Deck 40: The Balance of Payments, Exchange Rates, and Trade Deficits

Question 1

Which of the following would call for inpayments to the United States?

A) Gold flows into the United States.
B) U.S.firms sell insurance to Brazilian shippers.
C) The United States sends foreign aid to developing countries.
D) The United States imports German automobiles.

Answer 1

B

Question 2

In the U.S.balance of payments,foreign purchases of assets in the United States are a:

A) foreign currency outflow.
B) foreign currency inflow.
C) current account item.
D) debit,or outpayment.

Answer 2

B

Question 3

Which of the following would call for outpayments from the United States?

A) The United States exports computer software.
B) The United States purchases assets abroad.
C) Foreigners purchase assets in the United States.
D) Foreign tourists spend money in the United States.

Answer 3

B

Question 4

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

A) $1 = 2 British pounds in the United States.
B) $2 = 1 British pound in the United States.
C) $1 = 2 British pounds in Great Britain.
D) $.5 = 1 British pound in Great Britain.

Question 5

In the U.S.balance of payments,U.S.purchases of assets abroad are a(n):

A) U.S.dollar outflow.
B) U.S.dollar inflow.
C) current account item.
D) inpayment.

Question 6

If a nation has a current account deficit and it does not have to make any inpayments or outpayments of official reserves,it must have a:

A) surplus in its capital and financial account.
B) balance of payments deficit.
C) balance of payments surplus.
D) deficit in its capital and financial account.

Question 7

The financial account balance is a nation's:

A) net investment income minus its net transfers.
B) exports of goods and services minus its imports of goods and services.
C) sale of real and financial assets to people living abroad minus its purchases of real and financial assets from foreigners.
D) domestic investment spending minus domestic saving.

Question 8

A nation's official reserves:

A) compensate for differences in the current and capital and financial accounts.
B) consist of all domestic and foreign currency held by a nation's central bank.
C) are always zero.
D) are always negative.

Question 9

International transactions fall into what two broad categories?

A) Manufacturing trade and services trade.
B) International trade and international asset transactions.
C) Currency transactions and services trade.
D) Newly created assets and preexisting assets.

Question 10

If a nation has a current account surplus and it does not have to make any inpayments or outpayments of official reserves,it must have a:

A) surplus in its capital and financial account.
B) balance of payments deficit.
C) balance of payments surplus.
D) deficit in its capital and financial account.

Question 11

Which of the following combinations is plausible,as it relates to a nation's balance of payments?

A) Current account = $+40 billion;capital account = $+20 billion;financial account = $-50 billion.
B) Current account = $-50 billion;capital account = $+20 billion;financial account = $+30 billion.
C) Current account = $+10 billion;capital account = $+40 billion;financial account = $+50 billion.
D) Current account = $+30 billion;capital account = $-20 billion;financial account = $-50 billion.

Question 12

There must always be a balance of a nation's:

A) goods exports and gold imports.
B) total international payments.
C) imports and exports of goods and services.
D) net transfers and net investment income.

Question 13

In 2012,the capital and financial account in the U.S.balance of payments was in:

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.

Question 14

A nation's capital and financial account:

A) contains inpayment items but not outpayment items.
B) includes service exports and service imports.
C) includes both inpayments and outpayments.
D) includes net investment income and net transfers.

Question 15

Which of the following would contribute to a U.S.balance of payments surplus?

A) The United States makes a unilateral tariff reduction on imported goods.
B) General Motors pays a dividend to a Swiss stockholder.
C) The United States cuts back on U.S.military personnel stationed in Germany.
D) Russian vodka becomes increasingly popular in the United States.

Question 16

In 2012,the capital account in the U.S.balance of payments was in:

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

Question 17

The current account section in a nation's balance of payments includes:

A) its goods exports and imports,and its services exports and imports.
B) foreign purchases of domestic assets.
C) purchases of foreign assets.
D) all of these.

Question 18

In international financial transactions,what are the only two things that individuals and firms can exchange?

