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

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Question 91

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An inflow of investment funds into the United States from overseas is likely to result from a(n)

A) decline in expectations for economic growth in the United States.
B) growing belief among investors that the U.S. dollar ($) is overvalued.
C) rise in U.S. interest rates relative to world interest rates.
D) increase in the U.S. inflation rate.

E) A) and B)
F) C) and D)

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Question 92

Multiple Choice

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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.

E) B) and D)
F) B) and C)

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Question 93

Multiple Choice

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The two varieties of exchange-rate systems are

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

Which of the following is not a condition of the international gold standard?

An increase in the income of country A relative to the income of country B will usually lead to an increase in country

$\begin{array} { | l | c | } \hline \text { (1) Goods Exports } & + \$ 15 \\\hline \text { (2) Goods Imports } & - 17 \\\hline \text { (3) Service Exports } & + 5 \\\hline \text { (4) Service Imports } & - 2 \\\hline \text { (5) Net Investment Income } & - 5 \\\hline \text { (6) Net Transfers } & + 4 \\\hline \text { (7) Foreign Purchases of Assets } & + 5 \\\hline \text { (8) Purchases of Foreign Assets } & - 11 \\\hline \text { (9) Balance on Capital Account } & + 1 \\\hline\end{array}$ The table shows a balance of payments statement for Transylvania. All ?gures are in billions of dollars. Transylvania was a net recipient of transfers from the rest of the world for the year.

Suppose that the United States fixes the dollar-pound exchange rate. In the process of maintaining the fixed exchange rate, if the U.S. central bank starts to realize reduced reserves of pounds, this Suggests that

Under a fixed exchange-rate system, which of the following will not occur if the demand for the local currency rises?

If the United States and France are both on the international gold standard and U.S. exports to France exceed United States imports from France, gold will flow from the United States to France.

$\begin{array} { | l | c | } \hline \text { (1) Goods Exports } & + \$ 15 \\\hline \text { (2) Goods Imports } & - 17 \\\hline \text { (3) Service Exports } & + 5 \\\hline \text { (4) Service Imports } & - 2 \\\hline \text { (5) Net Investment Income } & - 5 \\\hline \text { (6) Net Transfers } & + 4 \\\hline \text { (7) Foreign Purchases of Assets } & + 5 \\\hline \text { (8) Purchases of Foreign Assets } & - 11 \\\hline \text { (9) Balance on Capital Account } & + 1 \\\hline\end{array}$ The table shows a balance of payments statement for Transylvania. All ?gures are in billions of dollars. In this particular year, Transylvania realized a $1 billion surplus on goods and services.

If a U.S. importer can purchase 10,000 British pounds for $20,000, the rate of exchange is

If a financial portfolio manager in the U.S. buys British company stocks in the London Stock Exchange, this would involve

In 2018, the capital and financial account in the U.S. balance of payments was in

$\begin{array} { | l | c | } \hline \text { (1) Goods Exports } & + \$ 15 \\\hline \text { (2) Goods Imports } & - 17 \\\hline \text { (3) Service Exports } & + 5 \\\hline \text { (4) Service Imports } & - 2 \\\hline \text { (5) Net Investment Income } & - 5 \\\hline \text { (6) Net Transfers } & + 4 \\\hline \text { (7) Foreign Purchases of Assets } & + 5 \\\hline \text { (8) Purchases of Foreign Assets } & - 11 \\\hline \text { (9) Balance on Capital Account } & + 1 \\\hline\end{array}$ The table shows a balance of payments statement for Transylvania. All ?gures are in billions of dollars. In this particular year, Transylvania imported more products than it exported.

What are the economic effects of a depreciation of the dollar relative to foreign currencies?

$\begin{array} { | l | r | } \hline \text { (1) Goods Exports } & + \$ 200 \\\hline \text { (2) Balance on Capital Account } & 0 \\\hline \text { (3) Net Transfers } & 0 \\\hline \text { (4) Imports of Services } & - 100 \\\hline \text { (5) Net Investment Income } & 0 \\\hline \text { (6) US Purchases of Assets Abroad } & - 50 \\\hline \text { (7) Goods Imports } & - 250 \\\hline \text { (8) Foreign Purchases of Assets in the US } & + 150 \\\hline \text { (9) Exports of Services } & + 50 \\\hline\end{array}$ The plus items in the table are "export-type" entries and the minus items are "import-type" entries in the balance of payments for the hypothetical country of Zippo. The current account items for Zippo Are

Other things being equal, an increase in the U.S. rate of inflation is likely to cause an increase in the

The basis for the Bretton Woods international monetary system was

$\begin{array} { | l | r | } \hline \text { (1) Goods Exports } & + \$ 200 \\\hline \text { (2) Balance on Capital Account } & 0 \\\hline \text { (3) Net Transfers } & 0 \\\hline \text { (4) Imports of Services } & - 100 \\\hline \text { (5) Net Investment Income } & 0 \\\hline \text { (6) US Purchases of Assets Abroad } & - 50 \\\hline \text { (7) Goods Imports } & - 250 \\\hline \text { (8) Foreign Purchases of Assets in the US } & + 150 \\\hline \text { (9) Exports of Services } & + 50 \\\hline\end{array}$ The plus items in the table are "export-type" entries and the minus items are "import-type" entries in the balance of payments for the hypothetical country of Zippo. Zippo has a