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Exam 40: The Balance of Payments, Exchange Rates, and Trade Deficits

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Question 51

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In international financial transactions,what are the only two things that individuals and firms can exchange?

A) Currency and real assets.
B) Services and manufactured goods.
C) Preexisting assets and currently produced goods and services.
D) Currency and currently produced goods and services.

E) All of the above
F) B) and D)

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Question 52

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If the United States has full employment and the dollar dramatically depreciates in value,we can expect (other things equal) :

A) both U.S.imports and U.S.exports to rise.
B) both U.S.imports and U.S.exports to fall.
C) U.S.exports to fall and U.S.imports to increase.
D) inflation to occur.

E) All of the above
F) B) and C)

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Question 53

Multiple Choice

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The idea that freely floating exchange rates equate the buying power of national currencies is called:

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

Answer the question on the basis of the following table,which indicates the dollar price of libras,the currency used in the hypothetical nation of Libra.Assume that a system of freely floating exchange rates is in place. $\begin{array}{c}\begin{array}{c}(1) \\\text {Quantity of Libras}\\\underline{\text {Demanded (Billions) }}\\ 100 \\200 \\300 \\400 \end{array}\begin{array}{c}(2) \\\text {Dollar Price}\\\underline{\text {of Libras}}\\\$ 5 \\4\\3\\2\end{array}\begin{array}{c}(3) \\\text {Quantity of Libras}\\\underline{\text {Supplied (Billions) }}\\325 \\200 \\100 \\75\end{array}\end{array}$ Refer to the table.The equilibrium dollar price of libras is:

The following diagram is a flexible exchange market for foreign currency: Refer to the diagram.Other things equal,a rightward shift of the demand curve would:

A balance-of-payments deficit occurs:

Answer the question on the basis of the following 2012 balance of payments data (+ and -) for the hypothetical nation of Zabella.All figures are in billions of dollars. $\begin{array}{c}\begin{array}{lll}\text {Current Account}\\\hline \text {1) Goods Exports}\\\text {2) Goods Imports}\\\text {3) Exports of Services}\\\text {4) Imports of Services}\\\text {5) Net Investment Income}\\\text {6) Net Transfers}\\\\\text {Financial Account}\\\hline \text {7) Foreign Purchases of Assets in the United States}\\\text {8) US Purchases of Assets Abroad}\\\\\text {Capital Account}\\\hline \text {9) Balance on Capital Account}\end{array}\begin{array}{r}\\\hline+\$ 80 \\-70 \\+20 \\-25 \\+5 \\-5 \\\\\\\hline+13 \\-23\\\\\\\hline+5 \end{array}\end{array}$ Refer to the given data.Zabella has a balance of trade (goods) :

One of the consequences of the U.S.trade deficit is that:

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

The following are hypothetical exchange rates: 2 euros = 1 pound;$1 = 2 pounds.We can conclude that:

The plus items below are "export-type" entries and the minus items are "import-type" entries in the balance of payments for the hypothetical country of Zippo. $\begin{array}{c}\begin{array}{lll} \text { 1) Goods Exports}\\ \text { 2) Balance on Capital Account}\\ \text { 3) Net Transfers}\\ \text { 4) Imports of Services}\\ \text { 5) Net Investment Income}\\ \text { 6) US Purchases of Assets Abroad}\\ \text { 7) Goods Imports}\\ \text { 8) Foreign Purchases of Assets in the US}\\ \text { 9) Export of Services} \end{array}\begin{array}{r}+\$ 200 \\0 \\0 \\-100 \\0 \\-50 \\-250 \\+150 \\+50 \end{array}\end{array}$ Refer to the given information.The financial account items for Zippo are:

Present consumption supported by large trade deficits may come at the expense of:

Which of the following would contribute to a U.S.balance of payments deficit?

"International trade" refers to:

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

If the U.S.dollar depreciates relative to the Russian ruble,the ruble:

The U.S.supply of Japanese yen is:

Suppose the balance on the financial account is +$200 billion and the balance on the capital account is +$2 billion.The size of the current account is:

The following diagram is a flexible exchange market for foreign currency: Refer to the diagram.Other things equal,a leftward shift of the supply curve would: