Question 1

Answer the question on the basis of the following balance of payments data for the hypothetical nation of Econland. All figures are in billions of dollars. (1)  Goods exports +$220
(2)  Goods imports -328
(3)  Exports of services +54
(4)  Imports of services -55
(5)  Net investment income +18
(6)  Net transfers -11
(7)  Capital account -1
(8)  Foreign purchases of Econland assets +124
(9)  Econland purchases of foreign assets -21
Refer to the table above. Econland's balance on the capital and financial accounts is a:

Accepted Answer

A)   Deficit of $110 billion
B)   Surplus of $92 billion
C)   Surplus of $102 billion
D)   Surplus of $103 billionE) A) and B)
F) None of the above

Question 2

Which of the following would tend to raise the value of the U.S. dollar in foreign exchange markets?

Accepted Answer

A)   A rise in U.S. interest rates
B)   An easy monetary policy in the United States
C)   A contractionary fiscal policy in the United States
D)   An increase in the U.S. demand for foreign oilE) A) and B)
F) All of the above

Question 3

A currency depreciation in the foreign exchange market will:

Accepted Answer

A)   Encourage imports into the country whose currency has depreciated
B)   Discourage imports into the country whose currency has depreciated
C)   Discourage exports from the country whose currency has depreciated
D)   Encourage foreign travel by the citizens of the country whose currency has depreciatedE) C) and D)
F) B) and D)

Question 4

At the time when a trade deficit is occurring, U.S. consumers benefit from having more goods and services available.

Accepted Answer

A) True 
 B)False

Question 5

One of the causes of the rising trade deficits of the past decade has been a declining saving rate in the United States.

Accepted Answer

A) True 
 B)False

Question 6

The following table contains hypothetical data for the U.S. balance of payments in a year. Answer the following question on the basis of these data. All figures are in billions of dollars. U.S. 
Refer to the table above. The balance on the financial account was a:

Accepted Answer

A)   $92 billion surplus
B)   $97 billion surplus
C)   $92 billion deficit
D)   $97 billion deficitE) None of the above
F) A) and D)

Question 7

What are two major outcomes from the large U.S. trade deficits?

Accepted Answer

A)   An increase in domestic consumption and U.S. indebtedness
B)   A decrease in domestic consumption and U.S. indebtedness
C)   An increase in domestic consumption and a decrease in U.S. indebtedness
D)   A decrease in domestic consumption and an increase in U.S. indebtednessE) None of the above
F) All of the above

Question 8

The purchase of a foreign hotel by a U.S. company is recorded as a credit in the financial account of the U.S. balance-of-payments statement.

Accepted Answer

A) True 
 B)False

Question 9

Which of the following statements is correct?

Accepted Answer

A)   Under the gold standard, exchange rates fluctuate without restraint and thereby correct any international balance of payment disequilibrium
B)   If nations X and Y are on the international gold standard, and X's exports to Y exceed X's imports from Y, then gold will flow from X to Y
C)   If the dollar price of pounds rises, then the pound price of dollars will also rise
D)   American exports tend to increase, while American imports tend to decrease, the supplies of foreign monies owned by American banksE) None of the above
F) All of the above

Question 10

To maintain a fixed exchange rate, the government can use the following tools, except:

Accepted Answer

A)   Currency market intervention
B)   Controlling the flow of trade through various barriers
C)   Rationing of foreign exchange
D)   Keeping its level of international reserves strictly fixedE) A) and B)
F) A) and C)

Question 11

Official reserves used to achieve a balance of payments between nations engaging in international trade are held by:

Accepted Answer

A)   Private businesses engaging in trade
B)   Central banks of the nations engaged in trade
C)   Commercial banks which make loans to businesses engaging in trade
D)   Commercial banks which make loans to governments which engage in tradeE) All of the above
F) C) and D)

Question 12

When a U.S. agribusiness company sells 10,000 units of cow vaccine to a company in France, this transaction will represent a:

