Question 1

In saying that the present system of flexible exchange rates is managed we mean that:

Accepted Answer

A)  countries which allow their exchange rate to move freely will lose their borrowing privileges with the IMF. 
B)  the value of any IMF member's currency can only vary 2 percent from its par value. 
C)  IMF officials determine exchange rates on a day-to-day basis. 
D)  the central banks of various countries buy and sell foreign exchange to smooth out short-term fluctuations or undesirable trends in exchange rates. 
A)  countries which allow their exchange rate to move freely will lose their borrowing privileges with the IMF. 
B)  the value of any IMF member's currency can only vary 2 percent from its par value. 
C)  IMF officials determine exchange rates on a day-to-day basis. 
D)  the central banks of various countries buy and sell foreign exchange to smooth out short-term fluctuations or undesirable trends in exchange rates. D

Question 2

The following table indicates the dollar price of libras, the currency used in the hypothetical nation of Libra. Assume that a system of flexible exchange rates is in place.
  
-Refer to the above table. The equilibrium dollar price of libras is:

Accepted Answer

A)  $5. 
B)  $4. 
C)  $3. 
D)  indeterminate. 
A)  $5. 
B)  $4. 
C)  $3. 
D)  indeterminate. C

Question 3

The Canadian demand for pounds is:

Accepted Answer

A)  downward sloping because a higher dollar price of pounds means British goods are cheaper to Canadians. 
B)  downward sloping because a lower dollar price of pounds means British goods are more expensive to Canadians. 
C)  upsloping because a lower dollar price of pounds means British goods are cheaper to Canadians. 
D)  downward sloping because a lower dollar price of pounds means British goods are cheaper to Canadians. 
A)  downward sloping because a higher dollar price of pounds means British goods are cheaper to Canadians. 
B)  downward sloping because a lower dollar price of pounds means British goods are more expensive to Canadians. 
C)  upsloping because a lower dollar price of pounds means British goods are cheaper to Canadians. 
D)  downward sloping because a lower dollar price of pounds means British goods are cheaper to Canadians. D

Question 4

In a nation's balance of payments, which one of the following items is always recorded as a positive entry?

Accepted Answer

A)  merchandise imports 
B)  changes in foreign currency reserves 
C)  capital outflows 
D)  exports of services 
A)  merchandise imports 
B)  changes in foreign currency reserves 
C)  capital outflows 
D)  exports of services

Question 5

Suppose that in 2002 the exchange rate between the Canadian dollar and the Japanese yen was
$1 = 220 yen, and in 2012 it was $1 = 100 yen.
-Refer to the above information. Which one of the following might be a plausible explanation for the change in the dollar-yen exchange rate cited in the previous question?

Accepted Answer

A)  Japan exported far more to Canada during this period than it imported from Canada. 
B)  Japan greatly increased its purchases from Canada during this period. 
C)  Japan's economy grew far faster than the Canadian economy during this period. 
D)  Japan's government devalued the yen during this period. 
A)  Japan exported far more to Canada during this period than it imported from Canada. 
B)  Japan greatly increased its purchases from Canada during this period. 
C)  Japan's economy grew far faster than the Canadian economy during this period. 
D)  Japan's government devalued the yen during this period.

Question 6

A nation which imports more goods and services than it exports is necessarily realizing an international balance of payments deficit.

Accepted Answer

A) True 
 B)False

Question 7

Fixed exchange rates are often maintained by using all of the following except:

Accepted Answer

A)  open speculation by individual traders in foreign currency markets. 
B)  international monetary reserves held by central banks. 
C)  controls on imports and exports such as tariffs and quotas. 
D)  domestic macroeconomic adjustments using monetary and fiscal policies. 
A)  open speculation by individual traders in foreign currency markets. 
B)  international monetary reserves held by central banks. 
C)  controls on imports and exports such as tariffs and quotas. 
D)  domestic macroeconomic adjustments using monetary and fiscal policies.

Question 8

It may be misleading to label a trade deficit as "unfavourable" or "adverse" because:

Accepted Answer

A)  the multiplier does not apply to a trade deficit. 
B)  it increases our aggregate output and employment. 
C)  Canadian consumers benefit from a trade deficit during the period it occurs. 
D)  all of the above reasons. 
A)  the multiplier does not apply to a trade deficit. 
B)  it increases our aggregate output and employment. 
C)  Canadian consumers benefit from a trade deficit during the period it occurs. 
D)  all of the above reasons.