A) Currency and real assets.
B) Services and manufactured goods.
C) Preexisting assets and currently produced goods and services.
D) Currency and currently produced goods and services.

Question 19

Which of the following combinations is plausible,as it relates to a nation's balance of payments?

A) Current account = $+40 billion;capital account = $-10 billion;financial account = $-50 billion.
B) Current account = $+50 billion;capital account = $-20 billion;financial account = $+30 billion.
C) Current account = $+10 billion;capital account = $+40 billion;financial account = $+50 billion.
D) Current account = $+30 billion;capital account = $-20 billion;financial account = $-10 billion.

Question 20

"International trade" refers to:

A) purchasing or selling currently produced goods or services across an international border.
B) any transaction across an international border.
C) any financial transaction across an international border.
D) buying or selling of preexisting assets across an international border.

Question 21

Which of the following would contribute to a U.S.balance of payments deficit?

A) Kawasaki builds a motorcycle manufacturing plant in Kansas City.
B) U.S.tourists travel in large numbers to Europe.
C) A wealthy Mexican citizen builds a mansion in Beverly Hills.
D) Zaire pays interest on its debt to the United States.

Question 22

Answer the question on the basis of the following 2012 balance of payments data (+ and -)for the hypothetical nation of Zabella.All figures are in billions of dollars. $\begin{array}{c}\begin{array}{lll}\text {Current Account}\\\hline \text {1) Goods Exports}\\\text {2) Goods Imports}\\\text {3) Exports of Services}\\\text {4) Imports of Services}\\\text {5) Net Investment Income}\\\text {6) Net Transfers}\\\\\text {Financial Account}\\\hline \text {7) Foreign Purchases of Assets in the United States}\\\text {8) US Purchases of Assets Abroad}\\\\\text {Capital Account}\\\hline \text {9) Balance on Capital Account}\end{array}\begin{array}{r}\\\hline+\$ 80 \\-70 \\+20 \\-25 \\+5 \\-5 \\\\\\\hline+13 \\-23\\\\\\\hline+5 \end{array}\end{array}$

Refer to the given data.Zabella's balance on goods and services shows a:

A) $5 billion deficit.
B) $5 billion surplus.
C) $10 billion surplus.
D) $15 billion deficit.

Question 23

The following table contains hypothetical data for the 2012 U.S.balance of payments.Answer the question on the basis of this information.All figures are in billions of dollars. $\begin{array}{lrrr} \text { 1) US Goods Exports } & +\$100\\ \text {2) US Goods Imports } &-80\\ \text {3) US Service Exports } &+40\\ \text {4) US Service Imports } &-90\\ \text { 5) Net Investment Income } &+20\\ \text { 6) Net Transfers } &-15\\ \text {7) Foreign Purchases of Assets in the United States } &+30\\ \text {8) US Purchases of Foreign Assets Abroad } &-10\\ \text { 9) Balance on Capital Account } &+5\\\end{array}$
Refer to the given data.The U.S.balance on current account is a:

A) $40 billion surplus.
B) $25 billion deficit.
C) $25 billion surplus.
D) $30 billion deficit.

Question 24

The following table contains hypothetical data for the 2012 U.S.balance of payments.Answer the question on the basis of this information.All figures are in billions of dollars. $\begin{array}{lrrr} \text { 1) US Goods Exports } & +\$100\\ \text {2) US Goods Imports } &-80\\ \text {3) US Service Exports } &+40\\ \text {4) US Service Imports } &-90\\ \text { 5) Net Investment Income } &+20\\ \text { 6) Net Transfers } &-15\\ \text {7) Foreign Purchases of Assets in the United States } &+30\\ \text {8) US Purchases of Foreign Assets Abroad } &-10\\ \text { 9) Balance on Capital Account } &+5\\\end{array}$
Refer to the given data.Item (5)indicates:

A) that the United States' current account was in surplus.
B) the size of the net inflow of foreign investment to the United States that occurred in 2012.
C) the net amount Americans received as interest and dividends on existing U.S.investments abroad.
D) the net amount Americans paid as interest and dividends on existing foreign investments in the United States.

