ECON 202 ANSWERS
Test Bank: I Topic: FlexibleExchange Rates
Assume that, under a system of floatingexchange rates,Mexicans decide to increase their investments in the United States.As a result,
the peso and the dollar will both depreciate.
the peso and the dollar will both appreciate.
C. the peso will depreciate and the dollarwill appreciate.
D. the peso will appreciate and the dollarwill depreciate.
AACSB: KnowledgeApplication Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 27-03 Discuss how exchange rates are determined in currency markets that have flexibleexchange rates.
Test Bank: I Topic: FlexibleExchange Rates
Which of the followingproblems will most likelyoccur with a system of flexible exchange rates?
macroeconomic instability as exports and imports fluctuate with the exchange rates
government favoritism towardselected importersof goods and services
the emergence of black markets for foreign currency
distortions in trade patterns away from the pattern suggested by comparative advantage
AACSB: KnowledgeApplication Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 27-03 Discuss how exchange rates are determined in currency markets that have flexibleexchange rates.
Test Bank: I Topic: FlexibleExchange Rates
97.
Refer to the diagram. The initial demand for and supply of pesos are shown by D1 and S1. Suppose the United States reduces its imports of Mexicangoods, shifting its demand for pesos from D1 to D2. If the United States was operating under a fixed exchangerate system, the U.S. government would
A. have to increase the domestic supply of dollars to maintain the exchange rate at B.
have to decrease the domestic supply of dollars to maintainthe exchange rate at B.
face a depletedreserve of pesos.
want to raiseU.S. interest rates to maintain the exchange rate at B.
AACSB: KnowledgeApplication
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 27-04 Describe the differences between flexibleandfixed exchange rates, including how changes in foreign exchangereserves bring about automaticchanges in the domestic money supply under a fixed exchange rate.
Test Bank: I Topic: Fixed Exchange Rates
Type: Graph
98.
Refer to the diagram,where D and S arethe United States'demand for and supplyof Swiss francs. At the equilibrium exchange rate, E, the United States'balance of payments is in equilibrium. Under a system of fixed exchange rates, the shift in demand from D to D' will require the United States to
increase its foreign exchange reserves.
increase the domestic money supply of dollars.
C. reduce its foreign exchange reserves.
D. appreciate the Swiss franc.
AACSB: KnowledgeApplication
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 27-04 Describe the differences between flexibleandfixed exchange rates, including how changes in foreign exchangereserves bring about automaticchanges in the domestic money supply under a fixed exchange rate.
Test Bank: I Topic: Fixed Exchange Rates
Type: Graph
If the United States decided to fix its exchange rate with Japan, this would
require the U.S. to fix its exchange rate with all other currencies.
ensure that the U.S. dollar would always appreciate against the yen.
prevent the U.S. from havinga trade deficitwith Japan.
D. cause the U.S. government to become the dollar-yen foreign exchange market.
AACSB: KnowledgeApplication Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 27-04 Describe the differences between flexibleandfixed exchange rates, including how changes in foreign exchangereserves bring about automaticchanges in the domestic money supply under a fixed exchange rate.
Test Bank: I Topic: Fixed Exchange Rates
The official reserves of a nation’scentral bank include
foreign currencies only.
foreign currencies, bonds issued by foreigngovernments, gold reserves, and special reserves held at the International MonetaryFund.
its stock of domesticand foreign currencies. D.
all domestic and foreign financialassets held by the central bank, including gold reserves.
AACSB: KnowledgeApplication Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 27-04 Describe the differences between flexibleandfixed exchange rates, including how changes in foreign exchangereserves bring about automaticchanges in the domestic money supply under a fixed exchange rate.
Test Bank: I Topic: Fixed Exchange Rates
101.
Refer to the diagram. The initial demand for and supply of pesos are shown by D1 and S1. Suppose the United States reduces its imports of Mexican goods, shifting its demand for pesos from D1 to D2. If the United States was operating under a fixed exchange rate system, the U.S. government would have to
A. buy FG pesos to maintain the exchange rate atB.
sell FG pesos to maintain the exchange rate at B.
buy FB pesos to maintain the exchange rate at B.
sell FB pesos to maintain the exchange rate at B.
AACSB: KnowledgeApplication
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 27-04 Describe the differences between flexibleandfixed exchange rates, including how changes in foreign exchangereserves bring about automaticchanges in the domestic money supply under a fixed exchange rate.
