Sample/practice exam 31 March, questions and answers PDF

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The larger the current account surplus, the A. larger the total account surplus. B. larger the capital account deficit. C. greater the depreciation of the dollar. D. larger the balance of merchandise trade deficit. B. larger the capital account deficit. If the current account is in a deficit, the capital account A. will be in a surplus. B. can either be a deficit or surplus. C. will be in a deficit. D. will be in balance. A.will be in a surplus. The demand for yuan by Americans is also A. a supply of yuan B. a demand for Chinese securities. C. a demand for dollars. D.a supply of dollars. D. a supply of dollars.

From the perspective of the U.S.., the demand for the Israel by American residents is primarily derived from A.imports and exports for all countries. B. imports from Israel C. exports to Israel D.imports from and exports to Israel B.imports from Israel

What is the difference between the balance of trade and the balance of payments? A. Both the balance of trade and the balance of payments consider exports and imports, while the balance of payments also includes cross-border exchange of services, income and financial assets. B. Only the balance of payments includes exports and imports. C. Only the balance of trade includes exports and imports. D.Both the balance of trade and the balance of payments consider exports and imports, while the balance of trade also includes cross-border exchange of services, income and financial assets.

A.Both the balance of trade and the balance of payments consider exports and imports, while the balance of payments also includes cross-border exchange of services, income and financial assets.

Some Europeans visit Australia land travel to several tourist areas. Their spending while in Australia A.has no effect on the Australian balance of payments. B.will make the Australian current account deficit larger. C.will increase Australian exports of services. D.will increase Australian imports of goods. C.will increase Australian exports of services.

The exchange rate type in which a country "fixes" its exchange rate to another country's currency, but allows its par value to change at regular intervals, is referred to as A.a dirty float. B.a target zone. C.a fixed exchange rate. D.a crawling peg. D.a crawling peg.

Central banks can keep exchange rates fixed as long as A.the IMF would allow them to do so. B.they have enough foreign exchange reserves to deal with potentially long-run changes in the demand or supply of its currency. C.the central banks of each country are able to get the approval from the commercial banks of their respective countries. D.there is a constant amount of gold in the world. B.they have enough foreign exchange reserves to deal with potentially long-run changes in the demand or supply of its currency.

Under the gold standard, the world supply of money A.could be expanded by open market operations just as it is today. B.was constrained in its growth by the frequency and amount of new discoveries of gold. C.could be expanded or contracted by any country depending upon whether they had balance of payments surpluses or

deficits. D.None of the above. B.was constrained in its growth by the frequency and amount of new discoveries of gold.

Under the Bretton Woods system, exchange rates were A.flexible and determined by the laws of supply and demand. B.fixed by agreement and governments had to intervene in foreign exchange markets when the value of their currency went beyond 1% of its declared par value. C.sometimes fixed and sometimes fully flexible depending upon the price of gold. D.None of the above. B.fixed by agreement and governments had to intervene in foreign exchange markets when the value of their currency went beyond 1% of its declared par value.

What is the difference between a deficit item and a surplus item in the balance of payments? A. A deficit item is when a transaction leads to a payment by a country and a surplus item is when a transaction leads to a

receipt by a country. B.A deficit item is when a country imports more than it exports while a surplus item is when a country exports more than it imports. C.A surplus item is when a transaction leads to a payment by a country and a deficit item is when a transaction leads to a receipt by a country. D.A deficit item is when a country exports more than it imports while a surplus item is when a country imports more than it exports. A.A deficit item is when a transaction leads to a payment by a country and a surplus item is when a transaction leads to a receipt by a country.

the range of permitted exchange rate fluctuations between upper and lower bounds is referred to as the A.target zone. B.flexability range. C.gold points. D.exchange zone.

A. target zone.

Nations manage their currency's exchange rate within this target zone by A.buying and selling corporate bonds. B.open market operations. C.buying and selling foreign exchange. D.buying and selling of government securities. C.buying and selling foreign exchange.

How are flexible exchange rates determined? A.The exchange rate is determined where the current account is equal to the capital account. B.The exchange rate is determined where the quantity of a currency demanded is equal to the quantity supplied of the currency. C.The exchange rate is determined where the quantity of exports demanded is equal to the quantity supplied of exports. D.The exchange rate is determined where the quantity of exports demanded is equal to the quantity supplied of imports.

B.The exchange rate is determined where the quantity of a currency demanded is equal to the quantity supplied of the currency.