Question 25

The following table contains hypothetical data for the 2012 U.S.balance of payments.Answer the question on the basis of this information.All figures are in billions of dollars. $\begin{array}{lrrr} \text { 1) US Goods Exports } & +\$100\\ \text {2) US Goods Imports } &-80\\ \text {3) US Service Exports } &+40\\ \text {4) US Service Imports } &-90\\ \text { 5) Net Investment Income } &+20\\ \text { 6) Net Transfers } &-15\\ \text {7) Foreign Purchases of Assets in the United States } &+30\\ \text {8) US Purchases of Foreign Assets Abroad } &-10\\ \text { 9) Balance on Capital Account } &+5\\\end{array}$
Refer to the given data.The United States' balance of capital and financial account is a:

A) surplus of $5.
B) deficit of $10.
C) surplus of $25.
D) deficit of $5.

Question 26

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

A) current account surplus.
B) financial account deficit.
C) financial account surplus.
D) surplus on goods and services.

Question 27

The following table contains hypothetical data for the 2012 U.S.balance of payments.Answer the question on the basis of this information.All figures are in billions of dollars. $\begin{array}{lrrr} \text { 1) US Goods Exports } & +\$100\\ \text {2) US Goods Imports } &-80\\ \text {3) US Service Exports } &+40\\ \text {4) US Service Imports } &-90\\ \text { 5) Net Investment Income } &+20\\ \text { 6) Net Transfers } &-15\\ \text {7) Foreign Purchases of Assets in the United States } &+30\\ \text {8) US Purchases of Foreign Assets Abroad } &-10\\ \text { 9) Balance on Capital Account } &+5\\\end{array}$
Refer to the given data.The United States has a balance of goods:

A) deficit of $10 billion.
B) surplus of $30 billion.
C) deficit of $30 billion.
D) surplus of $20 billion.

Question 28

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

A) 1,2,3,and 4.
B) 1,3,4,5,7,and 9.
C) 6 and 8.
D) 1,2,4,7,and 9.

Question 29

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

A) the multiplier does not apply to a trade deficit.
B) a trade deficit increases a nation's aggregate output and employment.
C) a nation's consumers benefit from a trade deficit during the period it occurs.
D) a trade deficit precludes inflation.

Question 30

A deficit on the current account:

A) normally causes a surplus on the capital and financial account.
B) normally causes a deficit on the capital and financial account.
C) has no relationship to the capital and financial account.
D) means that a nation is making international transfers.

Question 31

Answer the question on the basis of the following 2012 balance of payments data (+ and -)for the hypothetical nation of Zabella.All figures are in billions of dollars. $\begin{array}{c}\begin{array}{lll}\text {Current Account}\\\hline \text {1) Goods Exports}\\\text {2) Goods Imports}\\\text {3) Exports of Services}\\\text {4) Imports of Services}\\\text {5) Net Investment Income}\\\text {6) Net Transfers}\\\\\text {Financial Account}\\\hline \text {7) Foreign Purchases of Assets in the United States}\\\text {8) US Purchases of Assets Abroad}\\\\\text {Capital Account}\\\hline \text {9) Balance on Capital Account}\end{array}\begin{array}{r}\\\hline+\$ 80 \\-70 \\+20 \\-25 \\+5 \\-5 \\\\\\\hline+13 \\-23\\\\\\\hline+5 \end{array}\end{array}$

Refer to the given data.Zabella's balance on capital and financial account shows a:

A) deficit of $5 billion.
B) surplus of $10 billion.
C) deficit of $10 billion.
D) surplus of $5 billion.

Question 32

Evidence of a chronic balance of payments deficit is:

A) a decline in amount of the nation's currency held by other nations.
B) an excess of exports over imports.
C) diminishing reserves of foreign currencies.
D) an increase in the international value of the nation's currency.

Question 33

Which of the following is not included in the current account of a nation's balance of payments?

A) Its goods exports.
B) Its goods imports.
C) Its net investment income.
D) Its purchases of real assets abroad.

