Deck 15: International and Balance of Payments Issues in the Macro Economy

Question 1

Net exports are:

A)negatively related to domestic income, positively related to income in the rest of the world, and positively related to currency appreciation.
B)negatively related to domestic income, positively related to income in the rest of the world, and positively related to currency depreciation.
C)positively related to domestic income, positively related to income in the rest of the world, and positively related to currency appreciation.
D)positively related to domestic income, positively related to income in the rest of the world, and positively related to currency depreciation.

Answer 1

B

Question 2

Imports are:

A)positively related to income in the rest of the world and currency appreciation.
B)positively related to income in the rest of the world and currency depreciation.
C)positively related to domestic income and currency appreciation.
D)positively related to domestic income and currency depreciation.

Answer 2

C

Question 3

The difference between interest income or receipts earned on investments in the rest of the world by the residents of a given country and the payments to foreigners on investments they have made in a given country is called:

A)unilateral transfers.
B)net investment income.
C)capital expenditures.
D)none of the above.

Answer 3

B

Question 4

Lending abroad represents:

A)a capital outflow.
B)a capital inflow.
C)positive net savings.
D)none of the above.

Question 5

Domestic currency appreciation will:

A)help domestic firms that export and hurt domestic firms that import.
B)hurt domestic firms that import.
C)hurt domestic firms that export and help domestic firms that import.
D)help domestic firms that export.

Question 6

As a currency appreciates:

A)exports increase and imports decrease.
B)exports decrease and imports increase.
C)exports increase and imports increase.
D)exports decrease and imports decrease.

Question 7

When a country's export spending exceeds import spending,the country is experiencing a:

A)trade deficit.
B)trade surplus.
C)budget deficit.
D)none of the above.

Question 8

Domestic currency depreciation will:

A)help domestic firms that export and hurt domestic firms that import.
B)help domestic firms that import.
C)hurt domestic firms that export and help domestic firms that import.
D)hurt domestic firms that export.

Question 9

A trade deficit means:

A)the country has positive net savings, which it lends abroad.
B)the country has negative net savings, which it lends abroad.
C)the country has positive net savings, which it borrows from abroad.
D)the country has negative net savings, which it borrows from abroad.

Question 10

The current flows of goods,services,investment income,and unilateral transfers between a country and the rest of the world is called the:

A)current account.
B)financial account.
C)national income product account.
D)none of the above.

Question 11

The difference between nominal and real exchange rates is:

A)absolute prices.
B)foreign prices.
C)domestic prices.
D)ratio of domestic prices to foreign prices.

Question 12

A trade surplus means:

A)the country has positive net savings, which it lends abroad.
B)the country has negative net savings, which it lends abroad.
C)the country has positive net savings, which it borrows from abroad.
D)the country has negative net savings, which it borrows from abroad.

Question 13

As a currency depreciates:

A)exports increase and imports decrease.
B)exports decrease and imports increase.
C)exports increase and imports increase.
D)exports decrease and imports decrease.

Question 14

In January 2001,the euro/dollar exchange rate was 1.10,and in January 2002,the euro/dollar exchange rate was 1.120 What happened to the exchange rate during this period?

A)Euro appreciated against the dollar.
B)Euro depreciated against the dollar.
C)Dollar appreciated against the euro.
D)Both B and C.

Question 15

An index of the weighted exchange value of the U.S.dollar versus the currencies of a broad group of major U.S.trading partners is called:

A)trade-weighted dollar.
B)exchange-weighted dollar.
C)dollarization.
D)bilateral dollar.

Question 16

In February 2002,the euro/dollar exchange rate was 1.20,and in May 2002,the euro/dollar exchange rate was 1.10.What happened to the exchange rate during this period?

A)Euro appreciated against the dollar.
B)Euro depreciated against the dollar.
C)Dollar appreciated against the euro.
D)Both B and C.

Question 17

A record of all transactions between residents of the reporting country and residents of the rest of the world over a period of time is called the:

A)national income product accounts.
B)balance of payments accounting system.
C)accrual accounting system.
D)none of the above.

Question 18

Exports are:

A)positively related to income in the rest of the world and currency appreciation.
B)positively related to income in the rest of the world and currency depreciation.
C)positively related to domestic income and currency appreciation.
D)positively related to domestic income and currency depreciation.

Question 19

When a country's import spending exceeds export spending,the country is experiencing a:

A)trade deficit.
B)trade surplus.
C)budget deficit.
D)none of the above.