Question 9

Under a system of fixed exchange rates, a nation which experiences chronic balance of payments deficits may:

Accepted Answer

A)  initiate protectionist trade policies. 
B)  run short of international monetary reserves. 
C)  be forced to use contractionary monetary and fiscal policies. 
D)  do all of the above. 
A)  initiate protectionist trade policies. 
B)  run short of international monetary reserves. 
C)  be forced to use contractionary monetary and fiscal policies. 
D)  do all of the above.

Question 10

The export of capital is recorded as a credit on a nation's capital account in its balance of payments statement.

Accepted Answer

A) True 
 B)False

Question 11

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. 
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 12

Refer to the diagram below where D and S are Canada's demand for and supply of pesos. At the equilibrium exchange rate, E, Canada's balance of payments is in equilibrium. Under a system of flexible exchange rates, the shift in demand from D1 to D2 will:

Accepted Answer

A)  ultimately cause Canadian exports to decline and its imports to rise. 
B)  cause the dollar price of pesos to increase. 
C)  cause the peso to depreciate. 
D)  cause the dollar to depreciate. 
A)  ultimately cause Canadian exports to decline and its imports to rise. 
B)  cause the dollar price of pesos to increase. 
C)  cause the peso to depreciate. 
D)  cause the dollar to depreciate.

Question 13

Critics of the managed floating exchange rate system argue that it:

Accepted Answer

A)  is dominated by G-8 nations. 
B)  is a "non-system" with unclear rules. 
C)  increased the growth in world trade at too fast a rate. 
D)  puts too much reliance on the adjustable-peg mechanism for stabilizing exchange rates. 
A)  is dominated by G-8 nations. 
B)  is a "non-system" with unclear rules. 
C)  increased the growth in world trade at too fast a rate. 
D)  puts too much reliance on the adjustable-peg mechanism for stabilizing exchange rates.

Question 14

A deficit on the current account:

Accepted Answer

A)  normally causes a surplus on the capital account. 
B)  normally causes a deficit on the capital account. 
C)  has no relationship to the capital account. 
D)  means that a nation is not making any international transfers. 
A)  normally causes a surplus on the capital account. 
B)  normally causes a deficit on the capital account. 
C)  has no relationship to the capital account. 
D)  means that a nation is not making any international transfers.

Question 15

Which of the following would contribute to a Canadian balance of payments deficit?

Accepted Answer

A)  Kawasaki builds a motorcycle manufacturing plant in Vancouver 
B)  Canadian tourists travel in large numbers to Europe 
C)  a wealthy Iranian builds a mansion in Montreal 
D)  Zaire pays interest on its debt to Canada 
A)  Kawasaki builds a motorcycle manufacturing plant in Vancouver 
B)  Canadian tourists travel in large numbers to Europe 
C)  a wealthy Iranian builds a mansion in Montreal 
D)  Zaire pays interest on its debt to Canada

Question 16

If a nation's merchandise exports are $55 billion, while its merchandise imports are $50 billion, we can conclude with certainty that this nation is experiencing a:

Accepted Answer

A)  balance of trade surplus. 
B)  balance of payments surplus. 
C)  positive balance on current account. 
D)  positive balance on goods and services. 
A)  balance of trade surplus. 
B)  balance of payments surplus. 
C)  positive balance on current account. 
D)  positive balance on goods and services.

Question 17

The expectations of speculators in Canada that the exchange rate for the euro will fall in the future will increase the supply of euros in the foreign exchange market and decrease the exchange rate for the euros.

Accepted Answer

A) True 
 B)False

Question 18

A country's annual balance of payments statement must always balance because:

Accepted Answer

A)  a nation's imports are limited to the value of its exports. 
B)  a trade deficit must be matched by an equal surplus of investment income. 
C)  all international transactions must be settled in one way or another. 
D)  a nation's exports will be limited by the dollar value of its imports. 
A)  a nation's imports are limited to the value of its exports. 
B)  a trade deficit must be matched by an equal surplus of investment income. 
C)  all international transactions must be settled in one way or another. 
D)  a nation's exports will be limited by the dollar value of its imports.

Question 19

The sum of a nation's current account balance and its capital account balance in any year is always equal to zero.

Accepted Answer

A) True 
 B)False

Question 20

A market in which the money of one nation is exchanged for the money of another nation is a:

Accepted Answer

A)  resource market. 
B)  financial market. 
C)  futures market. 
D)  foreign exchange market. 
A)  resource market. 
B)  financial market. 
C)  futures market. 
D)  foreign exchange market.