Test Bank: I Topic: Fixed Exchange Rates
Type: Graph
Suppose that the United States decides to fix the dollar-euro exchange rate. If the U.S. centralbank observes that the quantity suppliedof euros exceeds the quantity demanded of euros at the fixed exchangerate, to maintain the exchange rate, the U.S. central bank will
need to reduce the domestic supply of dollars.
need to appreciate the dollar.
C. realize an increasein its reserves of euros.
D. realize a decrease in its reserves of euros.
AACSB: KnowledgeApplication Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 27-04 Describe the differences between flexibleandfixed exchange rates, including how changes in foreign exchangereserves bring about automaticchanges in the domestic money supply under a fixed exchange rate.
Test Bank: I Topic: Fixed Exchange Rates
If the United Statesexperiences an increasein foreign exchange reserves,
the net transfers line in the balance of payments statementwill increase.
it will also realizea decrease in the domestic supplyof dollars.
this will appear as a positive item in the U.S. balanceof payments statement.
D. this will appearas a negative item in the U.S. balance of payments statement.
AACSB: KnowledgeApplication Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 27-04 Describe the differences between flexibleandfixed exchange rates, including how changes in foreign exchangereserves bring about automaticchanges in the domestic money supply under a fixed exchange rate.
Test Bank: I Topic: Fixed Exchange Rates
Suppose that the United Statesfixes the dollar-pound exchange rate. In the process of maintaining the fixed exchange rate, if the U.S. centralbank starts to realize reduced reserves of pounds, this suggests that
the quantity supplied of pounds has exceededthe quantity demanded of pounds.
B. the quantity demandedofpounds has exceeded the quantity supplied of pounds.
the exchange rate will rise.
the U.S. supply of dollars has increased.
AACSB: KnowledgeApplication Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 27-04 Describe the differences between flexibleandfixed exchange rates, including how changes in foreign exchangereserves bring about automaticchanges in the domestic money supply under a fixed exchange rate.
Test Bank: I Topic: Fixed Exchange Rates
Suppose that the United Statesfixes the dollar-pound exchange rate. In the process of maintaining the fixed exchange rate, the U.S. central bank regularly finds itselfin a position of having to increase its reserves of pounds. Based on this, we could conclude that
the fixed dollar-pound exchangerate is consistently below the equilibrium exchange rate that would be produced by a private foreign exchange market.
B. the fixed dollar-pound exchange rate consistently exceeds the equilibrium exchange rate that would be produced by a privateforeign exchange market.
the fixed dollar-pound exchange rate is a good approximation of the exchangerate that would be producedby a private foreign exchange market.
the U.S. central bank is regularly having to reduce the domestic money supply.
AACSB: KnowledgeApplication Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 27-04 Describe the differences between flexibleandfixed exchange rates, including how changes in foreign exchangereserves bring about automaticchanges in the domestic money supply under a fixed exchange rate.
Test Bank: I Topic: Fixed Exchange Rates
A centralbank engaging in sterilization is attempting to
counteract the efforts of foreigncentral banks that fix exchangerates to gain an advantagein international trade.
depreciate its currency relativeto foreign currencies.
appreciate its currencyrelative to foreigncurrencies.
D. offset domestic money supply changes that result from fixing its exchangerate against other currencies.
AACSB: KnowledgeApplication Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 27-04 Describe the differences between flexibleandfixed exchange rates, including how changes in foreign exchangereserves bring about automaticchanges in the domestic money supply under a fixed exchange rate.
Test Bank: I Topic: Fixed Exchange Rates
Suppose that a centralbank that fixes its exchangerate against other currencies is facing a regularincrease of foreignexchange reserves. To offset unwanted changes in the domesticmoney supply, the centralbank could
reset the peg to a higher level.
reduce domestic interest rates.
use a sterilization policyof buying bonds or decreasing banking system reserve requirements.
D. use a sterilization policy of selling bonds or increasing banking system reserve requirements.
AACSB: KnowledgeApplication Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 27-04 Describe the differences between flexibleandfixed exchange rates, including how changes in foreign exchangereserves bring about automaticchanges in the domestic money supply under a fixed exchange rate.
Test Bank: I Topic: Fixed Exchange Rates
In saying that the present system of floatingexchange rates is managed, we mean that
countries that allow their exchange rate to move freely will lose their borrowing privileges with the IMF.
the value of any IMF member's currency can only vary 2 percent from its par value.
