Deck 19: Open-Economy Macroeconomics: the Balance of Payments and Exchange Rates

Question 1

Imports

A) bring foreign exchange, and thus they are registered as credit in the balance of payments.
B) bring foreign exchange, and thus they are registered as debit in the balance of payments.
C) cause foreign exchange to leave the country, and thus they are registered as credit in the balance of payments.
D) cause foreign exchange to leave the country, and thus they are registered as debit in the balance of payments.

Answer 1

D

Question 2

Which of the following decreases the price of the dollar relative to the British pound?

A) a decrease in the supply of dollars
B) a decrease in the demand for pounds
C) an increase in the demand for dollars
D) an increase in the supply of dollars

Answer 2

D

Question 3

The agreements that were reached at the Bretton Woods conference in 1944 established a system

A) in which the values of currencies were fixed in terms of a specific number of ounces of gold, which in turn determined their values in international trading.
B) of floating exchange rates determined by the supply and demand of one nation's currency relative to the currency of other nations.
C) of essentially fixed exchange rates under which each country agreed to intervene in the foreign exchange market when necessary to maintain the agreed-upon value of its currency.
D) that prohibited governments from intervening in the foreign exchange markets.

Answer 3

C

Question 4

The value of the dollar relative to the euro would increase if

A) the demand for dollars increases and the supply of euros increases.
B) the demand for dollars decreases and the supply of euros increases.
C) the supply of dollars increases and the demand for euros increases.
D) the supply of dollars increases and the demand for euros decreases.

Question 5

The price of one country's currency in terms of another country's currency is the

A) balance of trade.
B) exchange rate.
C) terms of trade.
D) currency valuation.

Question 6

A decrease in the supply of dollars and a decrease in the demand for Japanese yen

A) increases the value of the dollar.
B) increases the value of the yen.
C) increases the yen price of dollars.
D) does not change the exchange rate between dollars and yen.

Question 7

Which of the following increases the price of the dollar relative to the Mexican peso?

A) an increase in the supply of dollars
B) an increase in the demand for pesos
C) an increase in the demand for dollars
D) a decrease in the supply of pesos

Question 8

The value of the dollar relative to the euro would decrease if

A) the demand for dollars increases and the supply of euros increases.
B) the demand for dollars decreases and the supply of euros increases.
C) the supply of dollars increases and the demand for euros increases.
D) the supply of dollars increases and the demand for euros decreases.

Question 9

The record of a country's transactions in goods, services, and assets with the rest of the world is its

A) balance of payments.
B) balance of trade.
C) capital account.
D) current account.

Question 10

Exports

A) bring foreign exchange, and thus they are registered as credit in the balance of payments.
B) bring foreign exchange, and thus they are registered as debit in the balance of payments.
C) cause foreign exchange to leave the country, and thus they are registered as credit in the balance of payments.
D) cause foreign exchange to leave the country, and thus they are registered as debit in the balance of payments.

Question 11

When a country's exports of goods are less than its imports of goods in a given period, it has a

A) trade deficit.
B) capital account deficit.
C) trade surplus.
D) current account surplus.

Question 12

When a country's exports of goods are greater than its imports of goods in a given period, it has a

A) trade deficit.
B) capital account surplus.
C) trade surplus.
D) current account deficit.

Question 13

In 1971, most countries, including the United States,

A) returned to the gold standard.
B) adopted a new system of fixed exchange rates.
C) adopted a single, internationally accepted currency whose use is limited to international transactions.
D) gave up trying to fix exchange rates formally and began allowing them to be determined essentially by supply and demand.

Question 14

In the early part of the twentieth century, nearly all currencies

A) were backed by gold.
B) were held together by a system of fixed exchange rates in which the value of those currencies was set in relation to the British pound.
C) were held together by a system of fixed exchange rates in which the value of those currencies was set in relation to the U.S. dollar.
D) were held together by a system of flexible exchange rates in which the value of those currencies fluctuated in response to the relative supply of and demand for them.

Question 15

Which of the following is an item in the U.S. current account?

A) net investment income
B) the change in foreign private assets in the United States
C) the change in private U.S. assets abroad
D) the change in foreign government assets in the United States

Question 16

The difference between a country's merchandise exports and its merchandise imports is the

A) balance of payments.
B) capital account.
C) current account.
D) balance of trade.

