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Name: ________________________ Class: ___________________ Date: __________
ID: A
CH 35 sample questions
Multiple Choice
Identify the choice that best completes the statement or answers the question.
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1. The record of international receipts and payments is called the
a. balance of payments.
b. current account.
c. official settlements account.
d. capital account.
e. U.S. official reserves.
2. Which of the following is a balance of payments account?
i.
current account
ii. past account
iii. capital account
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3.
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4.
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5.
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6.
a. i only.
b. ii only.
c. iii only.
d. i and iii.
e. i, ii, and iii.
The current account is the record of
a. a nation's international trading, borrowing, and lending.
b. payments for imports, receipts for exports, net interest, and net transfers.
c. foreign investment in the nation minus the nation's investment abroad.
d. changes in the government's holdings of foreign currency.
e. the nation's exports but not its imports.
In 2004, the United States had
a. a current account surplus because imports were greater than exports.
b. a capital account deficit because exports were greater than imports.
c. a current account deficit because imports were greater than exports.
d. no change in U.S. official reserves.
e. a current account deficit and a capital account deficit.
Interest received from U.S. holdings of foreign assets and interest paid to foreigners for U.S. investment
assets is recorded in the
a. capital account.
b. official settlements account.
c. official reserves account.
d. current account.
e. official dollar account.
The capital account is the record of
a. a nation's international trading, borrowing, and lending.
b. payments for imports, receipts for exports, net interest, and net transfers.
c. foreign investment in the nation minus the nation's investment abroad.
d. changes in the government's holdings of foreign currency.
e. the nation's imports and exports of capital goods.
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Name: ________________________
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ID: A
7. Foreign investment in the United States and U.S. investment abroad is recorded in the
a. investment account.
b. official settlements account.
c. capital account.
d. current account.
e. creditor/debtor account.
8. When the U.S. capital account shows a positive balance, that is an indication of
a. the value of all U.S. exports exceeding the value of all U.S. imports.
b. the United States acquiring more foreign reserves.
c. U.S. industries becoming more competitive.
d. foreigners investing more in the United States than the United States is investing abroad.
e. the value of U.S. exports of capital goods exceeding the value of U.S. imports of capital
goods.
9. The official settlements account is the record of
a. a nation's international trading, borrowing and lending.
b. payments for imports, receipts for exports, net interest, and net transfers.
c. foreign investment in the nation minus the nation's investment abroad.
d. changes in the government's holdings for foreign currency.
e. exports of capital goods minus imports of capital goods.
10. The official settlements account contains data on
a. officials' expenses.
b. official reserves.
c. trade complaints that are officially settled.
d. official governmental complaints between countries.
e. capital imports and exports.
11. The government's holdings of foreign currency is recorded in the
a. money account.
b. official settlements account.
c. capital account.
d. current account.
e. currency account.
12. If U.S. official reserves increase, the
a. current account increases.
b. balance of payments increases.
c. official settlements account balance is negative.
d. current account is positive.
e. official settlements account balance is positive.
13. In a country's balance of payments accounts, items are
a. all listed as positive numbers.
b. listed as positive if foreign currency is earned by the nation.
c. listed as positive if foreign currency is spent by the nation.
d. listed as negative if foreign currency comes in for only a short period of activity.
e. listed if they are exports of goods or imports of securities and not listed if they are
imports of goods or exports of securities.
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Name: ________________________
ID: A
____ 14. There are three balance of payments accounts. The sum of the balances on these three accounts will equal
a. the total amount of the nation's foreign borrowing.
b. the total amount of the nation's foreign lending.
c. zero.
d. the total amount of the nation's exports.
e. the total amount of the nation's imports.
____ 15. We know that among the current account, the capital account, and the official settlements account that the
a. current account is always larger than the capital and official settlements accounts
combined.
b. current and capital accounts sum to zero while the official settlements account must be
greater than zero.
c. current account plus the capital account plus the official settlements account must sum to
zero.
d. current account plus the capital account plus the official settlements account must sum to
100.
e. current account plus the capital account equals zero.
____ 16. The sum of the current account plus the capital account plus the official settlements account equals
a. 100 percent.
b. U.S. official reserves.
c. zero.
d. government expenditures.
e. U.S. exports.
____ 17. Between 1982 and 2004, the United States
a. had a current account deficit almost every year.
b. had a current account surplus almost every year.
c. some years had a deficit and some years had a surplus that netted out to $0.
d. some years had a deficit and some years had a surplus that totaled a surplus of $2.5
trillion.
e. had a current account surplus or deficit that almost equal to $0 every year.