IMF officials determine exchange rates on a day-to-day basis.
D. the centralbanks of variouscountries sometimes buy and sell foreignexchange to alter undesirable trends in exchange rates.
AACSB: KnowledgeApplication Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 27-05 Explain the current system of managedfloating exchange rates.
Test Bank: I Topic: The Current Exchange Rate System: The Managed Float
The exchange rate system currently used by the industrially advanced nations is
the gold standard.
the Bretton Woods system.
C. the managed float.
D. a fixed ratesystem.
AACSB: KnowledgeApplication Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 27-05 Explain the current system of managedfloating exchange rates.
Test Bank: I Topic: The Current Exchange Rate System: The Managed Float
Under the managed floating system of exchange rates,
all exchangerates vary with changesin the free-market prices of gold.
industrialized nationsmeet once each year to negotiate readjustments in their exchangerates.
C. exchange rates are essentially flexible,but governments intervene to offsetdisorderly fluctuations in rates.
D. exchange rates are adjustedat the discretion of the IMF.
AACSB: KnowledgeApplication Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 27-05 Explain the current system of managedfloating exchange rates.
Test Bank: I Topic: The Current Exchange Rate System: The Managed Float
A governmentmay be able to reduce the international value of its currency by
selling its currencyin the foreignexchange market.
buying its currency in the foreign exchange market.
selling foreign currencies in the foreign exchange market.
increasing its domestic interest rates.
AACSB: KnowledgeApplication Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 27-05 Explain the current system of managedfloating exchange rates.
Test Bank: I Topic: The Current Exchange Rate System: The Managed Float
The currentsystem of exchangerates can best be described as
freely fluctuating exchange rates.
B. managedfloating exchange rates.
rigidly fixed exchange rates.
an adjustable peg system.
AACSB: KnowledgeApplication Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 27-05 Explain the current system of managedfloating exchange rates.
Test Bank: I Topic: The Current Exchange Rate System: The Managed Float
Which of the followinglists of exchange-rate systems is arrangedin proper historicalorder, from earliest to most current?
Bretton Woods system, gold standard, managedfloat
gold standard, managedfloat, Bretton Woods system
managed float, Bretton Woods system, gold standard
D. gold standard, Bretton Woods system, managed float
AACSB: KnowledgeApplication Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 27-05 Explain the current system of managedfloating exchange rates.
Test Bank: I Topic: The Current Exchange Rate System: The Managed Float
When a government buys or sells foreign exchange in the foreignexchange market in order to alter the supply or demand for currencyand push the exchange rate in a desireddirection, this is known as
monetary policy.
an inflationary peg.
sterilization.
D. a currency intervention.
AACSB: KnowledgeApplication Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 27-05 Explain the current system of managedfloating exchange rates.
Test Bank: I Topic: The Current Exchange Rate System: The Managed Float
Suppose that the economically largest nations collectively decided that the dollar is too strong(high in value) relative to the yen. These nationsmight
use foreignexchange reservesof yen to buy dollars.
B. use foreign exchange reserves of dollars to buy yen.
encourage Japan to print more yen.
encourage the United States to increase interest rates.
AACSB: KnowledgeApplication Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 27-05 Explain the current system of managedfloating exchange rates.
Test Bank: I Topic: The Current Exchange Rate System: The Managed Float
When it is reported that a nation is experiencing a "balance of paymentsdeficit," this is best interpreted to mean that the nation is experiencing
an increasein foreign exchangereserves.
B. a decrease in foreignexchange reserves.
an imbalancebetween its current account and its capital and financialaccount.
a situation where it is importing more goods than it is exporting.
AACSB: KnowledgeApplication Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 27-05 Explain the current system of managedfloating exchange rates.
Test Bank: I Topic: The Current Exchange Rate System: The Managed Float
In recent years, the United States has had large
current account surpluses.
capital and financial accountdeficits.
C. balance of trade deficits.
D. balance of paymentssurpluses.
AACSB: KnowledgeApplication Accessibility: Keyboard Navigation
Blooms:Remember Difficulty: 01 Easy
Learning Objective: 27-06 Identify the causes and consequences of recent U.S. trade deficits.
Test Bank: I Topic: Recent U.S. Trade Deficits
In recent years, the United States has had large
current account surpluses.
