58) The central bank of the United States is
A) the New York Fed.
B) the Federal Reserve System.
C) the EXIM bank.
D) none of the options—the U.S. does not have a central bank.
59) When a country must make a net payment to foreigners because of a balance-of-payments
deficit, the central bank of the country
A) should do nothing.
B) should run down its official reserve assets (e.g., gold, foreign exchanges, and SDRs).
C) should borrow anew from foreign central banks.
D) should either run down its official reserve assets (e.g., gold, foreign exchanges, and SDRs) or
borrow anew from foreign central banks.
60) Continued U.S. trade deficits coupled with foreigners’ desire to diversify their currency
holdings away from U.S. dollars
A) could further diminish the position of the dollar as the dominant reserve currency.
B) could affect the value of U.S. dollar (e.g., through the currency diversification decisions of
Asian central banks).
C) could lend steam to the emergence of the euro as a credible reserve currency.
D) all of the options
61) Currently, international reserve assets are comprised of
A) gold, platinum, foreign exchanges, and special drawing rights (SDRs).
B) gold, foreign exchanges, special drawing rights (SDRs), and reserve positions in the
International Monetary Fund (IMF).
C) gold, diamonds, foreign exchanges, and special drawing rights (SDRs).
D) reserve positions in the International Monetary Fund (IMF), only.
62) International reserve assets include “foreign exchanges”. These are
A) Special Drawing Rights (SDRs) at the IMF.
B) reserve positions in the International Monetary Fund (IMF).
C) foreign currency held by a country’s central bank.
D) none of the options
63) The most important international reserve asset, comprising 94 percent of the total reserve
assets held by IMF member countries is
A) gold.
B) foreign exchanges.
C) special Drawing Rights (SDRs).
D) reserve positions in the International Monetary Fund (IMF).
64) The “one word that haunts the dollar” is
A) (Central bank) diversification.
B) Reunification (Korean).
C) Euro.
D) (Current account) deficit.
65) The vast majority of the foreign-exchange reserves held by central banks are denominated in
A) local currencies.
B) U.S. dollars.
C) Yen.
D) Euro.
66) Among IMF member countries, the dollar’s dominant position in the world’s reserve holdings
may decline to a certain extent as the euro becomes a “known quantity” and its external value
becomes more stable. In fact, the euro’s share has increased
A) from zero percent in 1999 to 19.9 percent in 2015.
B) from 17.9 percent in 1999 to 19.9 percent in 2015.
C) from 17.9 percent in 1999 to 52.8 percent in 2015.
D) none of the options
67) Which of the following would not count as a foreign-exchange reserve held by a central bank?
A) The local currency
B) U.S. dollars
C) SDRs
D) Euro
68) The balance of payments identity is given by BCA + BKA + BRA = 0. Rearrange the identity
for a country with a pure flexible exchange rate regime.
A) BCA + BKA + BRA = 0
B) BCA = −BKA
C) BCA + BKA = −BRA
D) BRA = −BCA
69) Assume that the balance-of-payments accounts for a country are recorded correctly.
Balance on the current account = BCA = $130 billion
Balance on the capital account = BKA = −$86 billion
Balance on the reserves account = BRA =?
The balance on the reserves account (BRA), under the fixed exchange regime is
A) −$44 billion
B) $44 billion
C) $216 billion
D) none of the options
70) Assume that the balance-of-payments accounts for a country are recorded correctly.
Balance on the current account = BCA = $130 billion
Balance on the capital account = BKA = −$86 billion
Balance on the reserves account = BRA =?
The balance on the reserves account (BRA), under the pure flexible exchange regime is
A) −$44 billion.
B) $44 billion.
C) $216 billion.
D) none of the options
71) Assume that the balance-of-payments accounts for a country are recorded correctly.
Balance on the current account = BCA = $130 billion
Balance on the capital account = BKA = −$86 billion
Balance on the reserves account = BRA =?
In a pure flexible exchange rate regime, a country’s central banks will not need to maintain official
reserves. Under this regime
A) −BCA = BKA.
B) BCA = −BRA = 0.
C) BKA = −BRA.
D) BSA = BCA.
72) When the balance-of-payments accounts are recorded correctly, the combined balance of the
current account, the capital account, and the reserves account must be
A) equal in magnitude to the country’s national debt.
B) zero.
C) equal in magnitude to the Trade Deficit or Surplus.
D) none of the options
73) The balance of payments identity is given by BCA + BKA + BRA = 0. Rearrange the identity
to solve for the statistical discrepancy.
