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Exam 21: The Balance of Payments, Exchange Rates, and Trade Deficits

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Question 131

Multiple Choice

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Assume that Switzerland and Britain have floating exchange rates. Other things unchanged, if a tight money policy raises interest rates in Britain as compared to Switzerland,

A) gold bullion will flow into Switzerland.
B) the Swiss franc will depreciate.
C) the pound will depreciate.
D) the Swiss franc will appreciate.

E) B) and D)
F) None of the above

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Question 132

Multiple Choice

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Which of the following lists of exchange-rate systems is arranged in proper historical order, from earliest to most current?

A) Bretton Woods system, gold standard, managed float
B) gold standard, managed float, Bretton Woods system
C) managed float, Bretton Woods system, gold standard
D) gold standard, Bretton Woods system, managed float

E) B) and C)
F) A) and D)

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Question 133

True/False

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

What are the economic effects of an appreciation of the dollar relative to foreign currencies?

Appreciation of the Canadian dollar will

Critics of the managed floating exchange rate system argue that it

Assume that Japan and the United States are engaged in a system of flexible exchange rates. If more Japanese tourists decide to visit the United States for their vacations,

Suppose the balance on the current account is +$100 billion and the balance on the capital account is −$1 billion. The balance on the financial account is

Refer to the graph. If Canadian investors buy more U.S. financial and real assets, then

Suppose that Econland has a fixed exchange-rate system. Econland's government (its central bank) will exchange as much local currency (say pesos) for foreign currency (say dollars) and as much Foreign currency (say dollars) for local currency (say pesos) as is necessary to maintain the peg. Which of the following statements is not true?

The accompanying diagram represents a flexible exchange market for foreign currency. At the equilibrium exchange rate,

$\begin{array} { | l | c | } \hline \text { (1) US Goods Exports } & + \$ 100 \\\hline \text { (2) US Goods Imports } & - 80 \\\hline \text { (3) US Service Exports } & + 40 \\\hline \text { (4) US Service Imports } & - 90 \\\hline \text { (5) Net Investment Income } & + 20 \\\hline \text { (6) Net Transfers } & - 15 \\\hline \text { (7) Foreign Purchases of Assets in the United States } & + 30 \\\hline \text { (8) US Purchases of Foreign Assets Abroad } & - 10 \\\hline \text { (9) Balance on Capital Account } & + 5 \\\hline\end{array}$ The table contains hypothetical data for the U.S. balance of payments. All ?gures are in billions of dollars. The U.S. balance on goods and services is a

In the dollar-euro market, an increased demand for European products among U.S. buyers will create an increase in

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.

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

$\begin{array} { | l | c | } \hline \text { (1) US Goods Exports } & + \$ 100 \\\hline \text { (2) US Goods Imports } & - 80 \\\hline \text { (3) US Service Exports } & + 40 \\\hline \text { (4) US Service Imports } & - 90 \\\hline \text { (5) Net Investment Income } & + 20 \\\hline \text { (6) Net Transfers } & - 15 \\\hline \text { (7) Foreign Purchases of Assets in the United States } & + 30 \\\hline \text { (8) US Purchases of Foreign Assets Abroad } & - 10 \\\hline \text { (9) Balance on Capital Account } & + 5 \\\hline\end{array}$ The table contains hypothetical data for the U.S. balance of payments. All ?gures are in billions of dollars. The United States' balance of capital and ?nancial account is a

Which of the following statements is most accurate about the U.S. current account since the Great Recession (the period covering 2009-2015) ?

U.S. imports

As a result of the 2007-2009 recession,

$\begin{array} { | l | r | } \hline \text { Current Account } & \\\hline \text { (1) Goods Exports } & + \$ 80 \\\hline \text { (2) Goods Imports } & - 70 \\\hline \text { (3) Exports of Services } & + 20 \\\hline \text { (4) Imports of Services } & - 25 \\\hline \text { (5) Net Investment Income } & + 5 \\\hline \text { (6) Net Transfers } & - 5 \\\hline \text { Financial Account } & \\\hline \text { (7) Foreign Purchases of Assets in the United States } & + 13 \\\hline \text { (8) US Purchases of Foreign Assets Abroad } & - 23 \\\hline \text { Capital Account } &\\\hline \text { (9) Balance on Capital Account } & + 5 \\\hline\end{array}$ 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