B. current account deficits.
balance of trade surpluses.
balance of paymentssurpluses.
AACSB: KnowledgeApplication Accessibility: Keyboard Navigation
Blooms:Remember Difficulty: 01 Easy
Learning Objective: 27-06 Identify the causes and consequences of recent U.S. trade deficits.
Test Bank: I Topic: Recent U.S. Trade Deficits
Relatively rapid U.S. growth between 2002 and 2006 contributed to large U.S. trade deficitsby
increasing U.S. national income, which decreased U.S. exports.
reducing real interest rates in the United States.
increasing U.S. tax revenues and reducingthe federal budget deficit.
D. increasing U.S. national income, which increased U.S. imports.
AACSB: KnowledgeApplication Accessibility: Keyboard Navigation
Blooms:Remember Difficulty: 01 Easy
Learning Objective: 27-06 Identify the causes and consequences of recent U.S. trade deficits.
Test Bank: I Topic: Recent U.S. Trade Deficits
As a resultof the 2007–2009recession,
declining imports created a trade surplusfor the United States.
the U.S. trade deficit grew significantly.
C. declining imports reduced the size of the U.S. trade deficit.
D. roughly equivalent declines in both exportsand imports left the U.S. trade balanceunchanged.
AACSB: KnowledgeApplication Accessibility: Keyboard Navigation
Blooms:Remember Difficulty: 01 Easy
Learning Objective: 27-06 Identify the causes and consequences of recent U.S. trade deficits.
Test Bank: I Topic: Recent U.S. Trade Deficits
Which of the followingstatements is most accurate about the U.S. current accountsince the Great Recession (the period covering 2009–2015)?
The current account hasremained the same in absoluteterms, but fallenas a percentage of GDP.
The current account has gone from a deficit to a surplus.
C. The current account deficit has grownin absolute terms, but remained relatively constant as a percentage of GDP.
D. The current account deficit has grown in both absolute terms, and as a percentage of GDP.
AACSB: KnowledgeApplication Accessibility: Keyboard Navigation
Blooms:Remember Difficulty: 01 Easy
Learning Objective: 27-06 Identify the causes and consequences of recent U.S. trade deficits.
Test Bank: I Topic: Recent U.S. Trade Deficits
Two of the implications of large U.S. trade deficits for the United States are
decreased currentconsumption and decreased indebtedness to foreigners.
reduced budget deficits and decreasedindebtedness to foreigners.
reduced current consumption and higher saving.
D. increased current consumption and increasedindebtedness to foreigners.
AACSB: KnowledgeApplication Accessibility: Keyboard Navigation
Blooms:Remember Difficulty: 01 Easy
Learning Objective: 27-06 Identify the causes and consequences of recent U.S. trade deficits.
Test Bank: I Topic: Recent U.S. Trade Deficits
Mainly because of large current account deficits, the United States
is the leading exportingnation in the world.
B. has the world's largest externaldebt.
has the world's highest saving rate.
is experiencing an increasein its net inflowof investment income.
AACSB: KnowledgeApplication Accessibility: Keyboard Navigation
Blooms:Remember Difficulty: 01 Easy
Learning Objective: 27-06 Identify the causes and consequences of recent U.S. trade deficits.
Test Bank: I Topic: Recent U.S. Trade Deficits
One of the consequences of the U.S. trade deficit is that
domestic inflation has resulted.
B. the accumulation of Americandollars in foreign hands has enabled foreignfirms to build factoriesin America.
the distribution of incomein the United Stateshas become less unequal.
the system of flexibleexchange rates has been abandoned in favor of a newgold standard.
AACSB: KnowledgeApplication Accessibility: Keyboard Navigation
Blooms:Remember Difficulty: 01 Easy
Learning Objective: 27-06 Identify the causes and consequences of recent U.S. trade deficits.
Test Bank: I Topic: Recent U.S. Trade Deficits
In terms of individual nations, the largest U.S. trade deficitis with
Japan.
Mexico.
C. China.
D. Canada.
AACSB: KnowledgeApplication Accessibility: Keyboard Navigation
Blooms:Remember Difficulty: 01 Easy
Learning Objective: 27-06 Identify the causes and consequences of recent U.S. trade deficits.
Test Bank: I Topic: Recent U.S. Trade Deficits
The world'slargest debtor nation in terms of debt owed to foreign citizens and governments is
Russia.