Question 34

Answer the question on the basis of the following 2012 balance of payments data (+ and -)for the hypothetical nation of Zabella.All figures are in billions of dollars. $\begin{array}{c}\begin{array}{lll}\text {Current Account}\\\hline \text {1) Goods Exports}\\\text {2) Goods Imports}\\\text {3) Exports of Services}\\\text {4) Imports of Services}\\\text {5) Net Investment Income}\\\text {6) Net Transfers}\\\\\text {Financial Account}\\\hline \text {7) Foreign Purchases of Assets in the United States}\\\text {8) US Purchases of Assets Abroad}\\\\\text {Capital Account}\\\hline \text {9) Balance on Capital Account}\end{array}\begin{array}{r}\\\hline+\$ 80 \\-70 \\+20 \\-25 \\+5 \\-5 \\\\\\\hline+13 \\-23\\\\\\\hline+5 \end{array}\end{array}$

Refer to the given data.Zabella's balance on financial account shows a:

A) deficit of $10 billion.
B) surplus of $5 billion.
C) deficit of $28 billion.
D) surplus of $13 billion.

Question 35

The following table contains hypothetical data for the 2012 U.S.balance of payments.Answer the question on the basis of this information.All figures are in billions of dollars. $\begin{array}{lrrr} \text { 1) US Goods Exports } & +\$100\\ \text {2) US Goods Imports } &-80\\ \text {3) US Service Exports } &+40\\ \text {4) US Service Imports } &-90\\ \text { 5) Net Investment Income } &+20\\ \text { 6) Net Transfers } &-15\\ \text {7) Foreign Purchases of Assets in the United States } &+30\\ \text {8) US Purchases of Foreign Assets Abroad } &-10\\ \text { 9) Balance on Capital Account } &+5\\\end{array}$
Refer to the given data.Item (6)indicates that:

A) the United States used $15 billion of its international monetary reserves to balance its international payments.
B) the United States provided $15 billion of foreign aid to developing nations.
C) Americans provided a net amount of $15 billion in remittances to the rest of the world.
D) Americans received a net amount of $15 billion in remittances from the rest of the world.

Question 36

The following table contains hypothetical data for the 2012 U.S.balance of payments.Answer the question on the basis of this information.All figures are in billions of dollars. $\begin{array}{lrrr} \text { 1) US Goods Exports } & +\$100\\ \text {2) US Goods Imports } &-80\\ \text {3) US Service Exports } &+40\\ \text {4) US Service Imports } &-90\\ \text { 5) Net Investment Income } &+20\\ \text { 6) Net Transfers } &-15\\ \text {7) Foreign Purchases of Assets in the United States } &+30\\ \text {8) US Purchases of Foreign Assets Abroad } &-10\\ \text { 9) Balance on Capital Account } &+5\\\end{array}$
Refer to the given data.The United States' balance on financial account is a:

A) $20 billion surplus.
B) $15 billion surplus.
C) $30 billion deficit.
D) $20 billion deficit.

Question 37

Answer the question on the basis of the following 2012 balance of payments data (+ and -)for the hypothetical nation of Zabella.All figures are in billions of dollars. $\begin{array}{c}\begin{array}{lll}\text {Current Account}\\\hline \text {1) Goods Exports}\\\text {2) Goods Imports}\\\text {3) Exports of Services}\\\text {4) Imports of Services}\\\text {5) Net Investment Income}\\\text {6) Net Transfers}\\\\\text {Financial Account}\\\hline \text {7) Foreign Purchases of Assets in the United States}\\\text {8) US Purchases of Assets Abroad}\\\\\text {Capital Account}\\\hline \text {9) Balance on Capital Account}\end{array}\begin{array}{r}\\\hline+\$ 80 \\-70 \\+20 \\-25 \\+5 \\-5 \\\\\\\hline+13 \\-23\\\\\\\hline+5 \end{array}\end{array}$
Refer to the given data.Zabella has a balance of trade (goods):

A) deficit of $10 billion.
B) surplus of $5 billion.
C) surplus of $10 billion.
D) deficit of $5 billion.