Question 17

An increase in the supply of dollars and an increase in the demand for Japanese yen

A) increases the value of the dollar.
B) increases the value of the yen.
C) increases the yen price of dollars.
D) does not change the exchange rate between dollars and yen.

Question 18

An increase in the supply of dollars and an increase in the demand for Japanese yen

A) increases the dollar price of yen.
B) decreases the dollar price of yen.
C) increases the yen price of dollars.
D) does not change the exchange rate between dollars and yen.

Question 19

The balance of payments is divided into two major accounts, the

A) current account and the trade account.
B) current account and the capital account.
C) current account and the reserve account.
D) trade account and the capital account.

Question 20

Any transaction that causes foreign exchange to leave a country is a

A) credit item in that country's balance of trade.
B) debit item in that country's balance of payments.
C) credit item in that country's balance of payments.
D) debit item in that country's balance of trade.

Question 21

An Italian citizen buys a U.S. bond. This transaction will be entered as

A) a credit in the U.S. current account.
B) a credit in the U.S. capital account.
C) a debit in the U.S. current account.
D) a debit in the U.S. capital account.

Question 22

The price of ________ in terms of ________ is the exchange rate.

A) one country's currency; the inflation rate
B) one country's currency; another country's currency
C) resources; finished products
D) imports; exports

Question 23

A U.S. individual buys shares in a Swiss company. This transaction will be entered as

A) a credit in the U.S. current account.
B) a debit in the U.S. current account.
C) a credit in the U.S. capital account.
D) a debit in the U.S. capital account.

Question 24

Related to the Economics in Practice on p. 360: According to the International Monetary Fund, the top debtor nation in 2013 was

A) China.
B) Japan.
C) Saudi Arabia.
D) the United States.

Question 25

When a foreigner buys shares in a U.S. company, the transaction

A) is registered as a credit in the capital account, and it decreases foreign private assets in the United States.
B) is registered as a debit in the current account, and it decreases private U.S. assets abroad.
C) is registered as a credit in the capital account, and it increases foreign private assets in the United States.
D) is registered as a debit in the capital account, and it increases private U.S. assets abroad.

Question 26

Which of the following decreases the price of the dollar relative to the euro?

A) a decrease in the supply of euros
B) an increase in the supply for euros
C) an increase in the demand for dollars
D) a decrease in the demand for euros

Question 27

Which of the following would not be considered foreign exchange for Canada?

A) the U.S. dollar
B) the euro
C) the British pound
D) the Canadian dollar

Question 28

When foreign assets in the United States increase,

A) the United States residents are reducing their debt to the rest of the world.
B) the United States residents are increasing their debt to the rest of the world.
C) foreign residents debt to the United States residents also decrease.
D) the United States residents are reducing their stock of assets.

Question 29

When United States residents acquire assets abroad, they are in essence

A) borrowing money, and foreign debts to the United States decrease.
B) borrowing money, and foreign debts to the United States increase.
C) lending money, and foreign debts to the United States decrease.
D) lending money, and foreign debts to the United States increase.

Question 30

Which of the following statements is true?

A) A country runs a capital account deficit if it imports more than it exports.
B) If the current account is in surplus, the capital account must be in deficit.
C) The overall sum of all the entries in the balance of payments must be positive.
D) A country runs a current account surplus if it sells more of its assets abroad than it buys abroad.

Question 31

Which of the following statements is true?

A) An increase in exports causes a balance of payments surplus.
B) A decrease in exports causes a balance of payments deficit.
C) A decreases in imports causes a balance of payments surplus.
D) The balance of payments is always in balance.

Question 32

Which of the following increases the price of the dollar relative to the Japanese yen?

A) an increase in the supply of dollars
B) a decrease in the demand for yen
C) a decrease in the demand for dollars
D) a decrease in the supply of yen

Question 33

The agreements that were reached at the ________ conference in 1944 established a system of essentially ________ exchange rates under which each country agreed to intervene in the foreign exchange market when necessary to maintain the agreed-upon value of its currency.

A) Gold Standard; fixed
B) Pottsdam; flexible
C) Bretton Woods; fixed
D) Managed Float; flexible

Question 34

A U.S. firm builds a factory in South Africa. This will be entered as a

A) debit in the U.S. capital account.
B) debit in the U.S. current account.
C) credit in the U.S. capital account.
D) credit in the U.S. current account.