Argentina.
Japan.
D. the United States.
AACSB: KnowledgeApplication Accessibility: Keyboard Navigation
Blooms:Remember Difficulty: 01 Easy
Learning Objective: 27-06 Identify the causes and consequences of recent U.S. trade deficits.
Test Bank: I Topic: Recent U.S. Trade Deficits
The United States' current accountdeficit reached a new high in
A. 2006.
B. 2007.
C. 2009.
D. 2015.
AACSB: KnowledgeApplication Accessibility: Keyboard Navigation
Blooms:Remember Difficulty: 01 Easy
Learning Objective: 27-06 Identify the causes and consequences of recent U.S. trade deficits.
Test Bank: I Topic: Recent U.S. Trade Deficits
The large trade deficitthat the United States has with China persists in part because
the U.S. economyhas grown slowly in recentyears.
B. China has fixed its exchange rate to a basket of currencies that includes the dollar, and has not allowed the yuan to appreciate relativeto the U.S. dollar.
China has experienced rapid economicgrowth over the past decade.
China has recentlyimposed or increased tariffs on most goods imported from the United States.
AACSB: KnowledgeApplication Accessibility: Keyboard Navigation
Blooms:Remember Difficulty: 01 Easy
Learning Objective: 27-06 Identify the causes and consequences of recent U.S. trade deficits.
Test Bank: I Topic: Recent U.S. Trade Deficits
Which of the followinghas contributed to large U.S. trade deficitsin recent years?
China fixing itsexchange rate
rapid decreases in the price of oil that have triggered dramatic increases in oil imports
a risingU.S. saving rate
All of these have contributed.
AACSB: KnowledgeApplication Accessibility: Keyboard Navigation
Blooms:Remember Difficulty: 01 Easy
Learning Objective: 27-06 Identify the causes and consequences of recent U.S. trade deficits.
Test Bank: I Topic: Recent U.S. Trade Deficits
Present consumption supported by large trade deficitsmay come at the expenseof
permanent debt to foreign interests.
permanent foreign ownership of formerlyU.S.-owned assets.
large sacrifices of future consumption.
D. all of these.
AACSB: KnowledgeApplication Accessibility: Keyboard Navigation
Blooms:Remember Difficulty: 01 Easy
Learning Objective: 27-06 Identify the causes and consequences of recent U.S. trade deficits.
Test Bank: I Topic: Recent U.S. Trade Deficits
(Consider This) Which of the followingstatements is most accurateabout China’s pegging of its currencyagainst the U.S. dollarin the 2000s?
China has consistently kept the yuan priceof a dollar lower than what the free market equilibrium exchange rate would be.
B. China has consistently kept the yuan price of a dollar higherthan what the free market equilibrium exchange rate would be.
China has regularly adjusted the peg so as to sometimes set the yuan price of a dollartoo high and othertimes set it too low.
China has seen a rapid decline in its reserves of dollars.
AACSB: KnowledgeApplication Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 27-04 Describe the differences between flexibleandfixed exchange rates, including how changes in foreign exchangereserves bring about automaticchanges in the domestic money supply under a fixed exchange rate.
Test Bank: I Topic: Fixed Exchange Rates
(Consider This) Which of the followinghas been a consequence of China pegging its currency against the U.S. dollar throughout the 2000s?
China has experienced a loss of dollar reserves.
B. China has experienced strong inflationary pressure, despite sterilization efforts.
China has experienced a large trade deficitin goods with the United States.
The United Stateshas actively intervened in the foreignexchange market to bring the yuan to a free exchange market equilibrium value.
AACSB: KnowledgeApplication Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 27-04 Describe the differences between flexibleandfixed exchange rates, including how changes in foreign exchangereserves bring about automaticchanges in the domestic money supply under a fixed exchange rate.
Test Bank: I Topic: Fixed Exchange Rates
(Last Word) Which of the following is a disadvantage of belongingto a common currency?
exchange-rate risk
difficulty in comparingcosts between trading partners
deadweight loss from currencyconversions
D. the loss of monetary policyindependence
AACSB: KnowledgeApplication Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 27-01 Explain how currencies of different nations are exchanged when international transactions take place.