Question 20

Borrowing from abroad represents:

A)a capital outflow.
B)a capital inflow.
C)positive net savings.
D)none of the above.

Question 21

The difference between the interest income or receipts earned on investments in the rest of the world by the residents of a given country and the payments to foreigners on investments they have made in the given country is called:

A)unilateral transfers.
B)bilateral transfers.
C)net investment income.
D)gross investment income.

Question 22

When the central banks of various countries intervene in the foreign exchange market to maintain an exchange rate,this type of exchange rate system is called a ________ exchange rate system.

A)fixed
B)flexible
C)all of the above
D)none of the above

Question 23

A measure of the change in the stock of real and financial assets held by a country's residents in a foreign country and by foreigners in the given country is called the:

A)current account.
B)financial account.
C)national income product account.
D)none of the above.

Question 24

In the foreign exchange market,the quantity U.S.dollars supplied is a function of:

A)the amount of imports and the level of capital outflows.
B)the amount of exports and the level of capital outflows.
C)the amount of exports and the level of capital inflows.
D)none of the above.

Question 25

Exports are:

A)positively related to the level of foreign income and negatively related to the exchange rate.
B)positively related to the level of foreign income and positively related to the exchange rate.
C)negatively related to the level of foreign income and negatively related to the exchange rate.
D)negatively related to the level of foreign income and positively related to the exchange rate.

Question 26

Holding everything else constant,a country's exports will decrease if the:

A)country's currency appreciates.
B)country's currency depreciates.
C)country's currency is revalued.
D)none of the above.

Question 27

In the foreign exchange market,the quantity U.S.dollars demanded is a function of:

A)the amount of imports and the level of capital outflows.
B)the amount of exports and the level of capital outflows.
C)the amount of exports and the level of capital inflows.
D)none of the above.

Question 28

The exchange rate is determined by the interaction of the supply and demand for currencies in which exchange rate system is:

A)fixed.
B)flexible.
C)all of the above.
D)none of the above.

Question 29

A decrease in the demand for dollars on the foreign exchange market,all else equal,will result in:

A)appreciation of the U.S. dollar and depreciation of the foreign currency.
B)appreciation of the U.S. dollar and appreciation of the foreign currency.
C)depreciation of the U.S. dollar and depreciation of the foreign currency.
D)depreciation of the U.S. dollar and appreciation of the foreign currency.

Question 30

In the foreign exchange market,U.S.residents wishing to purchase foreign exports or foreign real and financial assets must:

A)demand U.S. dollars by supplying foreign currency.
B)demand U.S. dollars by supplying U.S. dollars.
C)supply U.S. dollars by demanding foreign currency.
D)none of the above.

Question 31

Changes in domestic and foreign income result in:

A)movements along the demand and supply curves of the foreign exchange market.
B)shifts in the demand and supply curves of the foreign exchange market.
C)all of the above.
D)none of the above.

Question 32

In the foreign exchange market,foreign residents wishing to purchase U.S.exports or U.S.real and financial assets must:

A)demand U.S. dollars by supplying their foreign currency.
B)demand U.S. dollars by supplying U.S. dollars.
C)supply U.S. dollars by demanding their foreign currency.
D)none of the above.

Question 33

Holding everything else constant,a country's imports will decrease if the:

A)country's currency appreciates.
B)country's currency depreciates.
C)country's currency is revalued.
D)none of the above.

Question 34

Imports are:

A)positively related to the level of domestic income and negatively related to the exchange rate.
B)positively related to the level of domestic income and positively related to the exchange rate.
C)negatively related to the level of domestic income and negatively related to the exchange rate.
D)negatively related to the level of domestic income and positively related to the exchange rate.

Question 35

An increase in the demand for dollars on the foreign exchange market,all else equal,will result in:

A)appreciation of the U.S. dollar and depreciation of the foreign currency.
B)appreciation of the U.S. dollar and appreciation of the foreign currency.
C)depreciation of the U.S. dollar and depreciation of the foreign currency.
D)depreciation of the U.S. dollar and appreciation of the foreign currency.

Question 36

An increase in the supply of dollars on the foreign exchange market,all else equal,will result in:

A)appreciation of the U.S. dollar and depreciation of the foreign currency.
B)appreciation of the U.S. dollar and appreciation of the foreign currency.
C)depreciation of the U.S. dollar and depreciation of the foreign currency.
D)depreciation of the U.S. dollar and appreciation of the foreign currency.