Question 35

Until the mid-1970s the United States consistently ran

A) current account deficits and capital account surpluses.
B) current account surpluses and capital account deficits.
C) deficits in both the current account and the capital account.
D) surpluses in both the current account and the capital account.

Question 36

In ________, most countries, including the United States, gave up trying to fix exchange rates formally and began allowing them to be determined essentially by supply and demand.

A) 1879
B) 1933
C) 1944
D) 1971

Question 37

Related to the Economics in Practice on p. 360: According to the International Monetary Fund, the top creditor nation in 2013 was

A) China.
B) Japan.
C) Saudi Arabia.
D) the United States.

Question 38

In the United States, which of the following is not directly determined by U.S. income?

A) consumption
B) income tax revenue
C) exports
D) imports

Question 39

When foreign assets in the United States decrease,

A) the United States residents are reducing their debt to the rest of the world.
B) the United States residents are increasing their stock of assets.
C) the United States residents are increasing their debt to the rest of the world.
D) foreign residents debts to the United States residents also increase.

Question 40

When an American buys an asset abroad, the transaction

A) is registered as a credit in the capital account, and it decreases private U.S. assets abroad.
B) is registered as a debit in the current account, and it decreases private U.S. assets abroad.
C) is registered as a credit in the capital account, and it increases private U.S. assets abroad.
D) is registered as a debit in the capital account, and it increases private U.S. assets abroad.

Question 41

The ________ is divided into two major accounts, the current account and the capital account.

A) GDP
B) balance of payments
C) national debt
D) trade deficit

Question 42

A U.S. citizen buys a Japanese bond. This transaction will be entered as a

A) credit in the U.S. current account.
B) credit in the U.S. capital account.
C) debit in the U.S. current account.
D) debit in the U.S. capital account.

Question 43

When an American sells an asset abroad, the transaction

A) is registered as a credit in the capital account, and it decreases private U.S. assets abroad.
B) is registered as a debit in the current account, and it decreases private U.S. assets abroad.
C) is registered as a credit in the capital account, and it increases private U.S. assets abroad.
D) is registered as a debit in the capital account, and it increases private U.S. assets abroad.

Question 44

If an American investor buys shares of stock of the German auto manufacturer BMW, the transaction

A) is registered as a credit in the capital account, and it increases foreign private assets in the United States.
B) is registered as a debit in the current account, and it decreases private U.S. assets abroad.
C) is registered as a credit in the capital account, and it decreases foreign private assets in the United States.
D) is registered as a debit in the capital account, and it increases private U.S. assets abroad.

Question 45

The value of the Swiss franc relative to the dollar would increase if the supply of dollars increases and the demand for Swiss francs

A) increases.
B) decreases.
C) remains unchanged.
D) all of the above are correct

Question 46

Any transaction that causes foreign exchange to enter a country is a

A) credit item in that country's balance of trade.
B) debit item in that country's balance of payments.
C) credit item in that country's balance of payments.
D) debit item in that country's balance of trade.

Question 47

Which of the following is an item in the U.S. capital account?

A) net investment income
B) exports of services
C) the change in private U.S. assets abroad
D) net transfer payments

Question 48

A German individual buys shares in a U.S. company. This transaction will be entered as a

A) credit in the U.S. current account.
B) debit in the U.S. current account.
C) credit in the U.S. capital account.
D) debit in the U.S. capital account.

Question 49

________ cause foreign exchange to leave the country, and thus they are registered as a ________ in the balance of payments.

A) Imports; debit
B) Exports; debit
C) Imports; credit
D) Exports; credit

Question 50

Which of the following statements is false?

A) A country runs a net export deficit if it imports more than it exports.
B) If the current account is in surplus, the capital account must be in deficit.
C) The overall sum of all the entries in the balance of payments must be zero.
D) A country runs a current account surplus if it sells more of its assets abroad than it buys abroad.

Question 51

The value of the Swiss franc relative to the dollar would decrease if the demand for dollars increases and the supply of Swiss francs

A) increases.
B) decreases.
C) remains unchanged.
D) all of the above are correct

Question 52

The record of a country's transactions in goods, services, and assets with the ________ is its balance of payments.