Accepted Answer

A)   Credit on the current account of the U.S. balance of payments
B)   Debit on the current account of the U.S. balance of payments
C)   Credit on the financial account of the U.S. balance of payments
D)   Debit on the financial account of the U.S. balance of paymentsE) A) and D)
F) C) and D)

Question 13

If the Canadian dollar price of United States dollars increases from C$.80 to C$1.00, it can be concluded that:

Accepted Answer

A)   Both countries are on the international gold standard
B)   The Canadian dollar has appreciated in value relative to the United States dollar
C)   The United States dollar has depreciated in value relative to the Canadian dollar
D)   The Canadian dollar has depreciated in value relative to the United States dollarE) All of the above
F) C) and D)

Question 14

Fixed exchange rates usually provide more certainty to those engaged in international trade.

Accepted Answer

A) True 
 B)False

Question 15

Which of the following would be an indication that a nation has a balance of payments deficit?

Accepted Answer

A)   It is buying gold abroad
B)   Its imports exceed its exports
C)   Its holdings of official reserves are declining
D)   It is borrowing abroad to finance capital investmentsE) None of the above
F) A) and B)

Question 16

If currency speculators believe South Korea will have much lower inflation in the future than the United States, then this event is most likely to cause the South Korean won to:

Accepted Answer

A)   Depreciate and the U.S. dollar to depreciate
B)   Depreciate and the U.S. dollar to appreciate
C)   Appreciate and the U.S. dollar to appreciate
D)   Appreciate and the U.S. dollar to depreciateE) None of the above
F) B) and C)

Question 17

The following table contains hypothetical data for the U.S. balance of payments in a year. Answer the following question on the basis of these data. All figures are in billions of dollars. U.S. 
Refer to the table above. The figure for net transfers indicates that the United States:

Accepted Answer

A)   Received a net public and private transfer of $22 billion from the rest of the world
B)   Sent a net public and private transfer of $22 billion in remittances to the rest of the world
C)   Sent a net private transfer of $22 billion to the rest of the world
D)   Received a net private transfer of $22 billion from the rest of the worldE) A) and D)
F) None of the above

Question 18

Assume that Japan and the United States are engaged in a system of flexible exchange rates.  Refer to the graph above. If more Japanese tourists decide to visit the United States for their vacations:

Accepted Answer

A)   The yen will appreciate and the U.S. dollar will depreciate
B)   The yen will depreciate and the U.S. dollar will appreciate
C)   The yen and the U.S. dollar will appreciate
D)   The yen and the U.S. dollar will depreciateE) A) and B)
F) B) and C)

Question 19

Which of the following factors had 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 exportsE) None of the above
F) A) and C)

Question 20

Which of the following shows the net difference between how much Americans forgave in debts owed to them by foreigners compared with how much foreigners forgave debts owed to them by Americans?

Accepted Answer

A)   Current account
B)   Capital account
C)   Financial account
D)   Net transfersE) None of the above
F) C) and D)

Exam 21: The Balance of Payments, Exchange Rates, and Trade Deficits

Assume that Japan and the United States are engaged in a system of flexible exchange rates. Refer to the graph above. If more Japanese tourists decide to visit the United States for their vacations:

Correct Answer
verified

Which of the following shows the net difference between how much Americans forgave in debts owed to them by foreigners compared with how much foreigners forgave debts owed to them by Americans?

Correct Answer
verified

If the Canadian dollar price of United States dollars increases from C$.80 to C$1.00, it can be concluded that:

Correct Answer
verified

What are two major outcomes from the large U.S. trade deficits?

Correct Answer
verified

Official reserves used to achieve a balance of payments between nations engaging in international trade are held by:

Correct Answer
verified

The following table contains hypothetical data for the U.S. balance of payments in a year. Answer the following question on the basis of these data. All figures are in billions of dollars. U.S. Refer to the table above. The balance on the financial account was a:

Correct Answer
verified

The following table contains hypothetical data for the U.S. balance of payments in a year. Answer the following question on the basis of these data. All figures are in billions of dollars. U.S. Refer to the table above. The figure for net transfers indicates that the United States:

Correct Answer
verified

Which of the following would tend to raise the value of the U.S. dollar in foreign exchange markets?