Question 38

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

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

Question 39

The following table contains hypothetical data for the 2012 U.S.balance of payments.Answer the question on the basis of this information.All figures are in billions of dollars. $\begin{array}{lrrr} \text { 1) US Goods Exports } & +\$100\\ \text {2) US Goods Imports } &-80\\ \text {3) US Service Exports } &+40\\ \text {4) US Service Imports } &-90\\ \text { 5) Net Investment Income } &+20\\ \text { 6) Net Transfers } &-15\\ \text {7) Foreign Purchases of Assets in the United States } &+30\\ \text {8) US Purchases of Foreign Assets Abroad } &-10\\ \text { 9) Balance on Capital Account } &+5\\\end{array}$
Refer to the given data.The U.S.balance on goods and services is a:

A) $10 billion deficit.
B) $20 billion deficit.
C) $30 billion surplus.
D) $30 billion deficit.

Question 40

The plus items below are "export-type" entries and the minus items are "import-type" entries in the balance of payments for the hypothetical country of Zippo. $\begin{array}{c}\begin{array}{lll} \text { 1) Goods Exports}\\ \text { 2) Balance on Capital Account}\\ \text { 3) Net Transfers}\\ \text { 4) Imports of Services}\\ \text { 5) Net Investment Income}\\ \text { 6) US Purchases of Assets Abroad}\\ \text { 7) Goods Imports}\\ \text { 8) Foreign Purchases of Assets in the US}\\ \text { 9) Export of Services} \end{array}\begin{array}{r}+\$ 200 \\0 \\0 \\-100 \\0 \\-50 \\-250 \\+150 \\+50 \end{array}\end{array}$
Refer to the given information.The financial account items for Zippo are:

A) 1,2,3,and 4.
B) 1,3,4,5,7,and 9.
C) 6 and 8.
D) 1,2,4,7,and 9.

Question 41

The plus items below are "export-type" entries and the minus items are "import-type" entries in the balance of payments for the hypothetical country of Zippo. $\begin{array}{c}\begin{array}{lll} \text { 1) Goods Exports}\\ \text { 2) Balance on Capital Account}\\ \text { 3) Net Transfers}\\ \text { 4) Imports of Services}\\ \text { 5) Net Investment Income}\\ \text { 6) US Purchases of Assets Abroad}\\ \text { 7) Goods Imports}\\ \text { 8) Foreign Purchases of Assets in the US}\\ \text { 9) Export of Services} \end{array}\begin{array}{r}+\$ 200 \\0 \\0 \\-100 \\0 \\-50 \\-250 \\+150 \\+50 \end{array}\end{array}$
Refer to the given information.On the basis of its balance of payments position,and other things equal,we can expect the international value of Zippo's currency to:

A) increase.
B) decrease.
C) remain constant.
D) gyrate up and down.

Question 42

Suppose the balance on the current account is +$100 billion and the balance on the capital account is -$1 billion.The balance on the financial account is:

A) +$101 billion.
B) -$100 billion.
C) -$99 billion.
D) -$101 billion.

Question 43

With which of the following countries does the United States have its largest goods and services deficit?

A) Canada.
B) Germany.
C) Japan.
D) China.

Question 44

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

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

Question 45

If the exchange rate between the U.S.dollar and the Japanese yen is $1 = 200 yen,then the dollar price of yen is:

A) $.005.
B) $.05.
C) $.50.
D) $5.

Question 46

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:

A) +$295 billion.
B) -$295 billion.
C) +$305 billion.
D) +$5 billion.

Question 47

Which one of the following will not directly affect the U.S.balance on current account?

A) An increase in U.S.goods imports.
B) A decrease in U.S.net investment income.
C) An increase in U.S.purchases of assets abroad.
D) An increase in U.S.imports of services.

Question 48

The following are hypothetical exchange rates: $1 = 140 yen;1 Swiss franc = $.10.We can conclude that:

A) 1 yen = 280 Swiss francs.
B) 1 yen = 14 Swiss francs.
C) 1 Swiss franc = 28 yen.
D) 1 Swiss franc = 14 yen.

