MODULE 45: Putting It All Together

Multiple-Choice Questions

Question

Which of the following transactions is counted in the U.S. current account?
A.
A French importer buys a case of California wine.
B.
An American working for a Brazilian company deposits her paycheck.
C.
An American buys a bond from a Japanese company.
D.
An American charity sends money to an African aid agency.
E.
A Chinese national buys stock in a U.S. company.

Which of the following transactions is counted in the U.S. current account?
Question

The difference between a country’s exports and imports of goods is that country’s
A.
balance of payments on its current account.
B.
balance of payments on its financial account.
C.
balance of payments on its capital account.
D.
merchandise trade balance.
E.
balance of payments on goods and services.

The difference between a country’s exports and imports of goods is that country’s
Question

Which of the following relationships between the current account (CA) and the financial account (FA) must be true?
A.
CA − FA = 0
B.
CA + FA = 0
C.
CA = FA
D.
CA = 1/FA
E.
(CA)(FA) = 1

Which of the following relationships between the current account (CA) and the financial account (FA) must be true?
Question

Which of the following is a reason for capital to flow into a country?
A.
a rapidly growing economy
B.
government budget surpluses
C.
higher savings rates
D.
lower interest rates
E.
a relatively high supply of loanable funds

Which of the following is a reason for capital to flow into a country?
Question

Refer to the following graphs and information for Questions 5–7.

Suppose that Northlandia and Southlandia are the only two trading countries in the world, that each nation runs a balance of payments on both the current account and the financial account equal to zero, and that each nation sees the other’s assets as identical to its own.

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Given the situation depicted in the graphs, which of the following will happen?
A.
The interest rate in Northlandia will rise.
B.
The interest rate in Southlandia will fall.
C.
Capital will flow into Northlandia.
D.
Capital will flow into Southlandia.
E.
Southlandia will experience a balance of trade deficit.

Given the situation depicted in the graphs, which of the following will happen?
Question

Which of the following will happen in Southlandia?
A.
The quantity of loanable funds supplied will decrease.
B.
The supply of loanable funds will increase.
C.
The demand for loanable funds will decrease.
D.
The supply of loanable funds will decrease.
E.
The interest rate will decrease.

Which of the following will happen in Southlandia?
Question

If the international equilibrium interest rate is 8%, which of the following will be true?
A.
Southlandia will experience a capital outflow of 250.
B.
Southlandia will experience a capital outflow of 700.
C.
Northlandia will experience a capital outflow of 250.
D.
Northlandia will experience a capital outflow of 300.
E.
The international equilibrium quantity of loanable funds will be 1,200.

If the international equilibrium interest rate is 8%, which of the following will be true?
Question

Which of the following is traded in a foreign exchange market?
A.
imported goods only
B.
exported goods only
C.
both imported and exported goods
D.
international stocks and bonds
E.
currency

Which of the following is traded in a foreign exchange market?
Question

The price in a foreign exchange market is a(n)
A.
real interest rate.
B.
nominal interest rate.
C.
tariff.
D.
exchange rate.
E.
discount rate.

The price in a foreign exchange market is a(n)
Question

Refer to the following graph and information for Questions 10–11.

The graph shows the foreign exchange market for the bern, the currency used in the country of Albernia.

Given the equilibrium exchange rate on the graph, which of the following is true regarding the bern?
A.
It takes $1.50 to buy a bern.
B.
It takes $.75 to buy a bern.
C.
It takes $.67 to buy a bern.
D.
It takes 1.50 bern to buy a dollar.
E.
It takes .75 bern to buy a dollar.

Given the equilibrium exchange rate on the graph, which of the following is true regarding the bern?
Question

How could depreciation of the bern be shown on the graph?
A.
a movement of the equilibrium exchange rate to 2
B.
a movement of the equilibrium exchange rate to 1
C.
a decrease in the equilibrium quantity of berns
D.
a rightward shift of the demand for berns
E.
a leftward shift of the supply of berns

How could depreciation of the bern be shown on the graph?
Question

Real exchange rates are adjusted for international differences in
A.
exchange rates.
B.
aggregate price levels.
C.
GDP per capita.
D.
capital flows.
E.
income.

Real exchange rates are adjusted for international differences in
Question

Which of the following will occur in the foreign exchange market as a result of capital inflow to the United States?
A.
a decrease in the demand for dollars
B.
a decrease in the dollar exchange rate
C.
an increase in the supply of dollars
D.
appreciation of the dollar
E.
a decrease in the quantity of dollars exchanged

Which of the following will occur in the foreign exchange market as a result of capital inflow to the United States?
Question

Which of the following is true if two countries have purchasing power parity?
A.
The two countries’ real GDP per capita is the same.
B.
The two countries’ imports equal their exports.
C.
The nominal exchange rate assures that goods cost the same amount in each country.
D.
There are no capital inflows or outflows between the two countries.
E.
The countries’ exchange rates do not appreciate or depreciate.

Which of the following is true if two countries have purchasing power parity?
Question

When a government lets exchange rates be determined by foreign exchange markets, it is called
A.
an exchange rate regime.
B.
a fixed exchange rate.
C.
a floating exchange rate.
D.
a market exchange rate.
E.
a foreign exchange control.

When a government lets exchange rates be determined by foreign exchange markets, it is called
Question

Governments intervene to keep the value of their currency down in order to
A.
make domestic goods cheaper in the world market.
B.
decrease the price of imported goods.
C.
promote capital inflows.
D.
decrease exports.
E.
reduce aggregate demand.

Governments intervene to keep the value of their currency down in order to
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Question

A decrease in domestic interest rates will necessarily have which of the following effects in the foreign exchange market?
A.
The supply of the domestic currency will decrease.
B.
The demand for the domestic currency will decrease.
C.
The exchange rate will increase.
D.
The quantity of the domestic currency exchanged will rise.
E.
The quantity of the domestic currency exchanged will fall.

A decrease in domestic interest rates will necessarily have which of the following effects in the foreign exchange market?
Question

An import quota on a good will do which of the following?
A.
It will raise revenue for the government.
B.
It will reduce the domestic price of the good.
C.
It will raise the international price of the good.
D.
It will reduce the quantity of the good sold domestically.
E.
It will decrease domestic production of the good.

An import quota on a good will do which of the following?
Question

Which of the following is true of tariffs?
A.
They are limits on the quantity of a good that can be imported.
B.
They account for over 10% of federal government revenue in the United States.
C.
They can result in trade wars between countries.
D.
They do not protect domestic industries from competition.
E.
They decrease the price of goods.

Which of the following is true of tariffs?
Question

The goal of protectionism is to
A.
generate revenue for the federal government.
B.
lower the price of goods for domestic consumers.
C.
increase world output through specialization and comparative advantage.
D.
decrease competition for domestic industries.
E.
raise the price of imported goods.

The goal of protectionism is to