____ 18. From the early 1990s through 2004, the U.S.
a. balance of payments exceeded the capital account.
b. current account was negative.
c. capital account was negative.
d. actual balance of payments deficit exceeded what the United States measured as the
balance of payments deficit.
e. current account and U.S. capital account were both positive
____ 19. In the middle and later 1980s, the U.S. current account balance showed a ____ and the U.S. capital account
balance showed ____.
a. deficit; deficit
b. deficit; surplus
c. surplus; deficit
d. surplus; surplus
e. deficit; neither a deficit nor a surplus
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Name: ________________________
ID: A
____ 20. From the 1990s to the present, the U.S. current account balance showed a ____ and the U.S. capital account
balance showed ____.
a. deficit; deficit
b. deficit; surplus
c. surplus; deficit
d. surplus; surplus
e. deficit; neither a deficit nor a surplus
____ 21. From 1982 to the present, the U.S. official settlements account balance has been
a. relatively stable and small.
b. very volatile.
c. increasing.
d. a mirror image of the current account.
e. a mirror image of the capital account.
____ 22. During the last year, foreign investment in a country was $500 billion and the country's investment abroad
was $600 billion. Which of the following statements is true?
a. The country has net borrowing of $100 billion.
b. The country has a current account deficit of $100 billion.
c. The country has a current account deficit of $1,100 billion.
d. The country has net lending of $100 billion.
e. The country has a capital account deficit of $1,100 billion.
____ 23. The United States currently is
a. a net borrower and has been since the end of World War II in 1945.
b. a net lender and has been since the 1980s.
c. a net borrower and has been since the 1980s.
d. a net lender and has been since the end of World War II in 1945.
e. neither a net lender nor a net borrower.
____ 24. A country with an official settlements balance of zero and a negative current account balance is a
a. net borrower.
b. net lender.
c. net saver.
d. net creditor.
e. None of the above answers is correct because it is not possible to have an official
settlements balance of zero and a negative current account balance.
____ 25. A country reports exports minus imports of $300 billion, net interest income of $30 billion, net transfers of
$50 billion, and no change in official reserves. The country is a
a. net borrower.
b. net lender.
c. debtor nation.
d. net liability.
e. net asset.
____ 26. If U.S. exports exceed U.S. imports and official reserves do not change, the United States
a. borrows from the rest of the world.
b. makes loans to the rest of the world.
c. borrows from the U.S. government.
d. makes loans to the U.S. government.
e. cannot sell any capital to foreigners.
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Name: ________________________
ID: A
____ 27. A nation that currently has a surplus in its current account is called a
a. debtor nation.
b. creditor nation.
c. net borrower.
d. net lender.
e. capital account surplus nation.
____ 28. A nation that currently has a surplus in its capital account is called a
a. debtor nation.
b. creditor nation.
c. net borrower.
d. net lender.
e. current account surplus nation.
____ 29. A nation that has invested more in the rest of the world than other countries have invested in it is called a
a. debtor nation.
b. creditor nation.
c. net borrower.
d. net lender.
e. saver nation.
____ 30. The United States currently is a
a. creditor nation and has been since the end of World War II in 1945.
b. debtor nation and has been since the 1980s.
c. creditor nation and has been one since the 1980s.
d. debtor nation and has been since the end of World War II in 1945.
e. neither a debtor nation nor a creditor nation.
____ 31. The table above gives data on the U.S. balance of payments in 2010. The current account balance is
a. –$100 billion.
b. $100 billion.
c. –$200 billion.
d. $200 billion.
e. $1,900 billion.
____ 32. The table above gives data on the U.S. balance of payments in 2010. The capital account balance is
a. –$200 billion.
b. $200 billion.
c. –$190 billion.
d. $190 billion.
e. $1,900 billion.
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Name: ________________________
ID: A
____ 33. The table above gives data on the U.S. balance of payments in 2010. The official settlements account balance
is
a. –$1,100 billion.
b. $1,100 billion.
c. $10 billion.
d. –$10 billion.
e. $0.
____ 34. The table above gives data on the U.S. balance of payments in 2010. Is the United States a debtor or a
creditor nation in 2010?
a. a debtor nation
b. a creditor nation
c. neither a creditor nor debtor nation
d. both a creditor nation and a debtor nation
e. More information is needed to determine if the United States is a debtor or creditor
nation.