Question 49

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

A) Goods imports.
B) Changes in foreign currency reserves.
C) U.S.purchases of assets abroad.
D) Exports of services.

Question 50

If the dollar price of yen rises,then:

A) the yen price of dollars also rises.
B) the dollar depreciates relative to the yen.
C) the yen depreciates relative to the dollar.
D) the dollar will buy fewer U.S.goods.

Question 51

In the U.S.balance of payments account for a certain year,a positive number in the financial account means a:

A) net buildup of assets held by the U.S.
B) net reduction in the ownership of assets by U.S.interests.
C) buildup of total foreign debt.
D) reduction of total foreign debt.

Question 52

Which one of the following,other things equal,will directly alter the U.S.balance of trade?

A) An increase in the balance on capital account.
B) A decrease in U.S.goods exports.
C) An increase in net transfers.
D) A decrease in U.S.purchases of assets abroad.

Question 53

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

A) resource market.
B) bond market.
C) stock market.
D) foreign exchange market.

Question 54

In the balance of payments of the United States,U.S.goods imports are recorded as a:

A) positive entry.
B) capital account entry.
C) current account entry.
D) financial account entry.

Question 55

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

A) a current account surplus.
B) a financial account deficit.
C) a trade surplus on goods and services.
D) neither a balance of payments deficit nor a surplus.

Question 56

In 2012,the United States' balance on goods was about:

A) -$735 billion.
B) +$630 billion.
C) -$540 billion.
D) +$199 billion.

Question 57

Suppose the balance on the financial account is +$200 billion and the balance on the capital account is +$2 billion.The size of the current account is:

A) +$200 billion.
B) -$202 billion.
C) -$198 billion.
D) +$2 billion.

Question 58

In the balance of payments of the United States,inflows of foreign currencies to the United States are recorded as:

A) a positive entry.
B) a current account entry.
C) a negative entry.
D) net investment income.

Question 59

A balance-of-payments deficit occurs:

A) when a nation must make an inpayment of official reserves to its capital and financial account.
B) whenever a nation has a goods and services deficit.
C) whenever a nation has a goods and services surplus.
D) when a nation must make an outpayment of official reserves from its capital and financial account.

Question 60

Suppose the balance on the current account is +$50 billion and the balance on the capital account is +$1 billion.The balance on the financial account is:

A) -$51 billion.
B) -$50 billion.
C) -$49 billion.
D) +$51 billion.

Question 61

The following diagram is a flexible exchange market for foreign currency: Refer to the diagram.At the equilibrium exchange rate:

A) $8 will buy 1 euro.
B) 0.8 euros will buy $1.
C) 1.25 euros will buy $1.
D) $1 will buy 8 euros.

Question 62

The U.S.demand for British pounds is:

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.

Question 63

The following are hypothetical exchange rates: 2 euros = 1 pound;$1 = 2 pounds.We can conclude that:

A) $1 = 4 euros.
B) $1 = .5 euro.
C) 1 euro = $.50.
D) 1 euro = $2.

Question 64

The following diagram is a flexible exchange market for foreign currency: Refer to the diagram.Other things equal,a leftward shift of the supply curve would:

A) appreciate the euro.
B) cause a shortage of euros.
C) increase the equilibrium quantity of euros.
D) appreciate the dollar.

Question 65

The following diagram is a flexible exchange market for foreign currency: Refer to the diagram.Other things equal,a rightward shift of the supply curve would:

A) appreciate the euro.
B) cause a surplus of euros.
C) decrease the equilibrium quantity of euros.
D) appreciate the dollar.

Question 66

The U.S.demand for euros is:

A) downsloping because,at lower dollar prices for euros,Americans will want to buy more European goods and services.
B) downsloping because,at higher dollar prices for euros,Americans will want to buy more European goods and services.
C) downsloping because the dollar price of euros and the euro price of dollars are directly related.
D) upsloping because a higher dollar price of euros makes European goods and services more attractive to Americans.