Correct Answer
verified

The purchase of a foreign hotel by a U.S. company is recorded as a credit in the financial account of the U.S. balance-of-payments statement.

Correct Answer
verified

To maintain a fixed exchange rate, the government can use the following tools, except:

Correct Answer
verified

Fixed exchange rates usually provide more certainty to those engaged in international trade.

Correct Answer
verified

If currency speculators believe South Korea will have much lower inflation in the future than the United States, then this event is most likely to cause the South Korean won to:

Correct Answer
verified

One of the causes of the rising trade deficits of the past decade has been a declining saving rate in the United States.

Correct Answer
verified

A currency depreciation in the foreign exchange market will:

Correct Answer
verified

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

Correct Answer
verified

Which of the following would be an indication that a nation has a balance of payments deficit?

Correct Answer
verified

When a U.S. agribusiness company sells 10,000 units of cow vaccine to a company in France, this transaction will represent a:

Correct Answer
verified

At the time when a trade deficit is occurring, U.S. consumers benefit from having more goods and services available.

Correct Answer
verified

Which of the following statements is correct?

Correct Answer
verified

Correct Answer
verified

Exam 21: The Balance of Payments, Exchange Rates, and Trade Deficits

Assume that Japan and the United States are engaged in a system of flexible exchange rates. Refer to the graph above. If more Japanese tourists decide to visit the United States for their vacations:

Correct AnswerverifiedShow Answer

Which of the following shows the net difference between how much Americans forgave in debts owed to them by foreigners compared with how much foreigners forgave debts owed to them by Americans?

Correct AnswerverifiedShow Answer

If the Canadian dollar price of United States dollars increases from C$.80 to C$1.00, it can be concluded that:

Correct AnswerverifiedShow Answer

What are two major outcomes from the large U.S. trade deficits?

Correct AnswerverifiedShow Answer

Official reserves used to achieve a balance of payments between nations engaging in international trade are held by:

Correct AnswerverifiedShow Answer

The following table contains hypothetical data for the U.S. balance of payments in a year. Answer the following question on the basis of these data. All figures are in billions of dollars. U.S. Refer to the table above. The balance on the financial account was a:

Correct AnswerverifiedShow Answer

The following table contains hypothetical data for the U.S. balance of payments in a year. Answer the following question on the basis of these data. All figures are in billions of dollars. U.S. Refer to the table above. The figure for net transfers indicates that the United States:

Correct AnswerverifiedShow Answer

Which of the following would tend to raise the value of the U.S. dollar in foreign exchange markets?

Correct AnswerverifiedShow Answer

The purchase of a foreign hotel by a U.S. company is recorded as a credit in the financial account of the U.S. balance-of-payments statement.

Correct AnswerverifiedShow Answer

To maintain a fixed exchange rate, the government can use the following tools, except:

Correct AnswerverifiedShow Answer

Fixed exchange rates usually provide more certainty to those engaged in international trade.

Correct AnswerverifiedShow Answer

If currency speculators believe South Korea will have much lower inflation in the future than the United States, then this event is most likely to cause the South Korean won to:

Correct AnswerverifiedShow Answer

One of the causes of the rising trade deficits of the past decade has been a declining saving rate in the United States.

Correct AnswerverifiedShow Answer

A currency depreciation in the foreign exchange market will:

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Which of the following would be an indication that a nation has a balance of payments deficit?

Correct AnswerverifiedShow Answer

When a U.S. agribusiness company sells 10,000 units of cow vaccine to a company in France, this transaction will represent a:

Correct AnswerverifiedShow Answer

At the time when a trade deficit is occurring, U.S. consumers benefit from having more goods and services available.

Correct AnswerverifiedShow Answer

Which of the following statements is correct?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

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