____ 35. In the United States, the main source of fluctuations in the current account balance is
a. net transfers.
b. international debt.
c. net exports.
d. net interest.
e. exports of capital.
____ 36. The private sector balance equals
a. saving plus investment.
b. saving minus investment.
c. net taxes minus government expenditures.
d. net taxes plus government expenditures.
e. investment minus saving.
____ 37. If private savings equals $1.2 billion and private investment equals $1.5 billion, then there is a
a. private sector surplus.
b. private sector deficit.
c. government sector surplus.
d. government sector deficit.
e. current account balance.
____ 38. The government sector balance equals
a. saving plus investment.
b. saving minus investment.
c. net taxes minus government expenditures.
d. net taxes plus government expenditures.
e. government expenditures plus investment.
____ 39. Define X = exports, M = imports, S = saving, I = investment, T = net taxes, G = government purchases.
Which of the following formulas is correct?
a. X – M = S + I + T – G.
b. X – M = S – I + T – G.
c. X – M = S – I – T – G.
d. X – M = S + I +T + G.
e. X – M = S + I –T + G.
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Name: ________________________
ID: A
____ 40. Net exports is the sum of
a. exports and imports.
b. the private sector balance and the government sector balance.
c. the current account balance and capital account balance.
d. the balance of payments accounts.
e. the current account balance and the official settlements account balance.
____ 41. The table above has information about the U.S. economy. Net exports equals
a. –$200 billion
b. $200 billion.
c. –$2,800 billion.
d. $2,800 billion.
e. $400 billion.
____ 42. The table above has information about the U.S. economy. The private sector balance is a
a. $700 billion deficit.
b. $700 billion surplus.
c. $2,900 billion deficit.
d. $2,900 billion surplus.
e. $400 billion deficit.
____ 43. The table above has information about the U.S. economy. The government sector balance is a
a. $900 billion deficit.
b. $900 billion surplus.
c. $2,900 billion balanced budget.
d. $2,900 billion trade deficit.
e. $500 billion deficit.
____ 44. During 2004, U.S. international
a. borrowing was used to finance private and public investment.
b. lending was used to finance private and public investment.
c. borrowing was used to primarily pay for consumption.
d. lending was used to primarily pay for consumption.
e. borrowing was zero.
____ 45. The foreign exchange market is where
a. U.S. goods are exchanged for other U.S goods.
b. services are exchanged.
c. currencies are exchanged.
d. capital is exchanged.
e. U.S. goods are exchanged for foreign goods.
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Name: ________________________
ID: A
____ 46. The price at which one currency exchanges for another currency is called the
a. currency exchange rate.
b. net export exchange rate.
c. money exchange rate.
d. foreign exchange rate.
e. value of the dollar.
____ 47. The foreign exchange rate is defined as the
a. rate or the speed with which the currencies of the worlds are traded.
b. volume of the world currencies traded.
c. price at which one currency exchanges for another.
d. equal to the amount of the current account deficit.
e. equal to the amount of the capital account deficit.
____ 48. The demand for the U.S. dollar in the foreign exchange market is a derived demand. A derived demand
means that the demand is derived from
a. the supply of U.S. dollars.
b. government policy.
c. the demand for U.S. goods, services, and assets.
d. the domestic demand for U.S. goods and services.
e. the demand by U.S. residents for foreign goods, services, and assets.
____ 49. The yen is
a. a currency created by 11 nations of Europe.
b. the currency of Japan.
c. an old currency created by nations in Asia in the 19th century.
d. a new currency that represents all Asian nations.
e. a new currency used by many European nations.
____ 50. Since 1990, the value of the U.S. dollar has
a. remained more or less constant in value against Japan's currency.
b. steadily lost value against Japan's currency throughout the period.
c. fluctuated both downward and upward in value against Japan's currency.
d. steadily gained value against Japan's currency.
e. been fixed in value against the yen.
____ 51. Looking at the exchange rate of the dollar in terms of the yen since 1980 we see that
a. the value has fluctuated around the 200 yen per dollar rate but has never dipped below
200 yen per dollar.
b. since 1980 the dollar has depreciated but the dollar has appreciated during some times.
c. the dollar has steadily depreciated throughout.
d. while the trend is mainly toward appreciation, the dollar has depreciated at times.
e. the exchange rate has been essentially fixed because it has not changed much, if at all.
