Deck 27: The Balance of Payments, Exchange Rates, and Trade Deficits

Question 1

Relatively high rates of U.S. inflation compared to other countries will increase the supply of, and decrease the demand for, dollars in foreign exchange markets.

Answer 1

True

Question 2

Under the international gold standard, exchange rates fluctuate without restraint to correct any international disequilibrium by affecting the relative attractiveness of domestic and foreign goods.

Answer 2

False

Question 3

If the price of British pounds, measured in terms of U.S. dollars, is rising, then the price of U.S. dollars, measured in terms of British pounds, is also rising.

Answer 3

False

Question 4

Under flexible (floating)exchange rates, if the dollar price of pounds rises, the pound price of dollars will fall.

Question 5

People will have to exchange their currency for another only when they do exporting or importing.

Question 6

The United States has had significant trade and current account surpluses in recent years.

Question 7

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.

Question 8

The purchase of a foreign hotel by a U.S. company is recorded as an inflow of money in the financial account of the U.S. balance-of-payments statement.

Question 9

The flow of payments for purchases and sale of financial assets is included in the current account balance of a nation.

Question 10

The current account portion of a nation's balance of payments statement includes net investment income.

Question 11

In the dollar/yen market, if the supply of yen increases, other things being equal, the dollar will appreciate.

Question 12

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

Question 13

A system of fixed exchange rates is more likely to result in exchange controls than is a system of flexible (floating)exchange rates.

Question 14

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

Question 15

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

Question 16

Under flexible (floating)exchange rates, a U.S. trade deficit with Japan will eventually cause the dollar price of yen to rise.

Question 17

The purchasing-power-parity theory holds that exchange rates should equalize the inflation rates among the trading nations.

Question 18

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

Question 19

If the dollar depreciates, U.S. exports will eventually rise and U.S. imports will eventually fall.

Question 20

U.S. exports to Japan create a supply of dollars and a demand for yen in the foreign exchange market.

Question 21

At the time when a trade deficit is occurring, U.S. consumers benefit from having more goods and services available.

Question 22

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

Question 23

In one year the United States had a current account deficit of −$461 billion. The balance on the capital account was −$6 billion. What was the balance on the financial account?

A)+$467 billion
B)−$467 billion
C)+$455 billion
D)−$461 billion

Question 24

The expectations of speculators in the United States are 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.

Question 25

Faster economic growth in the United States relative to other nations tends to worsen the U.S. trade deficit.

Question 26

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

Question 27

The accompanying table contains hypothetical data for the U.S. balance of payments in a year. All figures are in billions of dollars. The balance on the financial account was a

A)$57 billion surplus.
B)$52 billion surplus.
C)$57 billion deficit.
D)$52 billion deficit.

Question 28

If an American can purchase 30,000 British pounds for $105,000, the dollar rate of exchange for the pound is

A)$3.50.
B)$3.00.
C)$0.29.
D)$0.13.

Question 29

If the rate of exchange for one pound is $2, the rate of exchange for the dollar is

A)1/2 pound.
B)2 pounds.
C)$0.50.
D)$1.00.

Question 30

If the exchange rate between the U.S. dollar and the Japanese yen is $1 = 250 yen, then the dollar price of yen is

A)$0.004.
B)$4.
C)$0.40.
D)$0.04.

Question 31

If a Japanese importer could buy $1,000 U.S. for 111,000 yen, the rate of exchange for one dollar would be

A)111 yen.
B)900 yen.
C)1,110 yen.
D)9.01 yen.

Question 32

The table contains hypothetical data for the U.S. balance of payments. All figures are in billions of dollars. The United States has a balance of goods

A)surplus of $30 billion.
B)deficit of $20 billion.
C)surplus of -$20billion.
D)deficit of $170 billion.

Question 33

If a U.S. importer can purchase 10,000 British pounds for $30,000, the rate of exchange is

A)$3 = 1 British pound in the United States.
B)$1 = 3 British pounds in the United States.
C)$0.33 = 1 British pound in Great Britain.
D)$1 = 0.33 British pound in Great Britain.

Question 34

Fixed exchange rates usually provide more certainty to those engaged in international trade.

Question 35

The accompanying table contains hypothetical data for the U.S. balance of payments in a year. All figures are in billions of dollars. The balance of trade in goods and services was a(n)

A)$92 billion deficit.
B)$107 billion surplus.
C)$15 billion deficit.
D)$38 billion surplus.

Question 36

One of the causes of the rising trade deficits of the past decade has been a declining saving rate in the United States.

Question 37

If nations adopt a gold standard where various countries' money supply is tied to gold, then there will in effect be a fixed exchange-rate system.

Question 38

The table contains balance of payments data for the hypothetical nation of Econland. All figures are in billions of dollars. Econland's balance on the capital and financial accounts is a

A)surplus of $98 billion.
B)surplus of $88 billion.
C)surplus of $99 billion.
D)deficit of $106 billion.

Question 39

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.

Question 40

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.

Question 41

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 42

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 43

In 2018, 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)deficit, and smaller than the current account deficit.
D)balance, with no deficit or surplus.

Question 44

The table contains hypothetical data for the U.S. balance of payments. All figures are in billions of dollars. 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 45

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)$0.50 = 1 British pound in Great Britain.

Question 46

The table contains hypothetical data for the U.S. balance of payments. All figures are in billions of dollars. 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 47

A nation's capital and financial account

A)contains inflows of money but not outflows of money.
B)includes service exports and service imports.
C)includes both inflows of money and outflows of money.
D)includes net investment income and net transfers.

Question 48

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 49

Which of the following would call for inflows of money 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.

Question 50

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

A)money outflow.
B)money inflow.
C)current account item.
D)inpayment.

Question 51

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 52

The table contains hypothetical data for the U.S. balance of payments. All figures are in billions of dollars. 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 53

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

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

Question 54

The table contains hypothetical data for the U.S. balance of payments. All figures are in billions of dollars. 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 55

"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 56

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 57

In 2018, 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 58

Which of the following would call for outflows of money 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.

Question 59

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)assets and currently produced goods and services
D)currency and currently produced goods and services

Question 60

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 61

The table contains hypothetical data for the U.S. balance of payments. All figures are in billions of dollars. 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 62

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 63

The table contains balance of payments data (+ and −)for the hypothetical nation of Zabella. All figures are in billions of dollars. 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 64

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 65

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

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

Question 66

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)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 67

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 68

The table contains hypothetical data for the U.S. balance of payments. All figures are in billions of dollars. 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 69

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 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 70

The table contains balance of payments data (+ and −)for the hypothetical nation of Zabella. All figures are in billions of dollars. 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 71

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 its current account.
D)positive balance on goods and services.

Question 72

The table contains hypothetical data for the U.S. balance of payments. All figures are in billions of dollars. 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 73

The table contains balance of payments data (+ and −)for the hypothetical nation of Zabella. All figures are in billions of dollars. Zabella's balance on the 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 74

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

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

Question 75

Which one of the following will not directly affect the U.S. balance on the 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 76

In the balance of payments of the United States, inflows of money 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 77

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 78

The table contains balance of payments data (+ and −)for the hypothetical nation of Zabella. All figures are in billions of dollars. Zabella's balance on the 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 79

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

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 80

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.