In saying that the present system of flexible exchange rates is managed we mean that:

The following table indicates the dollar price of libras, the currency used in the hypothetical nation of Libra. Assume that a system of flexible exchange rates is in place. -Refer to the above table. The equilibrium dollar price of libras is:

The Canadian demand for pounds is:

In a nation's balance of payments, which one of the following items is always recorded as a positive entry?

A nation which imports more goods and services than it exports is necessarily realizing an international balance of payments deficit.

Fixed exchange rates are often maintained by using all of the following except:

It may be misleading to label a trade deficit as "unfavourable" or "adverse" because:

Under a system of fixed exchange rates, a nation which experiences chronic balance of payments deficits may:

The export of capital is recorded as a credit on a nation's capital account in its balance of payments statement.

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

Refer to the diagram below where D and S are Canada's demand for and supply of pesos. At the equilibrium exchange rate, E, Canada's balance of payments is in equilibrium. Under a system of flexible exchange rates, the shift in demand from D₁ to D₂ will:

Critics of the managed floating exchange rate system argue that it:

A deficit on the current account:

Which of the following would contribute to a Canadian balance of payments deficit?

If a nation's merchandise exports are $55 billion, while its merchandise imports are $50 billion, we can conclude with certainty that this nation is experiencing a:

The expectations of speculators in Canada that the exchange rate for the euro will fall in the future will increase the supply of euros in the foreign exchange market and decrease the exchange rate for the euros.

A country's annual balance of payments statement must always balance because:

The sum of a nation's current account balance and its capital account balance in any year is always equal to zero.

A market in which the money of one nation is exchanged for the money of another nation is a:

Limits, Alternatives, and Choices

The Market System and the Circular Flow

Introduction to Macroeconomics

Measuring the Economys Output

Economic Growth

Business Cycles, Unemployment, and Inflation

Basic Macroeconomic Relationships

The Aggregate Expenditures Model

Aggregate Demand and Aggregate Supply

Fiscal Policy, Deficits, Surpluses, and Debt

Money, Banking, and Money Creation

Interest Rates and Monetary Policy

Financial Economics

Long-Run Macroeconomic Adjustments

International Trade

Filters

Exam 17: Exchange Rates and the Balance of Payments

In saying that the present system of flexible exchange rates is managed we mean that:

The following table indicates the dollar price of libras, the currency used in the hypothetical nation of Libra. Assume that a system of flexible exchange rates is in place. -Refer to the above table. The equilibrium dollar price of libras is:

The Canadian demand for pounds is:

In a nation's balance of payments, which one of the following items is always recorded as a positive entry?

A nation which imports more goods and services than it exports is necessarily realizing an international balance of payments deficit.

Fixed exchange rates are often maintained by using all of the following except:

It may be misleading to label a trade deficit as "unfavourable" or "adverse" because:

Under a system of fixed exchange rates, a nation which experiences chronic balance of payments deficits may:

The export of capital is recorded as a credit on a nation's capital account in its balance of payments statement.

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

Refer to the diagram below where D and S are Canada's demand for and supply of pesos. At the equilibrium exchange rate, E, Canada's balance of payments is in equilibrium. Under a system of flexible exchange rates, the shift in demand from D1 to D2 will:

Critics of the managed floating exchange rate system argue that it:

A deficit on the current account:

Which of the following would contribute to a Canadian balance of payments deficit?

If a nation's merchandise exports are $55 billion, while its merchandise imports are $50 billion, we can conclude with certainty that this nation is experiencing a:

The expectations of speculators in Canada that the exchange rate for the euro will fall in the future will increase the supply of euros in the foreign exchange market and decrease the exchange rate for the euros.

A country's annual balance of payments statement must always balance because:

The sum of a nation's current account balance and its capital account balance in any year is always equal to zero.

A market in which the money of one nation is exchanged for the money of another nation is a:

Limits, Alternatives, and Choices

The Market System and the Circular Flow

Introduction to Macroeconomics

Measuring the Economys Output

Economic Growth

Business Cycles, Unemployment, and Inflation

Basic Macroeconomic Relationships

The Aggregate Expenditures Model

Aggregate Demand and Aggregate Supply

Fiscal Policy, Deficits, Surpluses, and Debt

Money, Banking, and Money Creation

Interest Rates and Monetary Policy

Financial Economics

Long-Run Macroeconomic Adjustments

International Trade

Filters

Refer to the diagram below where D and S are Canada's demand for and supply of pesos. At the equilibrium exchange rate, E, Canada's balance of payments is in equilibrium. Under a system of flexible exchange rates, the shift in demand from D₁ to D₂ will: