Economics 32

Question 1

As the dollar is devaluated

• inflationary pressures are reduced and our standard of living is reduced
• inflationary pressures are increased and our standard of living is increased
• inflationary pressures are reduced and our standing of living is increased
• inflationary pressures are increased and our standard of living is reduced

Answer 1

inflationary pressures are increased and our standard of living is reduced

Question 2

Over the last decade, foreigners have been exercising

• a declining influence over interest rates in the United States
• an increasing influence over interest rates in the United States
• about the same influence over interest rates in the United State

Answer 2

an increasing influence over interest rates in the United States

Question 3

In 2007, we had a current account _________ and a capital account _________________-

• surplus, surplus
• deficit, deficit
• deficit, surplus
• surplus, deficit

Answer 3

a deficit, surplus

Question 4

During the 1980’s, foreigners expanded their role in the United States as

• both creditors and owners
• neither creditors nor owners
• as owners but not as creditors
• as creditors but not as owners

Answer 4

both creditors and owners

Question 5

Which statement is false?

• Trade is the largest part of our international financial transactions
• Our capital account ran a surplus in 2007
• We have been on an international gold standard since 1933
• None of the statement is false

Answer 5

We have been on an international gold standard since 1933

Question 6

Our basic problem with respect to our balance of trade is that

• we consume too much and save too much
• we consume too little and save too little
• we consume too much and save too little
• we consume too little and save too much

Answer 6

we consume too much and save too little

Question 7

Since 1990, international finance has been based on all of these except

• the gold standard
• the silver standard
• fixed exchange ratios
• freely floating exchange rates

Answer 7

the silver standard

Question 8

If we were on an international gold standard

• trade imbalances would automatically be corrected
• inflations would become impossible
• recessions would be impossible
• the standards of living of all the nations in the world would become approximately equal

Answer 8

trade imbalances would automatically be corrected

Question 9

The main reason for our balance of payments deficits has been

• military spending abroad
• spending by us tourists abroad
• our negative balance of trade
• none of the choices are correct

Answer 9

our negative balance of trade

Question 10

A US importer of French wine would pay in

• dollars
• gold
• euros
• special drawing rights

Answer 10

euros

Question 11

The total of our current plus capital accounts

• will always be zero
• will always be negative
• will always be positive
• may be positive or negative

Answer 11

will always be zero

Question 12

If we were on an international gold standard

• inflation would be eliminated
• recessions would be eliminated
• trade deficits and surplus would be eliminated
• no nation would ever have to devaluate its currency

Answer 12

trade deficits and surpluses would be eliminated

Question 13

Devaluation would tend to

• make the devaluating country’s goods cheaper
• make the devaluating country’s goods more expensive
• have no effect upon the expensiveness or cost of the devaluating country’s goods

Answer 13

make the devaluating country’s goods cheaper

Question 14

Appreciating of the Canadian dollar will

• intensify an existing disequlibrium in Canada’s balance of payments
• make Canada’s exports less expensive and its imports more expensive
• make Canada’s exports more expensive and its imports less expensive
• make Canada’s exports and imports both more expensive

Answer 14

make Canada’s exports more expensive and its imports less expensive

Question 15

Floating exchange rates

• float according to the laws of supply and demand
• are fixed by speculators in foreign exchange markets
• are rarely used in foreign exchange transactions
• All of the choices are true characteristics

Answer 15

fload according to the laws of supply and demand

Question 16

Between the end of World War II and 1971, the United States dollar was

• the only major currency in the world convertible into gold for purposes of international payments
• not used as an international currency
• the only major currency in the world not backed by gold
• not very important in the transfer of goods between countries
• undervalued, leading to consistent balance -of-payment deficits

Answer 16

the only major currency in the world convertible into gold for purposes of international payments

Question 17

If US demand for imports increases it would be expected that the value of the dollar in international markets would tend to:

• increase
• change in a manner that cannot be determined without additional information concerning direction of the shifts in the demand for and supply of dollars
• decline
• remain unchanged

Answer 17

decline

Question 18

The foreign exchange rate refers to

• the price at which purchases and sales of foreign goods take place
• exports minus imports
• the amount of one currency that must be paid to obtain one unit of another currency
• the ration of exports to imports

Answer 18

the amount of one currency that must be paid to obtain one unit of another currency

Question 19

In order to fianance the US current account deficit we must

• increase the income tax rate
• increase government spending
• run a surplus in the capital account
• decrease the income tax rate

Answer 19

run a surplusin the capital account

Question 20

When the current account is in defict the capital account must

• be balanced
• be zero
• not add to the deficit
• have an equal and onffsetting surplus

Answer 20

have an equal and offsetting surplus

Question 21

A depreciation of the dollar will

• discourage foreigners from buying us goods
• encourage Americans to invest in foreign assets
• throw the US economy into a recession
• lower the US prices of imports

Answer 21

increase the amounts of US dollars demanded by foreigners

Question 22

Under a system of freely flexible (floating) exchange rates an American trade deficit with Mexico can cause

• the United states government to ration pesos to American importers
• a flow of gold from the United States to Mexico
• an increase in the peso price of dollars
• an increase in the dollar price of pesos

Answer 22

an increase in the dollar price of pesos

Question 23

Since 1995 our current account deficit has increased every year except

• 1997
• 1999 and 2005
• 2003 and 2006
• 2000 and 2007

Answer 23

2000 and 2007

Question 24

Nations which experience relatively high rates of inflation * cause inflation in other nations when they export their relatively high priced goods to these nations * will experience a reduction in the value of their curriences in the foreign exchange markets * will not be able to export products if their currencies depreciate in value * will not be able to import products unless their currencies depreciate in value

Answer 24

will experience a reduction in the value of their currencies in the foregin exhange markets

Question 25

If the US government were to impose a 20% tariff on all foreign imports, this would likely lead t0 ___________________ in demand for foreign currencies, causing the dollar to \_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_. * a decrease, depreicate * an increase, depreciate * a decrease, appreciate * an increase, appreciate

Answer 25

a decrease, appreciate