4) If the exchange rate depreciates, then the
A) quantity of dollars demanded decreases.
B) quantity of dollars demanded increases.
C) demand for dollars decreases.
D) demand for dollars increases.
E) supply of dollars decreases.
Skill: Level 3: Using models
Section: Integrative
Status: Old
AACSB: Relective thinking
5) If the exchange rate is constant and U.S. exports increase, then in the foreign exchange
market the
A) quantity of U.S. dollars demanded decreases.
B) quantity of U.S. dollars demanded increases.
C) demand for U.S. dollars decreases.
D) demand for U.S. dollars increases.
E) supply of U.S. dollars increases.
Skill: Level 5: Critical thinking
Section: Integrative
Status: Old
AACSB: Relective thinking
6) If the exchange rate is constant and U.S. imports increase, then in the foreign exchange
market the
A) quantity of U.S. dollars supplied decreases.
B) quantity of U.S. dollars supplied increases.
C) supply of U.S. dollars decreases.
D) supply of U.S. dollars increases.
E) demand for U.S. dollars increases.
Skill: Level 5: Critical thinking
Section: Integrative
Status: Old
AACSB: Relective thinking
81
7) If the prices for the same goods and services are diferent in two nations, the exchange
rate adjusts over the long run to achieve
A) zero net exports for each nation.
B) purchasing power parity between the two currencies.
C) balance of payments account between the two nations equal to zero.
D) interest rate parity.
E) a zero current account balance between the two nations.
Skill: Level 2: Using deinitions
Section: Integrative
Status: Old
AACSB: Relective thinking
8) Changes in a currency’s exchange rate adjust immediately to insure that
A) purchasing power parity always prevails.
B) interest rate parity always prevails.
C) oicial settlements account parity always prevails.
D) net exports always equal zero.
E) current account balance equals zero.
Skill: Level 2: Using deinitions
Section: Integrative
Status: Old
AACSB: Relective thinking
9) If the U.S. dollar depreciates against the euro, what can the Fed do to keep the dollar’s
exchange rate stable?
A) nothing
B) decrease U.S. imports by increasing tarifs
C) sell dollars in the foreign exchange market
D) buy dollars in the foreign exchange market
E) buy euros in the foreign exchange market
Skill: Level 3: Using models
Section: Integrative
Status: Old
AACSB: Relective thinking
82
10) If the price in Japan of a U.S. dollar becomes a larger number of yen, the U.S. dollar has
________. The yen has ________ because it buys ________ dollars.
A) appreciated; depreciated; fewer
B) appreciated; depreciated; more
C) appreciated; appreciated; fewer
D) depreciated; appreciated; more
E) appreciated; appreciated; more
Skill: Level 5: Critical thinking
Section: Integrative
Status: New
AACSB: Application of knowledge
11) If the Fed tries to prevent the U.S. dollar exchange rate from rising, the Fed ________
U.S. dollars, ________ foreign currency, and U.S. oicial reserves ________.
A) buys; sells; increase
B) sells; buys; decrease
C) sells, buys; increase
D) sells; sells; increase
E) buys; buys; increase
Skill: Level 4: Applying models
Section: Integrative
Status: New
AACSB: Analytical thinking
12) If the dollar rises against the euro, the dollar buys ________ euros, the euro ________ and
the dollar ________.
A) more; appreciates; depreciates
B) less, depreciates; appreciates
C) less; appreciates; depreciates
D) more; depreciates; appreciates
E) more; depreciates; depreciates
Skill: Level 5: Critical thinking
Section: Integrative
Status: New
AACSB: Analytical thinking
83
13) The United States is a ________ nation because it pays ________ in interest to the rest of
the world than it receives in ________ from the rest of the world.
A) debtor; more; interest
B) debtor; less; interest
C) debtor; more; cash
D) debtor; less; cash
E) creditor; more; interest
Skill: Level 5: Critical thinking
Section: Integrative
Status: New
AACSB: Analytical thinking
14) The private sector balance is saving ________ investment. If saving exceeds investment,
a private sector ________ is lent to other sections. If investment exceeds saving, borrowing
from other sectors inances a private sector ________.