A) the rest of the world
B) its ten largest trade partners
C) its residents
D) governments of other nations

Question 53

A decrease in the supply of dollars and a decrease in the demand for Indian rupees

A) increases the dollar price of rupee.
B) decreases the dollar price of rupee.
C) decreases the rupee price of dollars.
D) does not change the exchange rate between dollars and rupees.

Question 54

When a country's exports of goods are ________ its imports of goods in a given period, it has a trade surplus.

A) equal to
B) less than
C) greater than
D) unrelated to

Question 55

A decrease in the supply of dollars and an increase in the demand for Mexican peso

A) increases the value of the dollar.
B) increases the value of the peso.
C) increases the peso price of dollars.
D) has an indeterminate effect on the exchange rate between dollars and pesos.

Question 56

An increase in the supply of dollars and a decrease in the demand for Mexican peso

A) increases the value of the dollar.
B) increases the value of the peso.
C) increases the peso price of dollars.
D) has an indeterminate effect on the exchange rate between dollars and pesos.

Question 57

The difference between a country's ________ exports and its ________ imports is the balance of trade.

A) total; service
B) total; total
C) service; service
D) merchandise; merchandise

Question 58

When a country's exports of goods are ________ its imports of goods in a given period, it has a trade deficit.

A) equal to
B) less than
C) greater than
D) unrelated to

Question 59

A Dutch firm builds a factory in the United States. This will be entered as a

A) debit in the U.S. capital account.
B) debit in the U.S. current account.
C) credit in the U.S. capital account.
D) credit in the U.S. current account.

Question 60

________ cause foreign exchange to enter the country, and thus they are registered as a ________ in the balance of payments.

A) Imports; debit
B) Exports; debit
C) Imports; credit
D) Exports; credit

Question 61

Included in the U.S. current account is interest that U.S. residents receive on overseas assets.

Question 62

When an American buys a factory in China, the transaction is registered a credit in the U.S. capital account.

Question 63

The record of a country's transactions in goods, services, and assets with the rest of the world is its balance of trade.

Question 64

When domestic assets in the United States decrease

A) the U.S. residents are reducing their debt to the rest of the world.
B) the U.S. residents are increasing their stock of assets.
C) the U.S. residents are increasing their debt to the rest of the world.
D) there is no change in the U.S. debt to the rest of the world.

Question 65

The current international monetary system is based on a commodity standard.

Question 66

The balance of trade is part of the current account which is part of the balance of payments.

Question 67

The overall sum of all the entries in the balance of payments must be zero.

Question 68

When domestic assets in the United States increase

A) the U.S. residents are reducing their debt to the rest of the world.
B) the U.S. residents are decreasing their stock of assets.
C) the U.S. residents are increasing their debt to the rest of the world.
D) there is no change in the U.S. debt to the rest of the world.

Question 69

A current account surplus implies a capital account deficit.

Question 70

By the mid-1980s, the United States

A) was neither a creditor nation or a debtor nation, as its current account and capital account were both valued at zero.
B) was both a creditor nation and a debtor nation, as its balance of payments was equal to zero.
C) changed from a creditor nation to a debtor nation.
D) changed from a debtor nation to a creditor nation.

Question 71

U.S. citizens and firms demand foreign exchange when they buy products from citizens and firms in other countries.

Question 72

U.S. citizens and firms earn foreign exchange when they sell products to citizens and firms in other countries.

Question 73

When an American sells a factory in Chicago to a citizen of Brazil, the transaction is registered as a debit in the U.S. capital account.

Question 74

Which of the following statements is true?

A) A decreases in imports causes a balance of payments surplus.
B) A decrease in exports causes a balance of payments deficit.
C) An increase in exports causes a balance of payments surplus.
D) none of the above

Question 75

A current account deficit implies a capital account surplus.

Question 76

When U.S. residents sell assets abroad, they are in essence

A) borrowing money, and foreign debts to the United States decrease.
B) borrowing money, and foreign debts to the United States increase.
C) lending money, and foreign debts to the United States decrease.
D) lending money, and foreign debts to the United States increase.

Question 77

A current account deficit means that exports exceed imports.

Question 78

A current account deficit means that foreigners do not like our goods.

Question 79

The current international monetary system is based on a gold standard.

Question 80

By the mid-1980s, the United States was running large current account ________ and large capital account ________.

A) deficits; surpluses
B) surpluses; deficits
C) deficits; deficits
D) surpluses; surpluses