will

Accepted Answer

A)   increase.
B)   decrease.
C)   stay the same.
D)   equal the trade balance.

Question 6

There must always be a balance of a nation's

Accepted Answer

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.

Question 7

During the period 2002-2009, U.S. trade deficits

Accepted Answer

A)   increased from 2002 to 2006 and increased even faster in the recession of 2007-2009.
B)   initially decreased, but then increased significantly in the recession of 2007-2009.
C)   increased from 2002 to 2006, but then decreased in the recession of 2007-2009.
D)   decreased throughout the entire decade.

Question 8

The United States' current account deficit reached a new high in

Accepted Answer

A)   2006.
B)   2007.
C)   2009.
D)   2015.

Question 9

The following are hypothetical exchange rates: 2 euros = 1 pound; $1 = 2 pounds. We can conclude that
A) $1 = 4 euros.
B) $1 = 0.5 euro.
C) 1 euro = $0.50.
D) 1 euro = $2.

Accepted Answer

The answer of The following are hypothetical exchange rates: 2...

Question 10

Which of the following factors has helped maintain the large U.S. trade deficits over the years?

Accepted Answer

A)   a decline in investment
B)   capital and financial account surpluses
C)   a decrease in economic growth
D)   an increase in U.S. net exports

Question 11

Which of the following has contributed to large U.S. trade deficits in recent years?

Accepted Answer

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.

Question 12

The following are hypothetical exchange rates: $1 = 140 yen; 1 Swiss franc = $0.10. We can conclude that

Accepted Answer

A)   1 yen = 280 Swiss francs.
B)   1 yen = 14 Swiss francs.
C)   1 Swiss franc = 28 yen.
D)   1 Swiss franc = 14 yen.

Question 13

A trade deficit means a net

Accepted Answer

A)   inflow of payments for goods and services.
B)   outflow of goods and services.
C)   inflow of goods and services.
D)   excess of exports over imports.

Question 14

Under an international gold standard,

Accepted Answer

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.

Question 15

The Bretton Woods system of exchange rates relied on

Accepted Answer

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.

Question 16

The current system of exchange rates can best be described as

Accepted Answer

A)   freely fluctuating exchange rates.
B)   managed floating exchange rates.
C)   rigidly fixed exchange rates.
D)   an adjustable peg system.

Question 17

If a Japanese importer could buy $1,000 U.S. for 122,000 yen, the rate of exchange for one dollar would be

Accepted Answer

A)   8.19 yen.
B)   122 yen.
C)   820 yen.
D)   1,220 yen.

Question 18

A trade deficit for the United States is generally financed by

Accepted Answer

A)   lending to the federal government.
B)   borrowing from the federal government.
C)   buying securities or assets from other nations.
D)   selling securities or assets to other nations.

Question 19

If a European importer can buy $10,000 for 11,100 euros, the exchange rate for the euro is

Accepted Answer

A)   1 euro = $0.80.
B)   1 euro = $0.90.
C)   1 euro = $0.95.
D)   1 euro = $1.11.

Question 20

Suppose that Econland adopts a fixed exchange-rate system and pegs the value of its peso to the U.S. dollar. Which of the following statements is true?

Accepted Answer

A)   Econland's government will have a limited capacity to maintain the peg at the current level if the supply of dollars in the foreign exchange market is continually rising.
B)   Econland's government will have a limited capacity to maintain the peg at the current level if the demand for pesos in the foreign exchange market is continually falling.
C)   Econland's government will have a limited capacity to maintain the peg at the current level if the demand for Econland's products in the world market is strongly rising.
D)   Econland's government will have a limited capacity to maintain the peg at the current level if the demand for U.S. products in Econland is sharply falling.

Exam 27: The Balance of Payments, Exchange Rates, and Trade Deficits

Suppose that Econland adopts a fixed exchange-rate system and pegs the value of its peso to the U.S. dollar. Which of the following statements is true?

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The United States' current account deficit reached a new high in

Correct AnswerverifiedShow Answer

During the period 2002-2009, U.S. trade deficits

Correct AnswerverifiedShow Answer

The idea that freely floating exchange rates equate the buying power of national currencies is called

Correct AnswerverifiedShow Answer

Suppose that Econland adopts a fixed exchange-rate system and pegs the value of its peso to the U.S. dollar. If people's demand for pesos increases in the foreign exchange markets, then Econland's foreign-exchange reserves will

Correct AnswerverifiedShow Answer

A trade deficit for the United States is generally financed by

Correct AnswerverifiedShow Answer

The Bretton Woods system of exchange rates relied on

Correct AnswerverifiedShow Answer

It may be misleading to label a trade deficit as unfavorable or adverse, because

Correct AnswerverifiedShow Answer

Which of the following has contributed to large U.S. trade deficits in recent years?

Correct AnswerverifiedShow Answer

If a Japanese importer could buy $1,000 U.S. for 122,000 yen, the rate of exchange for one dollar would be

Correct AnswerverifiedShow Answer

There must always be a balance of a nation's

Correct AnswerverifiedShow Answer

The following are hypothetical exchange rates: 2 euros = 1 pound; $1 = 2 pounds. We can conclude that A) $1 = 4 euros. B) $1 = 0.5 euro. C) 1 euro = $0.50. D) 1 euro = $2.

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The current system of exchange rates can best be described as

Correct AnswerverifiedShow Answer

Under freely flexible (floating) exchange rates, if the dollar price of pounds rises, the pound price of dollars will fall.

Correct AnswerverifiedShow Answer

The following are hypothetical exchange rates: $1 = 140 yen; 1 Swiss franc = $0.10. We can conclude that

Correct AnswerverifiedShow Answer

International transactions fall into what two broad categories?

Correct AnswerverifiedShow Answer

Which of the following factors has helped maintain the large U.S. trade deficits over the years?

Correct AnswerverifiedShow Answer

If a European importer can buy $10,000 for 11,100 euros, the exchange rate for the euro is

Correct AnswerverifiedShow Answer

Under an international gold standard,

Correct AnswerverifiedShow Answer

A trade deficit means a net

Correct AnswerverifiedShow Answer

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