A problem associated with flexible exchange rates is A.government control over the exchange rate. B.hedging. C.foreign exchange risk. D.the inability for an economy to compete against foreign substitutes. C.foreign exchange risk.

Which of the following statements is consistent with both the gold standard and the Bretton Woods agreement? A.Exchange rate risk was a serious problem under both exchange rate systems. B.Active monetary policy could not be pursued by a single economy. C.Each exchange rate system was based on flexible exchange rates. D.increases in the money supply do not cause inflation.

B.Active monetary policy could not be pursued by a single economy.

Under the gold standard, if a country had a balance of payments deficit A.national output and prices would fall discouraging imports and encouraging exports leading to an improvement in the balance of payments. B.gold would flow out of that country and the domestic money supply would contract. C.interest rates would rise which would attract foreign capital and lead to an improvement in the balance of payments. D.All of the above. D.All of the above.

The agency which functions as a "lender of last resort" for national governments is the International Trade Organization. World Trade Organization. World Trade Fund. International Monetary Fund. International Monetary Fund.

The major factor affecting a nation's balance of payments is an increase in its rate of unemployment. a change in the productivity of its labor. its rate of inflation relative to the rate of inflation of its trading partners. its stock market movements. its rate of inflation relative to the rate of inflation of its trading partners.

The balance of trade is the summary record of a country's economic transactions with foreigners in a year. the difference between exports and imports of services. the difference between exports and imports of goods and services. none of the above. none of the above.( measure of goods (not services) one country buys and sells with other countries)

The current account is a category of the balance of payments transactions that measures flows of real and financial assets. a category of the balance of payments transactions that measures the exchange of merchandise, the exchange of services, and unilateral transfers. the price of one nation's currency in term of the currency of another country. the reserve assets created by the International Monetary Fund for countries to use in settling international payment obligations. a category of the balance of payments transactions that measures the exchange of merchandise, the exchange of services, and unilateral transfers.

The United States' balance of payments is likely to improve when the American government increases its spending on foreign aid. the inflation rate in the United States rises relative to other countries. American people want to invest more in foreign countries. there is an increase in political instability in other countries.

the American government increases its spending on foreign aid.

Exchanging dollars for euros to pay a computer manufacturer in Belgium would occur in the letter of credit market. at the Federal Reserve. in the foreign exchange market. at the European Central Bank. in the foreign exchange market.

Flexible exchange rates are determined by the forces of supply and demand. the government of the exporting country. the government of the importing country. the IMF. the forces of supply and demand.

If U.S. residents boycotts French goods, this will reduce the demand for euros in the foreign exchange market. cause the euro to appreciate. have no effect on the euro.

increase the demand for euros in the foreign exchange market. reduce the demand for euros in the foreign exchange market

The foreign exchange market is the decrease in the exchange value of one nation's currency in terms of another nation. a market in which households, firms, and governments buy and sell national currencies. a market in which exchange rates are allowed to fluctuate in the open market in response to changes in supply and demand. the increase in the exchange value of one nation's currency in terms of an other nation. Save a market in which households, firms, and governments buy and sell national currencies. Flexible exchange rates occur when speculators bet that a currency will soon depreciate. no one knows the true value of a currency. governments and central banks spend foreign exchange to prop an exchange rate at a certain level. exchange rates are determined by forces of supply and demand.

An alleged advantage of flexible over fixed exchange rates is: A. Trade promotion B. Continuous adjustments in BOP payments and hence smaller adjustment costs C. Price discipline D. Price deflation

E. Destabilizing speculation F. All of the above Answer: B

Fixed exchange rates are: A. Appropriate for nations subject to external shocks B. Appropriate for nations not subject to external and internal shocks C. Appropriate for nations subject to internal shocks D. Appropriate for nations subject to both external and internal shocks Answer: C

Fixed exchange rates can bring automatic adjustments to the BOP only when A. Prices are flexible in both directions B. Prices are inflexible downward C. Prices are flexible upward only D. Prices are set by the government Answer: A

Other things being constant, the volume of trade is more likely to be A. Smaller under a flexible than under a fixed exchange rate system B. Volatile under a fixed than under a flexible exchange rate system C. Equal under both exchange rate systems D. Smaller under a currency board Answer: A

The flexible exchange rate system is more appropriate for economies that are subject to

A. External shocks B. Internal shocks C. No internal or external shocks D. None of the above Answer: A

Price discipline is: A. A characteristic of the flexible rate system as argued by the advocates of the fixed rates B. Greater under a flexible than under a fixed exchange rate system C. About the same under a fixed as under a flexible exchange rate system D. Is unrelated to the type of exchange rate system E. None of the above Answer: E

