Question 1

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 2

The trade deficit has had the effect of:

Accepted Answer

A)   Decreasing the Federal budget deficit
B)   Increasing economic growth in less developed nations
C)   Increasing direct foreign investment in the United States
D)   Decreasing protectionist pressure among U.S. businesses

Question 3

The graph below shows the supply and demand curves for dollars in the pound/dollar market. 1 and S1 are the initial demand for and supply of dollars. Suppose that Britain's demand for dollars increases from D1 to D2. If the British government wishes to fix the exchange rate at the initial level, one possible way to do this is for the government to: A)  Buy and add more to its dollar reserves B)  Sell pounds in exchange for U.S. dollars C)  Encourage the British to import more U.S. products D)  Sell some of its dollar reserves" class="answers-bank-image d-inline" rel="preload" > Refer to the graph above. Assume that D1 and S1 are the initial demand for and supply of dollars. Suppose that Britain's demand for dollars increases from D1 to D2. If the British government wishes to fix the exchange rate at the initial level, one possible way to do this is for the government to:

Accepted Answer

A)   Buy and add more to its dollar reserves
B)   Sell pounds in exchange for U.S. dollars
C)   Encourage the British to import more U.S. products
D)   Sell some of its dollar reserves

Question 4

Which is not a serious disadvantage associated with freely fluctuating exchange rates?

Accepted Answer

A)   Uncertainty which tends to diminish trade
B)   Greater instability in unemployment levels
C)   Longer lags in eliminating balance of payments surpluses or deficits
D)   Swings in the terms of trade related to currency appreciation or depreciation C

Question 5

In using exchange controls, a nation attempts to eliminate a balance of payments deficit by:

Accepted Answer

A)   Limiting its imports to the dollar value of its exports
B)   Decreasing the nation's domestic price level
C)   Limiting its exports to the dollar value of its imports
D)   Appreciating the value of its currency

Question 6

The basic type of intervention by central banks under the managed floating exchange rate system is to:

Accepted Answer

A)   Readjust the peg for exchange rates
B)   Buy and sell currencies to influence supply and demand for foreign exchange
C)   Renegotiate the rate at which foreign currencies can be converted into gold
D)   Make pronouncements but then do nothing and let the market set the exchange rate

Question 7

If the United States wants to regain ownership of domestic assets sold to foreigners, it will have to:

Accepted Answer

A)   Increase domestic consumption
B)   Increase its national debt
C)   Export more than it imports
D)   Import more than it exports

Question 8

If a nation has a balance of payments deficit and exchange rates are flexible, the price or value of that nation's currency in the foreign exchange markets will rise.

Accepted Answer

A) True 
 B)False

Question 9

To keep the exchange rate constant, an increase in the demand for a country's currency should be matched by a corresponding increase in supply to be administered by the government.

Accepted Answer

A) True 
 B)False  True

Question 10

If the U.S. dollar appreciates relative to the British pound, then:

Accepted Answer

A)   The pound will appreciate relative to the U.S. dollar
B)   The pound will depreciate relative to the U.S. dollar
C)   British goods will be more expensive for Americans
D)   American goods will be less expensive for the British

Question 11

The U.S. often has a significant surplus in services trade, even though it has a deficit in goods trade.

Accepted Answer

A) True 
 B)False

Question 12

The following statements are true in the current exchange-rate system, except:

Accepted Answer

A)   Major currencies like U.S. dollar, euro, pounds, 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)   Some nations peg their currencies to a "basket" or group of other currencies, rather than to a single other currency C

Question 13

Other things being equal, which of the following is a necessary consequence of a depreciation of the U.S. dollar against other currencies?

Accepted Answer

A)   The terms of trade will move in favor of the United States
B)   The United States will experience an increase in the volume of imports
C)   International speculators will buy U.S. dollars and sell other currencies
D)   U.S. exports will become cheaper relative to other nations' products

Question 14

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

Accepted Answer

A) True 
 B)False

Question 15

The table below shows the supply and demand schedules for the European euro.  Refer to the table above. If European governments decided to fix the price of a euro at $0.80, they would have to:

Accepted Answer

A)   Buy 286 euros
B)   Buy 114 euros
C)   Sell 114 euros
D)   Sell 286 euros

Question 16

The exchange rate system that we now have for major currencies like the U.S. dollar, yen, and euro is a "managed-floating" system.

Accepted Answer

A) True 
 B)False

Question 17

In the balance of payments statement, a current account deficit is always matched by a capital and financial accounts surplus.