A) The statistical discrepancy = (BCA + BKA) − BRA
B) The statistical discrepancy = BCA − BKA + BRA
C) The statistical discrepancy = BCA − BKA − BRA
D) The statistical discrepancy = BCA + BKA + BRA
74) BCA stands for
A) the balance on the current account.
B) the balance on the capital account.
C) the balance on the official reserves.
D) net imports.
75) BKA stands for
A) the balance on the current account.
B) the balance on the capital account.
C) the balance on the official reserves.
D) net imports.
76) If the central banks of the world chose to diversify their foreign-exchange reserves away from
the dollar and into the euro,
A) this would have the result of a strengthening of the value of the dollar.
B) this have the result of a weakening in the value of the dollar.
C) this would not have much impact, as the information would be lost in the day-to-day volatility
of exchange rates.
D) none of the options
77) The economic theory of mercantilism holds that
A) a continuing trade surplus should be a government’s major policy goal.
B) the main source of wealth of a country is its productive capacity.
C) free trade is the result of countries exploiting their comparative advantage.
D) none of the options
78) The U.S. Trade Deficit
A) is a capital account surplus.
B) is a current account deficit.
C) is both a capital account surplus and a current account deficit.
D) none of the options
79) As of 2011, gold accounted for
A) 90 percent of the total reserve assets held by IMF member countries.
B) 70 percent of the total reserve assets held by IMF member countries.
C) approximately 50 percent of the total reserve assets held by IMF member countries.
D) less than one percent of the total reserve assets held by IMF member countries.
80) The most popular reserve currency is now the
A) U.S. dollar.
B) Euro.
C) Japanese Yen.
D) none of the options
81) Suppose a country is currently experiencing a trade deficit. In the long run, this could be
self-correcting if
A) the deficit exists because of the import demand for capital goods.
B) the deficit exists because of the import demand for consumption goods.
C) the deficit exists because foreigners want to buy the country’s currency as an investment.
D) none of the options
82) The capital account is divided into three subcategories: direct investment, portfolio
investment, and other investment. Direct investment involves
A) acquisitions of controlling interests in foreign businesses.
B) investments in foreign stocks and bonds that do not involve acquisitions of control.
C) bank deposits, currency investment, trade credit, and the like.
D) all of the options
83) The capital account is divided into three subcategories: direct investment, portfolio
investment, and other investment. Portfolio investment involves
A) acquisitions of controlling interests in foreign businesses.
B) investments in foreign stocks and bonds that do not involve acquisitions of control.
C) bank deposits, currency investment, trade credit, and the like.
D) all of the options
84) The capital account is divided into three subcategories: direct investment, portfolio
investment, and other investment. “Other” investment involves
A) acquisitions of controlling interests in foreign businesses.
B) investments in foreign stocks and bonds that do not involve acquisitions of control.
C) bank deposits, currency investment, trade credit, and the like.
D) all of the options
85) Over the last several years, the U.S. has run persistent
A) balance-of-payments deficits.
B) balance-of-payments surpluses.
C) current account deficits.
D) capital account deficits.
86) If a country must make a net payment to foreigners because of a balance-of-payments deficit,
the country should
A) either increase its official reserve assets or borrow anew from foreigners.
B) either run down its official reserve assets or borrow anew from foreigners.
C) either run down its official reserve assets or lend more foreigners.
D) none of the options
87) Under the fixed exchange rate regime,
A) the combined balance on the current and capital accounts will be equal in size, but opposite in
sign, to the change in the official reserves.
B) the balance on the current and capital accounts will be equal in size, but opposite in sign.
C) a current account surplus or deficit must be matched by an official reserves deficit or surplus.
D) a capital account surplus or deficit must be matched by an official reserves deficit or surplus.
88) Under the pure flexible exchange rate regime,
A) the combined balance on the current and capital accounts will be equal in size, but opposite in
sign, to the change in the official reserves.
B) the balance on the current and capital accounts will be equal in size, but opposite in sign.
C) a current account surplus or deficit must be matched by an official reserves deficit or surplus.
D) a capital account surplus or deficit must be matched by an official reserves deficit or surplus.
89) More important than the absolute size of a country’s balance-of-payments disequilibrium
A) is the nature and cause of the disequilibrium.
B) is whether it is a trade surplus or deficit.
C) is whether the local government is mercantilist or not.
D) is nothing is more important than the absolute size of a country’s balance-of-payments
disequilibrium.
