Econ Chapter 35

44 Questions | Total Attempts: 755

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Econ Chapter 35

Questions and Answers
  • 1. 
         1.   The "balance of payments" is a periodic statement of the
    • A. 

      Assets and liabilities of a firm.

    • B. 

      Money value of all transactions between producers and consumers.

    • C. 

      Money value of all transactions between residents of one country and residents of another country.

    • D. 

      Price of one currency-for example, the U.S. dollar-in terms of all other currencies.

  • 2. 
          2.   When exports of American goods increase, this __________ the demand for U.S. dollars and at the same time __________ foreign currencies.
    • A. 

      Increases; increases the supply of

    • B. 

      Decreases; increases the supply of

    • C. 

      Increases; decreases the supply of

    • D. 

      Increases; increases the demand for

    • E. 

      None of the above

  • 3. 
         3.   An international transaction that supplies the nation's currency also creates a __________ foreign currency and is recorded as a __________ in the balance of payments.
    • A. 

      Demand for; debit

    • B. 

      Demand for; credit

    • C. 

      Supply of; credit

    • D. 

      None of the above

  • 4. 
         4.   The Mexican demand for American goods leads to
    • A. 

      The demand for Mexican pesos and the supply of U.S. dollars on the foreign exchange market.

    • B. 

      The demand for U.S. dollars and the demand for Mexican pesos on the foreign exchange market.

    • C. 

      The demand for U.S. dollars and the supply of Mexican pesos on the foreign exchange market.

    • D. 

      The demand for U.S. dollars and the supply of U.S. dollars on the foreign exchange market.

  • 5. 
         5.   In the balance of payment accounts, a transaction that supplies the nation's currency is recorded as a
    • A. 

      Debit.

    • B. 

      Cost.

    • C. 

      Surplus.

    • D. 

      Shortage

  • 6. 
         9.   Which of the following statements is true?
    • A. 

      An export transaction is listed as a credit in the U.S. balance of payments.

    • B. 

      An import transaction is listed as a debit in the U.S. balance of payments.

    • C. 

      If Americans buy Japanese cars, Americans supply Japanese yen and demand U.S. dollars.

    • D. 

      A and b

    • E. 

      A, b, and c

  • 7. 
       15.   The dollar amounts in the U.S. balance of payments have plus (+) or minus (-) signs in front of them. A plus sign represents the
    • A. 

      Foreign demand for U.S. dollars and the supply of foreign currencies.

    • B. 

      Foreign demand for U.S. dollars and the supply of U.S. dollars.

    • C. 

      U.S. demand for U.S. dollars and the supply of U.S. dollars.

    • D. 

      U.S. demand for foreign currencies and the foreign supply of foreign currencies.

  • 8. 
       16.   The dollar amounts in the U.S. balance of payments have plus (+) or minus (-) signs in front of them. A minus sign represents the
    • A. 

      Foreign demand for foreign currencies and the supply of foreign currencies.

    • B. 

      Foreign demand for U.S. dollars and the supply of foreign currencies.

    • C. 

      U.S. demand for foreign currencies and the supply of U.S. dollars.

    • D. 

      U.S. demand for foreign currencies and the supply of foreign currencies.

  • 9. 
       20.   In the balance of payments accounts, the current account includes the purchase and sale of
    • A. 

      Credit instruments.

    • B. 

      Foreign currency.

    • C. 

      Precious metals.

    • D. 

      Goods and services.

  • 10. 
       24.   The three components of the current account are exports of goods and services, imports of goods and services, and
    • A. 

      Net unilateral transfers abroad.

    • B. 

      Foreign investment.

    • C. 

      Capital purchases.

    • D. 

      Military sales.

  • 11. 
       25.   José lives in the United States where he owns a successful restaurant. Every month he sends his brother in Mexico $300 for living expenses. This payment is referred to as a __________ and is recorded as a __________ in the __________ account.
    • A. 

      Capital outflow; debit; capital

    • B. 

      Merchandise export; debit; current

    • C. 

      Capital outflow; credit; capital

    • D. 

      Unilateral transfer; debit; current

    • E. 

      Unilateral transfer; debit; capital

  • 12. 
       26.   Refer to Exhibit 35-1. The merchandise trade balance equals __________ billions of dollars. Components of the Balance of Payments ($ billions) Exports of goods and services + 440 Merchandise exports (including military sales) + 280 Exports of services + 40 Income from U.S. assets abroad + 120 Imports of goods and services – 490 Merchandise imports (including military purchases) – 360 Imports of services – 60 Income from foreign assets in U.S. – 70 Net unilateral transfers abroad – 11 Outflow of U.S. capital – 26 Inflow of foreign capital + 70 Increase in U.S. official reserve assets – 14 Increase in foreign official assets in U.S. + 13 Statistical discrepancy – 18
    • A. 

      -80

    • B. 

      +100

    • C. 

      -97

    • D. 

      +60

    • E. 

      None of the above

  • 13. 
       27.   Refer to Exhibit 35-1. The current account balance equals __________ billions of dollars. Components of the Balance of Payments ($ billions) Exports of goods and services + 440 Merchandise exports (including military sales) + 280 Exports of services + 40 Income from U.S. assets abroad + 120 Imports of goods and services – 490 Merchandise imports (including military purchases) – 360 Imports of services – 60 Income from foreign assets in U.S. – 70 Net unilateral transfers abroad – 11 Outflow of U.S. capital – 26 Inflow of foreign capital + 70 Increase in U.S. official reserve assets – 14 Increase in foreign official assets in U.S. + 13 Statistical discrepancy – 18
    • A. 