The advocates of the flexible exchange rate system argued that the fixed exchange rate system is more likely to: A. Impose smaller adjustment costs B. Result in Large fluctuations in exchange rates

C. Impose larger adjustment costs D. Cause a ratchet effect E. (A) and (C) and (D) Answer: C

Which of the following statements is correct with respect to fixed exchange rates? A. They insulate the domestic economy from external shocks much more than flexible exchange rates B. They are particularly attractive to nations subject to large external shocks C. They provide less stability to an open economy subject to large internal shocks D. They are particularly attractive to nations that are engaged in less trade with the rest of the world E. None of the above Answer: E

A successful optimum currency area requires A. Considerable coordination in fiscal and monetary policies among member nations

B. Limited factor mobility among member nations C. Nations should share the same priorities with respect to BOP D. Nations should share the same priorities with respect to internal and external balances E. (A), (C), (D) but not (B) F. (A), (B), (C) and (D) Answer: E

The formation of an optimum currency area is more likely to be beneficial: A. When there is considerable factor mobility of resources among member nations B. When nations are highly integrated C. When member nations are more willing to closely coordinate their fiscal, monetary and other policies D. When nations use a common currency E. All of the above F. None of the above Answer: E

The exchange rates of the member nations with nonmember nations in an optimum currency area are: A. Adjustable pegs with wide bands B. Adjustable pegs with narrow bands C. Managed flexible D. Crawling pegs Answer: C

The European Monetary System was or resembled a: A. Fixed exchange rate system B. Managed floating exchange rate system C. Crawling peg system D. Freely flexible exchange rate system Answer: A

The European Monetary System was established to A. Remove the trade balance deficits of the member nations B. Facilitate the move towards the ultimate goal of creating a common currency C. Facilitate the creation of a community-wide central bank. D. Increase the economic power the EC in trade negotiations

\E. All of the above F. Only (B) and (C) Answer: F

The European Monetary Cooperation Fund (EMCF) was established to: A. Facilitate the creation of a community-wide central bank. B. Promote trade among the member nations C. Help the formation of EMS D. Facilitate the creation of Euro E. Observe the fixed exchange rate between the domestic currency of member nations and ECU F. Help nations facing BOP difficulties Answer: F

Which of the following statements is false with regard to countries of the European Union? A. Most countries have adopted a single currency. B. They have established a single central bank.

C. Conduct a common fiscal policy. D. Conduct a single monetary policy. Answer: C

The main objective of the European Central Bank is: A. Implementing fiscal policy for the government B. Printing money C. Price stability D. Implementing exchange rate policies

E. (B) and (D) but not (C) Answer: C

When Panama dollarized its economy, it essentially: A. Abandoned its ability to balance the government budget B. Allowed the Federal Reserve to be its lender of last resort C. Allowed the Federal Reserve to regulate its commercial banks D. Accepted the monetary policy of the Federal Reserve Answer: D

A currency board is a monetary authority that: A. Is in charge of controlling inflation B. Regulates the commercial banks and conducts monetary policy C. Issues the national currency and exchanges them for foreign currency at a fixed exchange rate D. Gradually replaces the domestic currency for the US dollar to fight inflation E. Issues that the national currency and exchanges them for foreign currency at a fixed rate. But eventually the US dollar replaces the national currency F. Is in charge of stabilizing the interest rates Answer: C

The policy of changing par values by small preannounced amounts at frequent intervals until the equilibrium exchange rate is achieved is called A. Dirty float B. Managed float C. Adjustable peg D. Crawling peg

Answer: D

In the adjustable peg system

A. The government lets market forces determine the exchange rate B. The government has to constantly intervene to make sure that the exchange rate does not deviate from the par value C. The government lets the exchange rate change by small amounts every time period to avoid a large change in the exchange rate D. The government stipulates that the par value will change if there is a fundamental disequilibrium in the BOP E. None of the above Answer: D

The policy of intervening in the foreign exchange market to smooth out short-run fluctuations in a managed flexible exchange rate system is called: A. Dollarization B. Leaning against the wind

C. Dirty flexible exchange rate D. Adjustable peg E. Fixed exchange rate system with a defined band Answer: B

International macroeconomic policy coordination has become more useful and essential in recent decades because: A. The interdependence among countries has increased B. The volume of trade has grown more rapidly than GDP C. Of the large increase in international capital flows D. All of the above E. (A) and (B) Answer: D...