Test Bank: I Topic: InternationalFinancial Transactions
(Last Word) Which nationsstand to lose the most from belonging to a common currency?
those whose macroeconomic conditions differ significantly from the rest of the nationsin the currency area
those who engage in the largest amount of foreigntrade
those with the largesteconomies of the nationsin the currency area
those with the leastrestrictive laws and lowest production costs
AACSB: KnowledgeApplication Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 27-01 Explain how currencies of different nations are exchanged when international transactions take place.
Test Bank: I Topic: InternationalFinancial Transactions
(Last Word) Nationsbelonging to a common currency
lose the ability to maintaincompetitiveness by making externaladjustments to theircurrent account balances.
reduce their exchange-rate risk and costs of currency conversion.
C. realize all of these things.
D. sacrificeindependent monetary policy.
AACSB: KnowledgeApplication Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 27-01 Explain how currencies of different nations are exchanged when international transactions take place.
Test Bank: I Topic: InternationalFinancial Transactions
True / False Questions
U.S. exports increase and U.S. imports decrease the supplies of foreignmonies owned by U.S. banks.
TRUE
AACSB: KnowledgeApplication Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 27-03 Discuss how exchange rates are determined in currency markets that have flexibleexchange rates.
Test Bank: I Topic: FlexibleExchange Rates
Under freely flexible (floating) exchange rates, if the dollarprice of pounds rises,the pound price of dollarswill fall.
TRUE
AACSB: KnowledgeApplication Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 27-03 Discuss how exchange rates are determined in currency markets that have flexibleexchange rates.
Test Bank: I Topic: FlexibleExchange Rates
If the priceof British pounds, measured in terms of U.S. dollars,is rising, then the price of U.S. dollars, measured in terms of British pounds, is also rising.
FALSE
AACSB: KnowledgeApplication Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 27-03 Discuss how exchange rates are determined in currency markets that have flexibleexchange rates.
Test Bank: I Topic: FlexibleExchange Rates
Under freely flexible (floating) exchange rates, a U.S. trade deficit with Japan will eventually cause the dollar price of yen to rise.
TRUE
AACSB: KnowledgeApplication Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 27-03 Discuss how exchange rates are determined in currency markets that have flexibleexchange rates.
Test Bank: I Topic: FlexibleExchange Rates
If the dollardepreciates, U.S. exportswill eventually rise and U.S. imports will eventually fall.
TRUE
AACSB: KnowledgeApplication Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 27-03 Discuss how exchange rates are determined in currency markets that have flexibleexchange rates.
Test Bank: I Topic: FlexibleExchange Rates
A system of fixed exchange rates is more likelyto result in exchangecontrols than is a system of flexible(floating) exchange rates.
TRUE
AACSB: KnowledgeApplication Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 27-04 Describe the differences between flexibleandfixed exchange rates, including how changes in foreign exchangereserves bring about automaticchanges in the domestic money supply under a fixed exchange rate.
Test Bank: I Topic: Fixed Exchange Rates
A nation that importsmore goods and services than it exportsis necessarily realizing an international balance of payments deficit.
FALSE
AACSB: Analytical Thinking Accessibility: Keyboard Navigation
Blooms: Analyze Difficulty: 03 Hard
Learning Objective: 27-02 Analyze the balance sheet the United States uses to account for the international payments it makes and receives.
Test Bank: I Topic: The Balance of Payments
(1) Goods Exports+$15(2) Goods Imports-17(3) Service Exports+5(4) Service Imports−2(5) Net Investment Income-5(6) Net Transfers+4(7) Foreign Purchases of Assets+5(8) Purchases of Foreign Assets-11(9) Balance on Capital Account+1 143.
The table shows a 2008 balance of payments statement for Transylvania. All figures are in billionsof dollars. In 2008, Transylvania importedmore products than it exported.
TRUE
AACSB: Analytical Thinking
Blooms: Analyze Difficulty: 03 Hard
Learning Objective: 27-02 Analyze the balance sheet the United States uses to account for the international payments it makes and receives.
Test Bank: I Topic: The Balance of Payments
Type: Table
(1) Goods Exports+$15(2) Goods Imports-17(3) Service Exports+5(4) Service Imports−2(5) Net Investment Income-5(6) Net Transfers+4(7) Foreign Purchases of Assets+5(8) Purchases of Foreign Assets-11(9) Balance on Capital Account+1 144.
The table shows a 2008 balance of paymentsstatement for Transylvania. All figures are in billionsof dollars. Transylvania had a $2 billionbalance of trade (goods)surplus in 2008.
FALSE