A) minus; surplus; surplus
B) minus; deicit; surplus
C) plus; surplus; deicit
D) plus; deicit; deicit
E) minus; surplus; deicit
Skill: Level 5: Critical thinking
Section: Integrative
Status: New
AACSB: Analytical thinking
15) The government sector balance is equal to net taxes ________ government expenditure
on goods and services. If that number is ________, a government sector surplus is lent to
other sectors; if that number is ________, borrowing from other sectors must inance a
government deicit.
A) minus; positive; negative
B) minus; negative; negative
C) minus; positive; positive
D) minus; negative; positive
E) plus; positive; negative
Skill: Level 5: Critical thinking
Section: Integrative
Status: New
AACSB: Analytical thinking
84
16) If the exchange rate ________, the quantity of dollars demanded ________ and there is a
movement up along the ________ curve for dollars.
A) rises; increases; demand
B) falls; decreases; demand
C) rises; decreases; demand
D) rises; decreases; supply
E) falls; increases; supply
Skill: Level 4: Applying models
Section: Integrative
Status: New
AACSB: Analytical thinking
19.5 Essay: Financing International Trade
1) Explain the three components of the balance of payments accounts. What must these
three balances sum to?
Skill: Level 2: Using deinitions
Section: Checkpoint 19.1
Status: Old
AACSB: Written and oral communication
2) Name and briely describe the three balance of payments accounts.
Skill: Level 2: Using deinitions
Section: Checkpoint 19.1
Status: Old
AACSB: Relective thinking
85
3) “The current account records foreign investment in a nation minus investment abroad.”
Is the previous statement correct or incorrect?
Skill: Level 1: Deinition
Section: Checkpoint 19.1
Status: Old
AACSB: Relective thinking
4) What balance of payment account records foreign investment between countries?
Skill: Level 1: Deinition
Section: Checkpoint 19.1
Status: Old
AACSB: Relective thinking
5) Deine oicial settlements account and U.S. oicial reserves. Discuss the diferences
between the two terms.
Skill: Level 1: Deinition
Section: Checkpoint 19.1
Status: Old
AACSB: Written and oral communication
6) If U.S. oicial reserves increase, is the oicial settlements account balance positive,
negative, or unafected?
Skill: Level 2: Using deinitions
Section: Checkpoint 19.1
Status: Old
AACSB: Relective thinking
86
7) “If the oicial settlements balance is zero, a current account surplus implies an equal
capital and inancial account deicit.” Is the previous statement correct or incorrect? Briely
explain your answer.
Skill: Level 1: Deinition
Section: Checkpoint 19.1
Status: Old
AACSB: Written and oral communication
8) Looking at the U.S. balance of payments for the last two decades, how have the current
account and the capital and inancial account changed?
Skill: Level 2: Using deinitions
Section: Checkpoint 19.1
Status: Old
AACSB: Written and oral communication
9) Deine net borrower, net lender, creditor nation, and debtor nation. Discuss the
diference between a net borrower and a debtor nation.
Skill: Level 2: Using deinitions
Section: Checkpoint 19.1
Status: Old
AACSB: Written and oral communication
87
10) When a nation has no funds to inance economic development, how can it acquire the
needed funds? Is the country a net lender or a net borrower?
Skill: Level 2: Using deinitions
Section: Checkpoint 19.1
Status: Old
AACSB: Relective thinking
11) “Although the United States is running a large current account deicit, it is still ranked
as a major international net lender.” Is the previous statement correct or incorrect? Briely
explain your answer.
Skill: Level 2: Using deinitions
Section: Checkpoint 19.1
Status: Old
AACSB: Written and oral communication
12) What is a “debtor nation?” Is the United States a debtor nation?
Skill: Level 2: Using deinitions
Section: Checkpoint 19.1
Status: Old
AACSB: Written and oral communication
13) If imports are $1,200 billion and exports are $1,300 billion, while net interest income
and net transfers are zero, what is the current account balance?
Skill: Level 3: Using models
Section: Checkpoint 19.1
Status: Old
AACSB: Analytical thinking
88