90) The notation is
Y = GNP = national income
C = consumption
I = private investment
G = government spending
X = exports
M = imports
T = taxes
The current account balance is given by
A) C + I + G + X + M
B) X − M
C) I + X + M
D) M − X
91) The notation is
Y = GNP = national income
C = consumption
I = private investment
G = government spending
X = exports
M = imports
T = taxes
The difference between a country’s savings and investment is given by
A) (Y − C − T) − I
B) I × (Y − C − T)
C) X − M
D) GNP − T
92) If the difference between tax revenue and government expenditures is negative, it implies that
A) tax revenue is insufficient to cover government spending.
B) a government budget deficit exists.
C) the government will be issuing new debt securities.
D) all of the options
93) The notation is
Y = GNP = national income
C = consumption
I = private investment
G = government spending
X = exports
M = imports
T = taxes
National income, or Gross National Product is given by
A) GNP ≡ Y ≡ C + I + G + X + M
B) GNP ≡ Y ≡ C + I + G + X − M
C) GNP ≡ I ≡ C + Y + G + X − M
D) GNP ≡ Y ≡ C + I + X + M − G
94) The notation is
Y = GNP = national income
C = consumption
I = private investment
G = government spending
X = exports
M = imports
T = taxes
Which of the following is a true statement?
A) BCA ≡ X − M
B) BKA ≡ X − M
C) BKA − BCA ≡ X − M
D) BKA ≡ M − X
95) The notation is
Y = GNP = national income
C = consumption
I = private investment
G = government spending
X = exports
M = imports
T = taxes
Private savings, S, is defined as S = Y − C − T. Which of the following is also accurate?
A) S = C + I + G + X − M − C − T
B) S = C + I + G + X
C) S = C + X − M − C − T
D) S = C + G + X − M − C − T
96) If the difference between a country’s savings and investment is negative, it implies that
A) a country’s domestic savings is insufficient to finance domestic investment.
B) a government budget deficit exists.
C) a country’s domestic savings is sufficient to finance domestic investment
D) none of the options
97) The notation is
Y = GNP = national income
C = consumption
I = private investment
G = government spending
X = exports
M = imports
T = taxes
There is an intimate relationship between a country’s BCA and how the country finances its
domestic investment and pays for government expenditures. This relationship is given by BCA ≡
X − M ≡ (S − I) + (T − G). Given this, which of the following is a true statement?
A) If (S − I) < 0, it implies that a country’s domestic savings is insufficient to finance domestic
investment.
B) If (T − G) < 0, it implies that a country’s tax revenue is insufficient to finance government
spending.
C) If (S − I) < 0, it implies that a country’s domestic savings is insufficient to finance domestic
investment and if (T − G) < 0, it implies that a country’s tax revenue is insufficient to finance
government spending.
D) none of the options
98) The notation is
Y = GNP = national income
C = consumption
I = private investment
G = government spending
X = exports
M = imports
T = taxes
There is an intimate relationship between a country’s BCA and how the country finances its
domestic investment and pays for government expenditures. Given this, which of the following is
a true statement?
A) If (S − I) < 0, it implies that a country’s domestic savings is insufficient to finance domestic
investment.
B) If (T − G) < 0, it implies that a country’s tax revenue is insufficient to finance government
spending.
C) If (S − I) < 0, it implies that a country’s domestic savings is insufficient to finance domestic
investment and if (T − G) < 0, it implies that a country’s tax revenue is insufficient to finance
government spending.
D) none of the options
99) The notation is
Y = GNP = national income
C = consumption
I = private investment
G = government spending
X = exports
M = imports
T = taxes
There is an intimate relationship between a country’s BCA and how the country finances its
domestic investment and pays for government expenditures. Given this, which of the following is
a true statement?
A) If (S − I) < 0, it implies that a country’s domestic savings is insufficient to finance domestic
investment.
B) If (T − G) < 0, it implies that a country’s tax revenue is insufficient to finance government
spending.
C) When BCA is negative, it implies that government budget deficits and/or part of domestic
investment are being finance with foreign-controlled capital.
D) all of the options
100) The notation is
Y = GNP = national income
C = consumption
I = private investment
G = government spending
X = exports
M = imports
T = taxes
There is an intimate relationship between a country’s BCA and how the country finances its
domestic investment and pays for government expenditures. This relationship is given by BCA ≡
X − M ≡ (S − I) + (T − G). Given this, in order for a country to reduce a BCA deficit, which of the
following must occur?
A) For a given level of S and I, the government budget deficit (T − G) must be reduced.
B) For a given level of I and (T − G), S must be increased.
C) For a given level of S and (T − G), I must fall.
D) All of the options would work to reduce a BCA deficit.