Page 77
436.
If the country’s balance of payments on the current account is positive:
A)
the balance of payments on the financial account is also positive.
B)
the balance of payments on the financial account is negative, so that the sum of the
accounts equals zero.
C)
a country’s flow of funds into the country is greater than the flow of funds out of
the country.
D)
the country’s imports are greater than its exports.
437.
In 2016, the United States:
A)
had a current account deficit.
B)
operated on a fixed exchange rate.
C)
also had a financial account deficit.
D)
operated on the gold standard.
438.
A decrease in capital flows into a country, holding everything else constant, will:
A)
increase its current account.
B)
be recorded as an increase in its balance of financial account.
C)
decrease the balance of payments on the current account.
D)
make the balance of payments negative.
439.
Countries A and B trade freely with each other. Suppose that interest rates in the
loanable funds market in country A are lower than in the country B. This means:
A)
funds will flow from country A to country B.
B)
this interest rate differential will persist as long as citizens view domestic assets as
substitutes for foreign assets.
C)
funds will flow from country B to country A.
D)
interest rate differentials cannot be changed.
440.
A country that contracts its money supply will MOST likely have a(n):
A)
increase in the level of investment spending.
B)
increase in the demand for its currency in the foreign exchange market.
C)
increase in the supply of its currency in the foreign exchange market.
D)
a lowering of its interest rate.
Page 78
441.
If a country’s loanable funds market is initially in equilibrium and then there are capital
outflows, this will result in a _____ in the equilibrium interest rate, while the
equilibrium quantity of loanable funds will _____.
A)
fall; increase
B)
rise; decrease
C)
fall; decrease
D)
rise; increase
442.
A shift to the left of the demand for loanable funds could be caused by:
A)
more business investment spending financed through borrowing.
B)
less business investment spending financed through borrowing.
C)
a loosening of requirements needed to borrow funds.
D)
a more promising-looking economy.
443.
Fast-growing economies often have a greater demand for loanable funds than do
slower-growing economies because fast-growing economies:
A)
also have high private savings rates.
B)
have more investment opportunities.
C)
tend to have high public savings rates.
D)
tend to have a surplus balance of payments most of the time.
444.
Holding everything else constant, a decrease in political risk in a country will MOST
likely cause:
A)
capital inflows into that country to increase.
B)
capital inflows into that country to decrease.
C)
the supply of loanable funds in that country to decrease.
D)
the country to become a politically riskier place to invest.
445.
When a country’s currency depreciates:
A)
foreigners find the country’s goods to be cheaper.
B)
the country’s exports fall.
C)
the country’s imports rise.
D)
foreign goods become cheaper.
446.
Suppose that a U.S. dollar initially trades for €1.20. After a few months, the U.S. dollar
trades for €1.40. This means:
A)
the dollar has depreciated.
B)
the dollar has appreciated.
C)
it now costs more U.S. dollars to buy euro-denominated goods.
D)
one can expect to see less euro goods bought by U.S. citizens.
Page 79
447.
Holding everything else constant, if the U.S. dollar falls against the Mexican peso:
A)
U.S. goods will look cheaper to Mexico.
B)
U.S. goods will look more expensive to Mexico.
C)
Mexico’s goods will look cheaper to the United States.
D)
one peso buys fewer U.S. dollars.
448.
A currency has depreciated when:
A)
that currency buys less foreign goods than it did previously.
B)
that currency buys more foreign goods than it did previously.
C)
one unit of that currency buys more units of a foreign currency than it did
previously.
D)
domestic goods become more expensive to holders of that currency.
449.
When a country’s currency undergoes a real appreciation:
A)
exports fall and imports rise.
B)
exports rise and imports fall.
C)
the merchandise trade balance becomes positive.
D)
exports and imports do not change.
450.
The United States dollar–Mexican peso exchange market is initially in equilibrium.
Suppose that there is a decrease in demand for U.S. dollars. Holding everything else
constant, this will result in a movement along the _____ of U.S. dollars and a(n) _____
in pesos per U.S. dollar.