Accepted Answer

A) True 
 B)False

Question 18

If an American can purchase 40,000 British pounds for $90,000, the dollar rate of exchange for the pound is:

Accepted Answer

A)   $0.44
B)   $0.23
C)   $2.25
D)   $2.00

Question 19

Refer to the graph above, which shows a change in the demand for pounds from D to D'. Under a system of flexible exchange rates, the:

Accepted Answer

A)   Price of a pound will increase to $3
B)   Price of a dollar will increase to 3 pounds
C)   Shortage equal to ab would be met using international monetary reserves
D)   Payment deficit will cause changes in domestic price and income levels, shifting demand to the left, supply to the right, and reestablishing the original exchange rate

Question 20

The exchange rate for the Mexican peso changes from $1 = 5 pesos to $1 = 6 pesos. This change will lead to:

Accepted Answer

A)   U.S. goods becoming less expensive for Mexicans
B)   Mexican goods becoming more expensive for Americans
C)   An increase in U.S. exports to Mexico
D)   A decrease in U.S. exports to Mexico

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

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 Answer
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The trade deficit has had the effect of:

Correct Answer
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Correct Answer
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Which is not a serious disadvantage associated with freely fluctuating exchange rates?

Correct Answer
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C

In using exchange controls, a nation attempts to eliminate a balance of payments deficit by:

Correct Answer
verified

The basic type of intervention by central banks under the managed floating exchange rate system is to:

Correct Answer
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If the United States wants to regain ownership of domestic assets sold to foreigners, it will have to:

Correct Answer
verified

If a nation has a balance of payments deficit and exchange rates are flexible, the price or value of that nation's currency in the foreign exchange markets will rise.

Correct Answer
verified

To keep the exchange rate constant, an increase in the demand for a country's currency should be matched by a corresponding increase in supply to be administered by the government.

Correct Answer
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True

If the U.S. dollar appreciates relative to the British pound, then:

Correct Answer
verified

The U.S. often has a significant surplus in services trade, even though it has a deficit in goods trade.

Correct Answer
verified

The following statements are true in the current exchange-rate system, except:

Correct Answer
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C

Other things being equal, which of the following is a necessary consequence of a depreciation of the U.S. dollar against other currencies?

Correct Answer
verified

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

Correct Answer
verified

The table below shows the supply and demand schedules for the European euro. Refer to the table above. If European governments decided to fix the price of a euro at $0.80, they would have to:

Correct Answer
verified

The exchange rate system that we now have for major currencies like the U.S. dollar, yen, and euro is a "managed-floating" system.

Correct Answer
verified

In the balance of payments statement, a current account deficit is always matched by a capital and financial accounts surplus.

Correct Answer
verified

If an American can purchase 40,000 British pounds for $90,000, the dollar rate of exchange for the pound is:

Correct Answer
verified

Refer to the graph above, which shows a change in the demand for pounds from D to D'. Under a system of flexible exchange rates, the:

Correct Answer
verified

The exchange rate for the Mexican peso changes from $1 = 5 pesos to $1 = 6 pesos. This change will lead to:

Correct Answer
verified

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

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 trade deficit has had the effect of:

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Which is not a serious disadvantage associated with freely fluctuating exchange rates?

Correct AnswerverifiedC

In using exchange controls, a nation attempts to eliminate a balance of payments deficit by:

Correct AnswerverifiedShow Answer

The basic type of intervention by central banks under the managed floating exchange rate system is to:

Correct AnswerverifiedShow Answer

If the United States wants to regain ownership of domestic assets sold to foreigners, it will have to:

Correct AnswerverifiedShow Answer

If a nation has a balance of payments deficit and exchange rates are flexible, the price or value of that nation's currency in the foreign exchange markets will rise.

Correct AnswerverifiedShow Answer

To keep the exchange rate constant, an increase in the demand for a country's currency should be matched by a corresponding increase in supply to be administered by the government.

Correct AnswerverifiedTrue

If the U.S. dollar appreciates relative to the British pound, then:

Correct AnswerverifiedShow Answer

The U.S. often has a significant surplus in services trade, even though it has a deficit in goods trade.

Correct AnswerverifiedShow Answer

The following statements are true in the current exchange-rate system, except:

Correct AnswerverifiedC

Other things being equal, which of the following is a necessary consequence of a depreciation of the U.S. dollar against other currencies?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

The table below shows the supply and demand schedules for the European euro. Refer to the table above. If European governments decided to fix the price of a euro at $0.80, they would have to:

Correct AnswerverifiedShow Answer

The exchange rate system that we now have for major currencies like the U.S. dollar, yen, and euro is a "managed-floating" system.

Correct AnswerverifiedShow Answer

In the balance of payments statement, a current account deficit is always matched by a capital and financial accounts surplus.

Correct AnswerverifiedShow Answer

If an American can purchase 40,000 British pounds for $90,000, the dollar rate of exchange for the pound is:

Correct AnswerverifiedShow Answer

Refer to the graph above, which shows a change in the demand for pounds from D to D'. Under a system of flexible exchange rates, the:

Correct AnswerverifiedShow Answer

The exchange rate for the Mexican peso changes from $1 = 5 pesos to $1 = 6 pesos. This change will lead to:

Correct AnswerverifiedShow Answer

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Correct Answer
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C

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True

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C

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Correct Answer
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