      -101

    • B. 

      +83

    • C. 

      -61

    • D. 

      +63

    • E. 

      None of the above

  • 14. 
       28.   Refer to Exhibit 35-1. The capital account balance equals __________ billions of dollars. Components of the Balance of Payments ($ billions) Exports of goods and services + 440 Merchandise exports (including military sales) + 280 Exports of services + 40 Income from U.S. assets abroad + 120 Imports of goods and services – 490 Merchandise imports (including military purchases) – 360 Imports of services – 60 Income from foreign assets in U.S. – 70 Net unilateral transfers abroad – 11 Outflow of U.S. capital – 26 Inflow of foreign capital + 70 Increase in U.S. official reserve assets – 14 Increase in foreign official assets in U.S. + 13 Statistical discrepancy – 18
    • A. 

      +60

    • B. 

      -60

    • C. 

      +44

    • D. 

      -54

    • E. 

      None of the above

  • 15. 
       29.   Refer to Exhibit 35-1. The official reserve balance equals __________ billions of dollars. Components of the Balance of Payments ($ billions) Exports of goods and services + 440 Merchandise exports (including military sales) + 280 Exports of services + 40 Income from U.S. assets abroad + 120 Imports of goods and services – 490 Merchandise imports (including military purchases) – 360 Imports of services – 60 Income from foreign assets in U.S. – 70 Net unilateral transfers abroad – 11 Outflow of U.S. capital – 26 Inflow of foreign capital + 70 Increase in U.S. official reserve assets – 14 Increase in foreign official assets in U.S. + 13 Statistical discrepancy – 18
    • A. 

      +1

    • B. 

      -1

    • C. 

      0

    • D. 

      +27

    • E. 

      None of the above

  • 16. 
       30.   Which of the following statements is true?
    • A. 

      The merchandise trade deficit equals the balance of payments.

    • B. 

      The balance of payments always equals zero.

    • C. 

      The capital account includes all payments related to the purchase and sale of assets and to borrowing and lending activities.

    • D. 

      B and c

    • E. 

      A, b, and c

  • 17. 
       35.   Which of the following statements is true?
    • A. 

      The merchandise trade balance is the same as the current account balance.

    • B. 

      The capital account balance is always negative.

    • C. 

      The United States exports fewer goods than almost all other countries of the world.

    • D. 

      A and c

    • E. 

      None of the above

  • 18. 
       40.   Which of the following would be recorded as a debit in the capital account of the U.S. balance of payments?
    • A. 

      A Japanese businessman purchases real estate in Los Angeles.

    • B. 

      A group of German investors buy bonds issued by the state of Illinois.

    • C. 

      A Canadian bank makes a loan to a Pittsburgh steel manufacturer.

    • D. 

      A, b, and c

    • E. 

      None of the above

  • 19. 
       45.   The U.S. balance of payments will equal zero
    • A. 

      When there is no international trade of goods and services.

    • B. 

      When U.S. citizens purchase exactly the same dollar value of goods from foreigners that foreigners purchase from U.S. producers.

    • C. 

      Only when the statistical discrepancy is equal to zero.

    • D. 

      Only when net unilateral transfers equal zero.

    • E. 

      None of the above

  • 20. 
      50.   The lower the U.S. dollar price per Mexican peso, the __________ Mexican goods are for Americans and the __________ Mexican goods Americans will buy; thus __________ pesos will be demanded.
    • A. 

      Less expensive; more, more

    • B. 

      More expensive; fewer, fewer

    • C. 

      More expensive; more, fewer

    • D. 

      Less expensive; more, fewer

    • E. 

      None of the above

  • 21. 
       56.   In a foreign exchange market diagram with pesos per dollar on the vertical axis, the quantity of __________ would be on the horizontal axis, and the U.S. demand for Mexican goods would help to determine the __________ curve.
    • A. 

      Dollars; demand

    • B. 

      Dollars; supply

    • C. 

      Pesos; demand

    • D. 

      Pesos; supply

  • 22. 
       60.   Suppose a Mexican consumer wants to buy an American television for $500 and an American wants to buy a Mexican raincoat for 700 pesos. If the exchange rate is $0.10 = 1 peso, then the price of the television in pesos will be __________ and the price of the raincoat in dollars will be __________.
    • A. 

      5000 pesos; $70

    • B. 

      50 pesos; $7,000

    • C. 

      500 pesos; $7

    • D. 

      5 pesos; $7,000

  • 23. 
       66.   Suppose that prices in the United States rise relative to prices in France. We expect that (on the foreign exchange market) the demand for U.S. dollars will __________ and the supply of dollars will __________.
    • A. 

      Increase; increase

    • B. 

      Increase; decrease

    • C. 

      Decrease; increase

    • D. 

      Decrease; decrease

  • 24. 
       70.   The U.S. real interest rate rises relative to Japan's. As a result,
    • A. 

      The yen will depreciate and the dollar will appreciate.

    • B. 

      Both the dollar and the yen will depreciate.

    • C. 

      Both the dollar and the yen will depreciate.

    • D. 

      Both the dollar and the yen will appreciate.

  • 25. 
       75.   Suppose the current exchange rate between the U.S. dollar and the Mexican peso is $0.12 = 1 peso. Furthermore, suppose the price level in Mexico rises 25 percent while the U.S. price level remains constant. According to the purchasing power parity theory, what will be the equilibrium exchange rate?
    • A. 

      $0.15 = 1 peso

    • B. 

      $0.09 = 1 peso

    • C. 

      $0.16 = 1 peso

    • D. 

      $0.096 = 1 peso