A)
supply of; increase
B)
demand for; increase
C)
supply of; decrease
D)
demand for; decrease
451.
To determine the real exchange rate, one needs to know the:
A)
nominal exchange rate and the aggregate price level in both countries.
B)
amount of exports and imports.
C)
balance of payments.
D)
purchasing power parity.
452.
The nominal exchange rate:
A)
is adjusted for inflation.
B)
always equals purchasing power parity.
C)
is unadjusted for inflation.
D)
affects the current account.
Page 80
453.
When purchasing power parity is lower than the nominal exchange rate, over time one
can expect:
A)
the exchange rate to fall.
B)
the exchange rate to rise.
C)
purchasing power parity to fall.
D)
purchasing power parity to rise.
454.
If a country wishes to raise the exchange rate above its equilibrium value in the foreign
exchange market, it will notice:
A)
a surplus of its currency at the desired exchange rate.
B)
a shortage of its currency at the desired exchange rate.
C)
that it can achieve this rate by expanding the money supply.
D)
that it must increase the supply of its currency in the foreign exchange market.
455.
If a country finds its fixed rate currency falling, it:
A)
can use foreign exchange reserves to purchase some of its currency.
B)
can add to its foreign exchange reserves by selling some of its currency.
C)
cannot use monetary policy to maintain its exchange rate.
D)
will allow its currency devaluate.
456.
A government can target its exchange rate only if it:
A)
is willing to give up use of monetary policy to stabilize its economy.
B)
continues to use monetary policy for exchange market intervention and to stabilize
its economy.
C)
increases the amount of uncertainty in the foreign exchange markets.
D)
sets inflationary policies.
457.
A country with a fixed exchange rate regime:
A)
tends to increase uncertainty regarding the value of its currency.
B)
allows countries to use both fiscal and monetary policies to stabilize their
economy.
C)
reduces a country’s bias toward inflationary policies.
D)
reduces the amount of foreign currency a country must hold.
458.
Countries that follow floating exchange rate regimes:
A)
tend to insulate themselves from economic fluctuations in other countries.
B)
give up the ability to use monetary policy as a stabilization tool.
C)
find that they are susceptible to economic fluctuations in other countries.
D)
give up the ability to use fiscal policy as a stabilization tool.
Page 81
459.
A revaluation of a currency, holding everything else constant:
A)
makes foreign goods more attractive in the domestic economy.
B)
leads to an increase in aggregate demand and can therefore be expansionary.
C)
increases the balance of payments account toward a surplus.
D)
leads to a merchandise trade surplus.
460.
A country with a recessionary gap and a fixed exchange rate will be helped MOST by
a(n):
A)
revaluation of its currency.
B)
devaluation of its currency.
C)
expansionary monetary policy.
D)
No policy option will aid this country.
Answer Key
Page 83
45.
D
46.
C
47.
C
48.
B
49.
A
50.
D
51.
B
52.
C
53.
A
54.
B
55.
D
56.
B
57.
A
58.
C
59.
D
60.
A
61.
B
62.
C
63.
D
64.
A
65.
B
66.
C
67.
C
68.
A
69.
B
70.
A
71.
B
72.
C
73.
B
74.
A
75.
C
76.
C
77.
D
78.
A
79.
B
80.
A
81.
C
82.
D
83.
B
84.
D
85.
A
86.
B
87.
C
88.
D
89.
B
90.
A
Page 84
91.
B
92.
A
93.
A
94.
C
95.
C
96.
A
97.
B
98.
C
99.
A
100.
D
101.
C
102.
A
103.
B
104.
B
105.
A
106.
D
107.
C
108.
B
109.
A
110.
D
111.
B
112.
A
113.
B
114.
D
115.
B
116.
C
117.
C
118.
B
119.
B
120.
B
121.
B
122.
D
123.
A
124.
D
125.
C
126.
C
127.
B
128.
D
129.
C
130.
C
131.
D
132.
D
133.
C
134.
B
135.
C
136.
B
Page 85
137.
B
138.
C
139.
C
140.
B
141.