____ 52. Today, one U.S. dollar exchanges for 110 Japanese yen. The next morning the same dollar exchanges for 107
Japanese yen. We can conclude that the dollar has ____ and the yen has ____.
a. appreciated; appreciated
b. depreciated; appreciated
c. depreciated; neither appreciated nor depreciated
d. appreciated; depreciated
e. depreciated; depreciated
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Name: ________________________
ID: A
____ 53. Which of the following is a factor in determining the demand for the dollar on the foreign exchange market?
i.
the exchange rate
ii. interest rates in the United States and other countries
iii. the expected future exchange rate
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____ 55.
____ 56.
____ 57.
a. i only.
b. ii only.
c. iii only.
d. i and ii.
e. i, ii, and iii.
When the United States exports goods and services to France, there is an increase in the
a. supply of dollars.
b. supply of French francs.
c. demand for dollars.
d. U.S. capital account balance.
e. U.S. official settlements account balance.
On the foreign exchange market, an increase in a country's exchange rate
a. decreases the quantity demanded of its currency and leads to a movement up along the
demand curve.
b. increases the quantity demanded of its currency and leads to a movement up along the
demand curve.
c. increases the quantity demanded of its currency and leads to a movement down along the
demand curve.
d. decreases the demand for its currency and shifts the demand curve rightward.
e. decreases the demand for its currency and shifts the demand curve leftward.
Which of the following statements about the foreign exchange market is correct?
a. The higher the expected future exchange rate, the smaller is the expected profit from
holding dollars and so the greater is the demand for dollars.
b. The lower the expected future exchange rate, the smaller is the expected profit from
holding dollars and so the greater is the demand for dollars.
c. The higher the expected future exchange rate, the smaller is the expected profit from
holding dollars and so the smaller is the demand for dollars.
d. The higher the expected future exchange rate, the greater is the expected profit from
holding dollars and so the greater is the demand for dollars.
e. The lower the expected future exchange rate, the greater is the expected profit from
holding dollars and so the greater is the demand for dollars.
In the foreign exchange market, an increase in the exchange rate leads to
a. an increase the quantity of dollars supplied and a movement along the supply curve of
dollars.
b. an increase in the quantity of dollars demanded and a movement along the demand curve
for dollars.
c. an increase the quantity of dollars supplied and no movement along the supply curve of
dollars.
d. an increase in the quantity of dollars demanded and no movement along the demand
curve for dollars.
e. a decrease the quantity of dollars supplied and a movement along the supply curve of
dollars.
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Name: ________________________
ID: A
____ 58. Other things remaining the same, as U.S. imports increase, the quantity of
a. U.S. dollars demanded increases.
b. foreign currency demanded decreases.
c. U.S. dollars supplied decreases.
d. foreign currency demanded increases.
e. foreign currency supplied increases.
____ 59. In the foreign exchange market, the demand for dollars increases and the demand curve shifts if the
a. U.S. interest rate differential increases.
b. expected future exchange rate falls.
c. U.S. interest rate differential decreases.
d. U.S. exchange rate rises.
e. U.S. exchange rate falls.
____ 60. Everything else the same, in the foreign exchange market which of the following increases the demand for
U.S. dollars and shifts the demand curve rightward?
a. The Japanese interest rate rises.
b. The expected future exchange rate falls.
c. The U.S. interest rate rises.
d. The U.S. exchange rate rises.
e. The U.S. exchange rate falls.
____ 61. If the U.S. interest rate differential rises, then the effect in the foreign exchange market on the demand for
dollars is that the
a. quantity of dollars demanded decreases.
b. quantity of dollars demanded increases.
c. demand for dollars increases.
d. demand for dollars decreases.
e. demand for dollars does not change and the quantity of dollars demanded also does not
change.
____ 62. In the foreign exchange market, an increase in the supply of dollars could be the result of
a. an increase in the U.S. interest rate differential.
b. an increase in the expected future exchange rate.
c. a decrease in the U.S. interest rate differential.
d. an increase in the exchange rate.
e. a decrease in the exchange rate.
