Question 1

It is impossible to have a current account deficit and a current account surplus at the same
time.

Accepted Answer

A current account reflects a country's transactions with the rest of the world, specifically its net trade in goods and services, its net earnings on cross-border investments, and its net transfer payments. By definition, a current account deficit occurs when a country spends more on foreign trade than it is earning, and a surplus occurs when a country earns more than it spends. Therefore, it is not possible to have both a deficit and a surplus in the current account at the same time.

Question 2

The Bretton Woods system is an example of a fixed exchange rate system.

Accepted Answer

The Bretton Woods system, established in 1944, was a fixed exchange rate system where the value of currencies was tied to the value of gold and the US dollar.

Question 3

While members of the European Union that are part of the eurozone continue to have their own central bank, these national central banks agree to cede the conduct of monetary policy to the European Central Bank.

Accepted Answer

This statement is true. The national central banks of eurozone countries have agreed to cede the conduct of monetary policy to the European Central Bank.

Question 4

Employment in the long run does not depend on the trade deficit.

Accepted Answer

Employment in the long run primarily depends on factors such as productivity, innovation, and technology. While a persistent trade deficit can have negative effects on certain industries and job sectors, it is not the main determining factor for overall employment levels in the long run.

Question 5

When exchange rates are fixed but fiscal and monetary policies are not coordinated, equilibrium exchange rates can move away from their fixed levels.

Accepted Answer

This is because fiscal and monetary policies can affect the demand and supply of currencies, leading to imbalances and pressures on the fixed exchange rate system. Over time, these imbalances may cause the exchange rate to move away from its fixed level, necessitating adjustments or devaluations by the authorities.

Question 6

A managed float exchange rate system is often used to reduce the uncertainty of businesses
engaged in importing and exporting.

Accepted Answer

A managed float exchange rate system allows for some government intervention to stabilize the currency, which can reduce the uncertainty for businesses involved in international trade.

Question 7

An increase in exports would shift the U.S.aggregate demand curve to the left.

Accepted Answer

An increase in exports would actually shift the U.S. aggregate demand curve to the right, since exports are a component of aggregate demand.

Question 8

A nation engages in a managed float exchange rate system to ensure that its currency will
fluctuate freely with market forces.

Accepted Answer

In a managed float exchange rate system, a nation's central bank intervenes to prevent excessive fluctuations and to steer the currency towards desired levels, rather than allowing it to fluctuate freely with market forces.

Question 9

A free-floating exchange rate is only flexible if there is a deficit in the foreign exchange
market.

Accepted Answer

A free-floating exchange rate is always flexible, regardless of whether there is a surplus or deficit in the foreign exchange market. The exchange rate adjusts continuously to reflect changes in supply and demand for currencies, which can be affected by a variety of factors such as economic indicators, geopolitical events, and market sentiment.

Question 10

One reason to demand a nation's currency is to facilitate foreigners' purchases of that
nation's goods.

Accepted Answer

When foreigners demand a nation's currency, it increases the demand for that currency, which in turn makes it easier for them to purchase that nation's goods. This is because they now have the currency that is universally accepted in that nation, which eliminates the need for currency conversion and associated costs.

Question 11

Under a gold standard exchange rate system, a country could not issue more money than it could back up with the gold it owned.

Accepted Answer

Under a gold standard exchange rate system, a country's currency is tied to gold and can only be issued up to the value of the gold reserves it holds. This restricts a country's ability to expand the money supply, which can help limit inflation.

Question 12

As a result of the financial crisis of 2008, the EU countries that were most at risk for not being able to pay their government debts included Portugal, Ireland, Italy, Greece, and Spain.

Accepted Answer

These countries became known as the "PIIGS" due to their weak economies and high levels of government debt. They were heavily impacted by the financial crisis of 2008 and required financial assistance from the EU and IMF.

Question 13

A current account surplus exists when the balance on current account is positive.

Accepted Answer

A current account surplus exists when a country's exports exceed its imports, resulting in a positive balance on the current account.

Question 14

A current account deficit is generally a result of imports exceeding exports.

Accepted Answer

A current account deficit means that a country is importing more goods and services than it is exporting, leading to an imbalance in trade and ultimately resulting in a shortfall in the current account balance.

Quiz 15: Net Exports and International Finance

It is impossible to have a current account deficit and a current account surplus at the same time.

The Bretton Woods system is an example of a fixed exchange rate system.

While members of the European Union that are part of the eurozone continue to have their own central bank, these national central banks agree to cede the conduct of monetary policy to the European Central Bank.

Employment in the long run does not depend on the trade deficit.

When exchange rates are fixed but fiscal and monetary policies are not coordinated, equilibrium exchange rates can move away from their fixed levels.

A managed float exchange rate system is often used to reduce the uncertainty of businesses engaged in importing and exporting.

An increase in exports would shift the U.S.aggregate demand curve to the left.

A nation engages in a managed float exchange rate system to ensure that its currency will fluctuate freely with market forces.

A free-floating exchange rate is only flexible if there is a deficit in the foreign exchange market.

One reason to demand a nation's currency is to facilitate foreigners' purchases of that nation's goods.

Under a gold standard exchange rate system, a country could not issue more money than it could back up with the gold it owned.

As a result of the financial crisis of 2008, the EU countries that were most at risk for not being able to pay their government debts included Portugal, Ireland, Italy, Greece, and Spain.

A current account surplus exists when the balance on current account is positive.

A current account deficit is generally a result of imports exceeding exports.