A
142.
C
143.
D
144.
B
145.
B
146.
B
147.
A
148.
C
149.
A
150.
B
151.
B
152.
A
153.
D
154.
D
155.
D
156.
B
157.
B
158.
C
159.
B
160.
A
161.
C
162.
B
163.
C
164.
A
165.
C
166.
C
167.
B
168.
A
169.
D
170.
A
171.
B
172.
B
173.
C
174.
B
175.
A
176.
B
177.
C
178.
D
179.
C
180.
D
181.
D
182.
C
Page 86
183.
B
184.
A
185.
B
186.
B
187.
D
188.
A
189.
B
190.
A
191.
C
192.
D
193.
B
194.
D
195.
D
196.
C
197.
A
198.
D
199.
A
200.
B
201.
C
202.
B
203.
B
204.
A
205.
B
206.
D
207.
B
208.
D
209.
A
210.
A
211.
C
212.
C
213.
D
214.
B
215.
D
216.
B
217.
B
218.
B
219.
C
220.
D
221.
C
222.
D
223.
A
224.
D
225.
A
226.
B
227.
C
228.
C
Page 87
229.
D
230.
C
231.
C
232.
B
233.
B
234.
D
235.
C
236.
C
237.
B
238.
D
239.
A
240.
C
241.
D
242.
B
243.
C
244.
A
245.
D
246.
B
247.
C
248.
D
249.
A
250.
B
251.
B
252.
A
253.
A
254.
B
255.
D
256.
A
257.
B
258.
C
259.
D
260.
C
261.
B
262.
B
263.
C
264.
B
265.
C
266.
D
267.
D
268.
B
269.
A
270.
C
271.
C
272.
B
273.
A
274.
C
Page 88
275.
D
276.
B
277.
A
278.
C
279.
B
280.
B
281.
D
282.
A
283.
B
284.
A
285.
D
286.
A
287.
A
288.
A
289.
B
290.
B
291.
A
292.
B
293.
A
294.
B
295.
A
296.
B
297.
A
298.
B
299.
A
300.
B
301.
A
302.
B
303.
A
304.
B
305.
A
306.
B
307.
A
308.
B
309.
A
310.
B
311.
A
312.
B
313.
A
314.
B
315.
B
316.
A
317.
A
318.
B
319.
A
320.
B
Page 89
321.
B
322.
A
323.
B
324.
A
325.
B
326.
A
327.
A
328.
B
329.
A
330.
B
331.
A
332.
B
333.
A
334.
B
335.
A
336.
B
337.
A
338.
B
339.
A
340.
B
341.
A
342.
B
343.
A
344.
B
345.
B
346.
A
347.
A
348.
B
349.
B
350.
A
351.
A
352.
B
353.
A
354.
B
355.
B
356.
A
357.
A
358.
B
359.
A
360.
B
361.
A
362.
B
363.
A
364.
B
365.
A
366.
B
Page 90
367.
A
368.
B
369.
A
370.
A
371.
A
372.
B
373.
A
374.
B
375.
B
376.
A
377.
B
378.
A
379.
B
380.
A
381.
B
382.
A
383.
B
384.
A
385.
B
386.
A
387.
A
388.
B
389.
A
390.
B
391.
A
392.
A
393.
A
394.
B
395.
A
396.
B
397.
A
398.
B
399.
B
400.
A
401.
A
402.
B
403.
A
404.
B
405.
B
406.
A
407.
B
408.
A
409.
B
410.
A
411.
B
412.
A
Page 91
413.
B
414.
415.
416.
417.
418.
419.
420.
421.
422.
423.
424.
425.
426.
427.
428.
429.
430.
431.
B
432.
C
433.
B
434.
B
435.
A
436.
B
437.
A
438.
A
439.
A
440.
B
441.
B
442.
B
443.
B
444.
A
445.
A
446.
B
447.
A
448.
A
449.
A
450.
C
451.
A
452.
C
453.
A
454.
A
455.
A
456.
A
457.
C
458.
A
Page 92
459.
A
460.
B