Question 37

A fixed exchange rate system where central banks buy and sell gold to keep exchange rates at a given level is called the:

A)fixed standard.
B)flexible standard.
C)fiat standard.
D)gold standard.

Question 38

Capital outflows occur if:

A)domestic interest rates are higher than foreign interest rates.
B)domestic interest rates are lower than foreign interest rates.
C)domestic and foreign interest rates are the same.
D)none of the above.

Question 39

Capital inflows occur if:

A)domestic interest rates are higher than foreign interest rates.
B)domestic interest rates are lower than foreign interest rates.
C)domestic and foreign interest rates are the same.
D)none of the above.

Question 40

A decrease in the supply of dollars on the foreign exchange market,all else equal,will result in:

A)appreciation of the U.S. dollar and depreciation of the foreign currency.
B)appreciation of the U.S. dollar and appreciation of the foreign currency.
C)depreciation of the U.S. dollar and depreciation of the foreign currency.
D)depreciation of the U.S. dollar and appreciation of the foreign currency.

Question 41

The major factor contributing to the depreciation of the dollar in 2007-2008 was:

A)higher U.S. interest rates resulting in lower capital outflows.
B)lower U.S. interest rates resulting in higher capital outflows.
C)higher U.S. interest rates resulting in higher capital outflows.
D)lower U.S. interest rates resulting in lower capital outflows.

Question 42

When the exchange rate is allowed to shift gradually over time,or within an exchange rate band which may also shift over time,this is considered a(n):

A)fixed exchange rate.
B)managed float.
C)flexible exchange rate.
D)none of the above.

Question 43

The international financial organization created at the Bretton Woods conference in 1944 that helps developing countries obtain low-interest loans is called the:

A)World Bank.
B)International Monetary Fund.
C)U)S. Treasury.
D)U)S. Agency for International Development.

Question 44

The major factor contributing to the depreciation of the Euro in 1999 and 2000 was:

A)low interest rates in the U.S. relative to Europe.
B)high interest rates in the U.S. relative to Europe.
C)trade barriers in Europe.
D)none of the above.

Question 45

The action taken by a country's central bank to prevent balance of payments policies from influencing the country's domestic money supply is called a:

A)fiscal policy intervention.
B)monetary policy intervention.
C)sterilized intervention.
D)non-sterilized intervention.

Question 46

In the foreign exchange market,the quantity supplied of dollars is 300 whereas the quantity demanded of dollars is 500 results in a:

A)balance of payments surplus of 200.
B)balance of payments deficit of 200.
C)balance of payments surplus of -200.
D)balance of payments deficit of -200.

Question 47

In the foreign exchange market,a balance of payments deficit is represented by:

A)excess supply of dollars.
B)excess demand for dollars.
C)equilibrium in the foreign exchange market.
D)none of the above.

Question 48

An international organization created at the Bretton Woods conference in 1944 that helps coordinate international financial flows and can arrange short-term loans between countries is called the:

A)World Bank.
B)International Monetary Fund.
C)U)S. Treasury.
D)U)S. Agency for International Development.

Question 49

Under a flexible exchange rate system,if the quantity supplied of dollars is less than the quantity demanded of dollars,there is a:

A)balance of payments deficit and the dollar would depreciate.
B)balance of payments surplus and the dollar would depreciate.
C)balance of payments deficit and the dollar would appreciate.
D)balance of payments surplus and the dollar would appreciate.

Question 50

Gold certificates,special drawing rights,the reserve position of the IMF,and the holdings of foreign currencies represent:

A)physical assets.
B)reserve assets.
C)monetary assets.
D)none of the above.

Question 51

In the foreign exchange market,a balance of payments surplus is represented by:

A)excess supply of dollars.
B)excess demand for dollars.
C)equilibrium in the foreign exchange market.
D)none of the above.

Question 52

The major factor contributing to the appreciation of the dollar between 1995 to 2000 was:

A)decrease in capital inflows.
B)increase in capital inflows.
C)slow GDP growth in the U.S.
D)none of the above.

Question 53

Under a fixed exchange rate system,a balance of payments deficit may:

A)decrease the country's money supply if there is a non-sterilized central bank intervention.
B)decrease the country's money supply if there is a sterilized central bank intervention.
C)increase the country's money supply if there is a non-sterilized central bank intervention.
D)increase the country's money supply if there is a sterilized central bank intervention.