____ 63. If the interest rate rises in the United States relative to other nations, then in the foreign exchange market the
demand for dollars ____ and the supply of dollars ____.
a. increases; increases
b. increases; decreases
c. decreases; increases
d. decreases; decreases
e. does not change; does not change
____ 64. If the equilibrium exchange rate of the dollar is 110 yen per dollar and currently the exchange rate is 90 yen
per dollar, then there is a ____ of dollars that leads to ____.
a. surplus; a rise in the exchange rate
b. shortage; the demand curve for dollars shifting rightward
c. surplus; the supply curve of dollars shifting leftward
d. shortage; a rise in the exchange rate
e. shortage; the supply curve of dollars shifting rightward
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Name: ________________________
ID: A
____ 65. Exchange rate changes are
a. not very volatile because of offsetting changes in demand and supply.
b. very volatile because of government intervention in the market.
c. not very volatile because of government intervention.
d. very volatile because supply and demand changes reinforce each other.
e. infrequent because the exchange rate rarely changes.
____ 66. In the foreign exchange market, an increase in the U.S. interest rate leads to ____ in the exchange rate
because the supply of dollars ____.
a. rise; increases
b. rise; decreases
c. fall; increases
d. fall; decreases
e. no change; does not change
____ 67. Yesterday, the dollar was trading in the foreign exchange market at 110 yen per dollar. Today, the dollar is
trading at 105 yen per dollar. The dollar has ____ and a possible reason for the change is ____ in the U.S.
interest rate.
a. appreciated; an increase
b. appreciated; a decrease
c. depreciated; an increase
d. depreciated; a decrease
e. depreciated; because there has been no change
____ 68. Yesterday, the dollar was trading in the foreign exchange market at 110 yen per dollar. Today, the dollar is
trading at 120 yen per dollar. The dollar has ____ and a possible reason for the change is ____ in the
expected future exchange rate.
a. appreciated; an increase
b. appreciated; a decrease
c. depreciated; an increase
d. depreciated; a decrease
e. appreciated; because there has been no change
____ 69. Purchasing power parity is defined as
a. a constant value for a currency.
b. an equal value of money across currencies.
c. a currency whose value falls.
d. a currency whose value rises.
e. an equal value of interest rates across currencies.
____ 70. Suppose that a currency's value is found to be overvalued by using purchasing power parity. Then
a. we know when and how much the currency will appreciate.
b. the currency will depreciate in the future but we don't know when.
c. the currency will appreciate in the future but we don't know when.
d. we know when and how much the currency will depreciate.
e. the interest rate in the country will change in order to restore purchasing power parity.
____ 71. If purchasing power parity exists and the exchange rate is 1.50 U.S. dollars per British pound, than a latte that
has a price of $4.00 in San Jose, California, has a price of ____ in London, England.
a. 8.00 pounds
b. 4.00 pounds
c. 6.00 pounds
d. 2.67 pounds
e. 0.37 pounds
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Name: ________________________
ID: A
____ 72. If the interest rate on a bank deposit in the United States is 3 percent while a similar deposit earns 6 percent
in Britain, then we could expect that deposits would flow to
a. Britain regardless of exchange rate expectations.
b. the United States regardless of exchange rate expectations..
c. Britain if the pound is expected to depreciate less than 3 percent.
d. Britain if the pound is expected to depreciate more than 3 percent.
e. the United States if the dollar is expected to appreciate less than 3 percent.
____ 73. If the Fed wants to maintain a dollar exchange rate of 120 yen per dollar but the exchange rate rises, then in
the short run the Fed can
a. sell dollars and buy yen.
b. buy dollars and sell yen.
c. buy dollars and buy yen.
d. sell dollars and sell yen.
e. do nothing.
____ 74. To appreciate the U.S. dollar against the Mexican peso, in the foreign exchange market the Fed could ____
dollars and ____ pesos.
a. buy; buy
b. buy; sell
c. sell; buy
d. sell; sell
e. None of the above answers are correct because the Fed cannot affect the U.S. exchange
rate.
____ 75. If one day the dollar is trading at 100 yen per dollar and the next day the exchange rate is 88 yen per dollar,
one possible factor that might have led to this change is
a. an increase in the U.S. interest rate.
b. an increase in the expected future exchange rate.
c. the Fed selling dollars.
d. the Fed buying dollars.
e. a decrease in the Japanese interest rate.
____ 76. Which of the following generally becomes positive when the value of U.S. exports exceeds the value of U.S.
imports?
a. The exchange rate
b. The balance of payments account
c. Capital account
d. Current account
e. The official settlements account
____ 77. If the exchange rate appreciates, 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
____ 78. 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.
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Name: ________________________
ID: A
____ 79. If the prices for the same goods and services are different 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.
____ 80. If the U.S. dollars 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 tariffs
c. sell dollars in the foreign exchange market
d. buy dollars in the foreign exchange market
e. buy Euros in the foreign exchange market
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