Question 67

In considering yen and dollars,when the dollar rate of exchange for the yen rises:

A) the yen rate of exchange for the dollar will fall.
B) the yen rate of exchange for the dollar will also rise.
C) the yen rate of exchange for the dollar may either fall or rise.
D) U.S.net exports to Japan will fall.

Question 68

Appreciation of the Canadian dollar will:

A) intensify an existing disequilibrium in Canada's balance of payments.
B) make Canada's exports less expensive and its imports more expensive.
C) make Canada's exports more expensive and its imports less expensive.
D) make Canada's exports and imports both more expensive.

Question 69

If the rate of exchange for a pound is $4,the rate of exchange for the dollar is:

A) ¼ pound.
B) 4 pounds.
C) $.25.
D) $1.00.

Question 70

If the equilibrium exchange rate changes so that fewer dollars are needed to buy a South Korean won,then:

A) Americans will buy fewer Korean goods and services.
B) the won has appreciated in value.
C) fewer U.S.goods and services will be demanded by the South Koreans.
D) the dollar has depreciated in value.

Question 71

If the U.S.dollar depreciates relative to the Russian ruble,the ruble:

A) will be less expensive to Americans.
B) may either appreciate or depreciate relative to the dollar.
C) will appreciate relative to the dollar.
D) will depreciate relative to the dollar.

Question 72

The following diagram is a flexible exchange market for foreign currency: Refer to the diagram.At the price $.80 for 1 euro:

A) the quantity of euros demanded equals the quantity supplied.
B) the dollar-euro exchange rate is unstable.
C) the dollar price of 1 euro equals the euro price of 1 dollar.
D) there will be a surplus of euros in the foreign exchange market.

Question 73

The following diagram is a flexible exchange market for foreign currency: Refer to the diagram.Other things equal,a leftward shift of the demand curve would:

A) depreciate the dollar.
B) appreciate the euro.
C) reduce the equilibrium quantity of euros.
D) cause a surplus of euros.

Question 74

Which of the following will generate a demand for country X's currency in the foreign exchange market?

A) Travel by citizens of country X in other countries.
B) The desire of foreigners to buy stocks and bonds of firms in country X.
C) The imports of country X.
D) Charitable contributions by country X's citizens to citizens of developing nations.

Question 75

The following diagram is a flexible exchange market for foreign currency: Refer to the diagram.Other things equal,a rightward shift of the demand curve would:

A) depreciate the dollar.
B) appreciate the dollar.
C) reduce the equilibrium quantity of euros.
D) depreciate the euro.

Question 76

If the exchange rate changes so that more Mexican pesos are required to buy a dollar,then:

A) the peso has appreciated in value.
B) Americans will buy more Mexican goods and services.
C) more U.S.goods and services will be demanded by the Mexicans.
D) the dollar has depreciated in value.

Question 77

Under a system of freely flexible (floating)exchange rates,a U.S.trade deficit with Mexico will tend to cause:

A) the U.S.government to ration pesos to U.S.importers.
B) a flow of gold from the United States to Mexico.
C) an increase in the peso price of dollars.
D) an increase in the dollar price of pesos.

Question 78

The U.S.supply of Japanese yen is:

A) downsloping because a lower dollar price of yen means U.S.goods are cheaper to the Japanese.
B) upsloping because a higher dollar price of yen means U.S.goods are cheaper to the Japanese.
C) upsloping because a lower dollar price of yen means U.S.goods are cheaper to the Japanese.
D) downsloping because a higher dollar price of yen means U.S.goods are cheaper to the Japanese.

Question 79

Depreciation of the dollar will:

A) decrease the prices of both U.S.imports and exports.
B) increase the prices of both U.S.imports and exports.
C) decrease the prices of U.S.imports but increase the prices to foreigners of U.S.exports.
D) increase the prices of U.S.imports but decrease the prices to foreigners of U.S.exports.

Question 80

In considering euros and dollars,the rates of exchange for the euro and the dollar:

A) are directly related.
B) are inversely related.
C) are unrelated.
D) move in the same direction.