Question 54

In the foreign exchange market,the quantity supplied of dollars is 600 whereas the quantity demanded of dollars is 400 results in a:

A)balance of payments surplus of 200.
B)balance of payments deficit of 200.
C)balance of payments surplus of -200.
D)balance of payments deficit of -200.

Question 55

Under a fixed exchange rate system,a balance of payments surplus may:

A)decrease the country's money supply if there is a non-sterilized central bank intervention.
B)decrease the country's money supply if there is a sterilized central bank intervention.
C)increase the country's money supply if there is a non-sterilized central bank intervention.
D)increase the country's money supply if there is a sterilized central bank intervention.

Question 56

Assets which include foreign currencies and gold certificates that central banks use to maintain exchange rates in a predetermined range are called:

A)reserve assets.
B)tangible assets.
C)bank assets.
D)discretionary assets.

Question 57

Under a fixed exchange rate system,the central bank of a country experiencing a balance of payments deficit will:

A)increase the supply of the domestic currency to prevent currency depreciation.
B)increase the demand for the domestic currency to prevent currency depreciation.
C)increase the supply of domestic currency to prevent a currency appreciation.
D)increase the demand for domestic currency to prevent a currency appreciation.

Question 58

Under a fixed exchange rate system,the central bank of a country experiencing a balance of payments surplus will:

A)increase the supply of domestic currency to prevent currency depreciation.
B)increase the demand for domestic currency to prevent currency depreciation.
C)increase the supply of domestic currency to prevent a currency appreciation.
D)increase the demand for domestic currency to prevent a currency appreciation.

Question 59

Under a flexible exchange rate system,if the quantity supplied of dollars is greater than the quantity demanded of dollars,there is a:

A)balance of payments deficit and the dollar would depreciate.
B)balance of payments surplus and the dollar would depreciate.
C)balance of payments deficit and the dollar would appreciate.
D)balance of payments surplus and the dollar would appreciate.

Question 60

Within the balance of payments,a current account deficit is offset by a:

A)financial account deficit.
B)financial account surplus.
C)budget deficit.
D)budget surplus.

Question 61

Currency appreciation will decrease net exports.

Question 62

A trade surplus exists if export spending is less than import spending.

Question 63

Stating the dollar has strengthened against the yen means the dollar has depreciated.

Question 64

Borrowing from another country that occurs when the country has a trade deficit and its citizens sell real and financial assets to foreigners is called a capital inflow.

Question 65

The value at which one currency can be exchanged for another currency is called the real exchange rate.

Question 66

If net capital flow were zero for a country,then exports would not equal imports.

Question 67

In an open economy,total income is the sum of exports and imports.

Question 68

The flow of capital results from the changes or differences in interest rates among countries.

Question 69

In 2003,China's control of the value of the yuan became an economic and political issue for the U.S.because:

A)increased U.S. exports to China.
B)decreased U.S. exports to China.
C)increased China imports from the U.S.
D)none of the above.

Question 70

In the case of Thailand in 1997,the Thai government was running a large:

A)current account surplus, requiring capital inflows from abroad.
B)current account deficit, requiring capital inflows from abroad.
C)current account surplus, requiring capital outflows.
D)current account deficit, requiring capital outflows.

Question 71

The balance of payments accounts are divided into two sections: the current account and the financial account.

Question 72

An index of the weighted exchange value of the U.S.dollar versus the currencies of a broad group of major U.S.trading partners is called the trade-weighted dollar.

Question 73

A lending of a country's savings that occurs when the country has a trade deficit and its citizens purchase real and financial assets from abroad is called a capital inflow.

Question 74

The trade balance must equal the level of private and public saving in the country.

Question 75

A restrictive monetary policy,all else equal,will:

A)depreciate the domestic currency.
B)appreciate the domestic currency.
C)all of the above.
D)none of the above.

Question 76

An expansionary monetary policy,all else equal,will:

A)depreciate the domestic currency.
B)appreciate the domestic currency.
C)all of the above.
D)none of the above.

Question 77

Net exports are positively related to income in the rest of the world.

Question 78

In an open economy with global capital markets and mobile capital:

A)a country has control over both its domestic money supply and exchange rate.
B)a country has control of either its domestic money supply or exchange, but not both.
C)a country only has control over its domestic money supply.
D)a country only has control over its exchange rate.

Question 79

In an open mixed economy,injections are saving,taxation,and import spending.

Question 80

If there is a current account surplus,then there is a financial account deficit.