Question 1

When it is reported that a nation is experiencing a "balance of payments deficit," this is best interpreted to mean that the nation is experiencing

Accepted Answer

A)  an increase in foreign exchange reserves.
B)  a decrease in foreign exchange reserves.
C)  an imbalance between its current account and its capital and financial account.
D)  a situation where it is importing more goods than it is exporting.E) A) and B)
F) A) and C)

Question 2

A current account deficit will reduce U.S.foreign indebtedness.

Accepted Answer

A) True 
 B)False

Question 3

To Americans buyers, there is a decrease in the relative prices of Japanese goods when the

Accepted Answer

A)  yen appreciates.
B)  dollar appreciates.
C)  inflation rate in the United States is higher than the inflation rate in Japan, and there are flexible exchange rates.
D)  inflation rate in Japan is higher than the inflation rate in the United States and there are fixed exchange rates.E) A) and B)
F) A) and C)

Question 4

(Last Word)  Which of the following is a disadvantage of belonging to a common currency?

Accepted Answer

A)  exchange-rate risk
B)  difficulty in comparing costs between trading partners
C)  deadweight loss from currency conversions
D)  the loss of monetary policy independenceE) B) and C)
F) A) and B)

Question 5

Several countries in the world today peg their currencies to the U.S.dollar, causing those currencies' values to fluctuate as the U.S.dollar fluctuates.

Accepted Answer

A) True 
 B)False

Question 6

A central bank engaging in sterilization is attempting to

Accepted Answer

A)  counteract the efforts of foreign central banks that fix exchange rates to gain an advantage in international trade.
B)  depreciate its currency relative to foreign currencies.
C)  appreciate its currency relative to foreign currencies.
D)  offset domestic money supply changes that result from fixing its exchange rate against other currencies.E) None of the above
F) C) and D)

Question 7

U.S.exports to Japan create a supply of dollars and a demand for yen in the foreign exchange market.

Accepted Answer

A) True 
 B)False

Question 8

In 2015, the capital and financial account in the U.S.balance of payments was in

Accepted Answer

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.E) All of the above
F) C) and D)

Question 9

The current account on a nation's balance of payments statement includes all of the following except

Accepted Answer

A)  the nation's goods exports.
B)  the nation's goods imports.
C)  net investment income.
D)  net purchases of assets abroad.E) All of the above
F) A) and D)

Question 10

Improved economic growth in the major trading partners of the United States would reduce its trade deficit.

Accepted Answer

A) True 
 B)False

Question 11

The U.S.demand for British pounds is

Accepted Answer

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.E) None of the above
F) C) and D)

Question 12

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.E) All of the above
F) A) and C)

Question 13

In 2015, the capital account in the U.S.balance of payments was in

Accepted Answer

A)  deficit, and larger than the current account deficit.
B)  surplus, and larger than the current account surplus.
C)  deficit, and smaller than the current account deficit.
D)  balance, with no deficit or surplus.E) A) and C)
F) All of the above

Question 14

The settling of any net deficit in the combined current, and capital and financial accounts is done with

Accepted Answer

A)  capital reserves.
B)  official reserves.
C)  net transfers.
D)  net investment income.E) None of the above
F) B) and D)

Question 15

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

Accepted Answer

A)  +$295 billion.
B)  −$295 billion.
C)  +$305 billion.
D)  +$5 billion.E) A) and B)
F) A) and C)

Question 16

If the United States experiences an increase in foreign exchange reserves,

Accepted Answer

A)  the net transfers line in the balance of payments statement will increase.
B)  it will also realize a decrease in the domestic supply of dollars.
C)  this will appear as a positive item in the U.S.balance of payments statement.
D)  this will appear as a negative item in the U.S.balance of payments statement.E) B) and C)
F) A) and D)

Question 17

Which of the following statements is not true in the current exchange-rate system?

Accepted Answer

A)  Major currencies like the U.S.dollar, euro, pound, and yen operate mostly in a flexible system responding to supply and demand forces.
B)  Some developing nations peg their currencies to the dollar and allow their currencies to fluctuate with it relative to other currencies.
C)  Each country uses its own unique currency; for example, only the U.S.uses the U.S.dollar as its currency.
D)  Many nations peg their currencies to a "basket," or group, of other currencies, rather than to a single other currency.E) All of the above
F) C) and D)

Question 18

Which system would be accompanied by occasional currency interventions by central banks to stabilize or alter rates to avoid persistent balance of payments deficits or surpluses?

Accepted Answer

A)  the gold standard
B)  fixed exchange rates
C)  flexible exchange rates
D)  managed floating exchange ratesE) B) and C)
F) A) and C)

Question 19

Which of the following statements is most accurate about the U.S.current account since the Great Recession (the period covering 2009-2015) ?

Accepted Answer

A)  The current account has remained the same in absolute terms, but fallen as a percentage of GDP.
B)  The current account has gone from a deficit to a surplus.
C)  The current account deficit has grown in absolute terms, but remained relatively constant as a percentage of GDP.
D)  The current account deficit has grown in both absolute terms, and as a percentage of GDP.E) None of the above
F) All of the above

Question 20

When the U.S.dollar decreases in value relative to foreign currencies, the

Accepted Answer

A)  demand for U.S.exports will decrease.
B)  supply of U.S.exports will decrease.
C)  demand for U.S.exports will increase.
D)  supply of U.S.exports will remain constant.E) A) and D)
F) A) and C)

Exam 41: The Balance of Payments, Exchange Rates, and Trade Deficits

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

Correct AnswerverifiedShow Answer

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

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A current account deficit will reduce U.S.foreign indebtedness.

Correct AnswerverifiedShow Answer

Several countries in the world today peg their currencies to the U.S.dollar, causing those currencies' values to fluctuate as the U.S.dollar fluctuates.

Correct AnswerverifiedShow Answer

The U.S.demand for British pounds is

Correct AnswerverifiedShow Answer

(Last Word) Which of the following is a disadvantage of belonging to a common currency?

Correct AnswerverifiedShow Answer

In 2015, the capital and financial account in the U.S.balance of payments was in

Correct AnswerverifiedShow Answer

A central bank engaging in sterilization is attempting to

Correct AnswerverifiedShow Answer

If the United States experiences an increase in foreign exchange reserves,

Correct AnswerverifiedShow Answer

U.S.exports to Japan create a supply of dollars and a demand for yen in the foreign exchange market.

Correct AnswerverifiedShow Answer

Which system would be accompanied by occasional currency interventions by central banks to stabilize or alter rates to avoid persistent balance of payments deficits or surpluses?

Correct AnswerverifiedShow Answer

When it is reported that a nation is experiencing a "balance of payments deficit," this is best interpreted to mean that the nation is experiencing

Correct AnswerverifiedShow Answer

In 2015, the capital account in the U.S.balance of payments was in

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Which of the following statements is not true in the current exchange-rate system?

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The current account on a nation's balance of payments statement includes all of the following except

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The settling of any net deficit in the combined current, and capital and financial accounts is done with

Correct AnswerverifiedShow Answer

Which of the following statements is most accurate about the U.S.current account since the Great Recession (the period covering 2009-2015) ?

Correct AnswerverifiedShow Answer

To Americans buyers, there is a decrease in the relative prices of Japanese goods when the

Correct AnswerverifiedShow Answer

Improved economic growth in the major trading partners of the United States would reduce its trade deficit.

Correct AnswerverifiedShow Answer

When the U.S.dollar decreases in value relative to foreign currencies, the

Correct AnswerverifiedShow Answer

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