Question 1

The Bretton Woods system of exchange rates

Accepted Answer

The Bretton Woods system was established in 1944 and involved fixed exchange rates where currencies were pegged to the US dollar, which was convertible to gold. It allowed for occasional adjustments of exchange rates.

Question 2

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

Accepted Answer

A nation can import more goods and services than it exports and still not have a balance of payments deficit because the balance of payments also includes other transactions like income from abroad and financial transfers, which can offset the trade deficit.

Question 3

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

Accepted Answer

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

Question 4

The Bretton Woods system of exchange rates relied on

Accepted Answer

The Bretton Woods system of exchange rates was based on fixed or pegged exchange rates, with occasional adjustments made to the rates determined by international agreement. This allowed for some flexibility in the system while maintaining the stability of the exchange rates. The United States played a central role in setting and periodically reviewing worldwide exchange rates, but the system was not based solely on the US determining the rates.

Question 5

U.S.exports represent two flows,

Accepted Answer

U.S. exports represent an outflow of goods or services (which are being sold to other countries) and an inflow of payments (as the exporting country receives payments in return for the goods or services it provides). Therefore, the best choice is C, which states that U.S. exports represent an outflow of goods or services and an inflow of payments.

Question 6

U.S.exports increase and U.S.imports decrease the supplies of foreign monies owned by U.S.banks.

Accepted Answer

When U.S. exports increase and U.S. imports decrease, there is more demand for foreign currencies and less supply of foreign currencies. This leads to a decrease in the amount of foreign currencies owned by U.S. banks.

Question 7

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

Accepted Answer

When the dollar depreciates, U.S. exports become relatively cheaper for foreign buyers, leading to an increase in exports. At the same time, U.S. imports become relatively more expensive, leading to a decrease in imports. However, it may take some time for these adjustments to occur in the marketplace.

Question 8

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.

Accepted Answer

Under the gold standard, if the U.S. exports to France exceed its imports from France, gold would flow from France to the U.S. to balance the trade, as France would need to pay for its net imports from the U.S. in gold.

Question 9

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

Accepted Answer

Under freely flexible (floating) exchange rates, the exchange rate between two currencies is determined by market forces of supply and demand. Therefore, if there is an increase in the demand for pounds in relation to dollars, the dollar price of pounds will rise, and the pound price of dollars will fall. This is a common scenario in the foreign exchange market.

Question 10

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.

Accepted Answer

If the price of British pounds is rising in terms of U.S. dollars, it means that it takes more U.S. dollars to buy one British pound. Therefore, the price of U.S. dollars, measured in terms of British pounds, is decreasing, not increasing.

Question 11

Under an international gold standard,

Accepted Answer

Under an international gold standard, gold would flow into a nation experiencing a balance of payments surplus. This means that if a country is exporting more goods than it is importing, then it will receive more gold, leading to an increase in its money supply and a stronger currency. Conversely, if a country is importing more goods than it is exporting, then it will have to pay out more gold, which will decrease its money supply and lead to a weaker currency. Therefore, exchange rates would fluctuate based on a country's balance of payments, with gold serving as a stabilizing force. The other options are not accurate descriptions of how exchange rates would behave under an international gold standard.

Question 12

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

Accepted Answer

Under floating exchange rates, if there is a trade deficit with a particular country, there will be an excess demand for their currency. This excess demand will cause the price of that currency to rise, in this case, the yen. As the price of yen rises, it will take more dollars to buy the same amount of yen, helping to reduce the trade deficit.

Question 13

U.S.imports

Accepted Answer

When the US imports goods from other countries, they must pay in the currency of that country. This increases the demand for foreign currency since the US needs to exchange their domestic currency for the foreign currency to make the payment. Therefore, US imports increase the domestic demand for foreign currencies.

Question 14

Under the gold standard,

Accepted Answer

Under the gold standard, exchange rates were fixed based on the amount of gold held by a country's central bank. This means that exchange rates were virtually fixed, with minor fluctuations due to changes in the supply and demand of gold.

Question 15

(Last Word) Nations belonging to a common currency

Accepted Answer

The answer of (Last Word) Nations belonging to a common...

Question 16

The basis for the Bretton Woods international monetary system was

Accepted Answer

The Bretton Woods international monetary system was based on an adjustable peg system of exchange rates. This meant that the exchange rates were fixed within a certain range, but could be adjusted by member countries in response to changing economic conditions.

Question 17

Under a gold standard, a balance of payments disequilibrium would be corrected automatically by

Accepted Answer

Under a gold standard, a balance of payments disequilibrium would be corrected automatically by an outflow or inflow of gold. If a country had a deficit in its balance of payments, meaning it imported more than it exported, it would need to pay for the difference with gold. This would lead to an outflow of gold, which would decrease the money supply and cause deflation. The decrease in money supply would make exports cheaper while imports become more expensive, which would eventually eliminate the balance of payments deficit. Conversely, a country with a surplus in its balance of payments would receive an inflow of gold, leading to an increase in the money supply and causing inflation. The increase in money supply would make exports more expensive while imports become cheaper, which would eventually eliminate the balance of payments surplus.

Question 18

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

Accepted Answer

A fixed exchange rate system requires a government or central bank to intervene in the market to maintain the exchange rate at a specific level. This often leads to the imposition of exchange controls, such as limits on the amount of currency that can be exchanged or restrictions on the movement of capital across borders. In contrast, a flexible exchange rate system allows market forces to determine the exchange rate, reducing the need for government intervention and exchange controls.

Question 19

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

Accepted Answer

A current account deficit means that a country is importing more goods and services than it is exporting, which ultimately leads to an increase in foreign indebtedness. Therefore, a current account deficit would not reduce U.S. foreign indebtedness.

Question 20

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.

Accepted Answer

Under the international gold standard, exchange rates were fixed, not fluctuating, as countries agreed to convert their currencies into a specific amount of gold. This system aimed to provide stability in international transactions by maintaining fixed exchange rates.

Quiz 41: The Balance of Payments, Exchange Rates, and Trade Deficits