Question 1

The balance of trade can only worsen if income relative to absorption.

Accepted Answer

A)  increases 
B)  decreases 
C)  does not change 
D)  None of the above 
A)  increases 
B)  decreases 
C)  does not change 
D)  None of the above

Question 2

Discuss the short-run and long-run views of PPP. Make sure that you explain the underlying adjustment mechanism and theoretical reasoning for each view when answering the question. Which view, do you think, is more likely to represent the real world?

Accepted Answer

If PPP holds in the short run, then capi

Question 3

An increase in real income with constant prices and domestic credit leads to the same effects under both fixed and purely flexible exchange rates.

Accepted Answer

A) True 
 B)False

Question 4

Write down a model that will allow you to analyze the BOP and exchange rate in a monetary framework. Then, discuss the consequences of an increase in the foreign inflation rate under fixed, flexible, and managed floating systems.

Accepted Answer

R^ - E^ = P^F + Y^ - D^ . If P

Question 5

What is pricing to market? Where is it most prevalent?

Accepted Answer

Pricing to market is the practice of adj

Question 6

The longer the "pass-through" period following a devaluation, the faster the desirable balance of trade effects of a devaluation will appear on quantities traded.

Accepted Answer

A) True 
 B)False

Question 7

With fixed exchange rates, an increase in the foreign inflation rate, with constant income and domestic credit, will lead to

Accepted Answer

A)  a change in the exchange rate. 
B)  an increase in international reserves. 
C)  a decrease in international reserves. 
D)  no change in international reserves. 
A)  a change in the exchange rate. 
B)  an increase in international reserves. 
C)  a decrease in international reserves. 
D)  no change in international reserves.

Question 8

"Pricing-to-market" is a business practice that was common in the twentieth century, but has now all but disappeared.

Accepted Answer

A) True 
 B)False

Question 9

There is evidence that the exchange-rate pass-through effect to import prices has been declining in developed economies, especially for the United States.

Accepted Answer

A) True 
 B)False

Question 10

Is the "international adjustment mechanism" for fixed and flexible exchange rates the same? Discuss briefly.

Accepted Answer

No, the answer to 3

Question 11

The evidence available suggests that the effects of devaluation appear to differ across countries and time so that no strong generalizations regarding the effects of devaluation on the balance of trade and/or balance of payments are possible.

Accepted Answer

A) True 
 B)False

Question 12

Suppose that the United Kingdom devalues the pound. If both exports and imports are written in terms of pounds, then the United Kingdom balance of trade during a currency contract period.

Accepted Answer

A)  improves 
B)  worsens 
C)  is unaffected 
D)  falls for a while before increasing 
A)  improves 
B)  worsens 
C)  is unaffected 
D)  falls for a while before increasing

Question 13

Both the do not put a great deal of emphasis on the capital account.

Accepted Answer

A)  absorption and monetary approaches 
B)  monetary and elasticities approaches 
C)  elasticities and absorption approaches 
D)  None of the above 
A)  absorption and monetary approaches 
B)  monetary and elasticities approaches 
C)  elasticities and absorption approaches 
D)  None of the above

Question 14

J-curve effects following a devaluation are simply a theoretical issue with no real world importance.

Accepted Answer

A) True 
 B)False

Question 15

The analysis considers the ability of domestic and foreign prices to adjust to devaluation in the short run.

Accepted Answer

A)  pass-through 
B)  absorption 
C)  adjustment mechanism 
D)  currency contract period 
A)  pass-through 
B)  absorption 
C)  adjustment mechanism 
D)  currency contract period

Question 16

If devaluation improves only the BOP, rather than the BOT, this implies that the capital account must have improved following a devaluation.

Accepted Answer

A) True 
 B)False

Question 17

The absorption approach is a theory of the balance of payments that emphasizes how domestic spending on domestic goods changes relative to domestic output.

Accepted Answer

A) True 
 B)False

Question 18

According to the MABP, BOP disequilibria

Accepted Answer

A)  must be transitory. 
B)  are essentially real phenomena. 
C)  must be permanent. 
D)  are not important. 
A)  must be transitory. 
B)  are essentially real phenomena. 
C)  must be permanent. 
D)  are not important.

Question 19

Empirical evidence regarding the effects of devaluation on the balance of trade indicates that

Accepted Answer

A)  devaluation generally improves the BOT. 
B)  devaluation generally hurts the BOT. 
C)  no strong generalizations are possible. 
D)  devaluation has no effect on the BOT. 
A)  devaluation generally improves the BOT. 
B)  devaluation generally hurts the BOT. 
C)  no strong generalizations are possible. 
D)  devaluation has no effect on the BOT.

Question 20

With a flexible exchange rate, a nation can choose an inflation rate independent of the rest of the world.

Accepted Answer

A) True 
 B)False

Exam 17: Basic Theories of the Balance of Payments

The balance of trade can only worsen if income relative to absorption.

Discuss the short-run and long-run views of PPP. Make sure that you explain the underlying adjustment mechanism and theoretical reasoning for each view when answering the question. Which view, do you think, is more likely to represent the real world?

An increase in real income with constant prices and domestic credit leads to the same effects under both fixed and purely flexible exchange rates.

Write down a model that will allow you to analyze the BOP and exchange rate in a monetary framework. Then, discuss the consequences of an increase in the foreign inflation rate under fixed, flexible, and managed floating systems.

What is pricing to market? Where is it most prevalent?

The longer the "pass-through" period following a devaluation, the faster the desirable balance of trade effects of a devaluation will appear on quantities traded.

With fixed exchange rates, an increase in the foreign inflation rate, with constant income and domestic credit, will lead to

"Pricing-to-market" is a business practice that was common in the twentieth century, but has now all but disappeared.

There is evidence that the exchange-rate pass-through effect to import prices has been declining in developed economies, especially for the United States.

Is the "international adjustment mechanism" for fixed and flexible exchange rates the same? Discuss briefly.

The evidence available suggests that the effects of devaluation appear to differ across countries and time so that no strong generalizations regarding the effects of devaluation on the balance of trade and/or balance of payments are possible.

Suppose that the United Kingdom devalues the pound. If both exports and imports are written in terms of pounds, then the United Kingdom balance of trade during a currency contract period.

Both the do not put a great deal of emphasis on the capital account.

J-curve effects following a devaluation are simply a theoretical issue with no real world importance.

The analysis considers the ability of domestic and foreign prices to adjust to devaluation in the short run.

If devaluation improves only the BOP, rather than the BOT, this implies that the capital account must have improved following a devaluation.

The absorption approach is a theory of the balance of payments that emphasizes how domestic spending on domestic goods changes relative to domestic output.

According to the MABP, BOP disequilibria

Empirical evidence regarding the effects of devaluation on the balance of trade indicates that

With a flexible exchange rate, a nation can choose an inflation rate independent of the rest of the world.

An Introduction to International Trade

Tools of Analysis for International Trade Models

The Classical Model of International Trade

The Heckscher-Ohlin Theory

Tests of Trade Models: the Leontief Paradox and Its After-math

Tariffs

Nontariff Barriers and Arguments for Protection

Commercial Policy: History and Practice

Preferential Trade Arrangements

International Trade and Economic Growth

An Introduction to International Finance

The Balance of Payments

The Foreign-Exchange Market

Prices and Exchange Rates: Purchasing Power Parity

Exchange Rates, Interest Rates, and Interest Parity

Foreign-Exchange Risk, Forecasting, and International Investment

Exchange Rate Theories

Alternative International Monetary Standards

International Banking, Debt, and Risk

Open-Economy Macroeconomic Policy and Adjustment

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