Question 1

Other things equal, a rise in interest rates in one country leads to capital _____ that country, _____ its capital account surplus.

Accepted Answer

A)   flowing into; increasing.
B)   flowing into; shrinking
C)   flowing out of; increasing
D)   flowing out of; shrinkingE) B) and C)
F) A) and D)

Question 2

The balance of trade is(are) :

Accepted Answer

A)   exports of goods and services minus imports of goods and services.
B)   exports of money minus imports of money.
C)   the total amount of exported capital assets.
D)   the total amount of imported capital assets.E) B) and C)
F) A) and C)

Question 3

A country's _____ exchange rate is determined in international currency exchange markets.

Accepted Answer

A)   nominal
B)   fixed
C)   flexible (or floating) 
D)   realE) All of the above
F) B) and C)

Question 4

The buying and selling of foreign currency is:

Accepted Answer

A)   foreign exchange.
B)   foreign trade.
C)   the balance of payments.
D)   the capital account.E) C) and D)
F) B) and C)

Question 5

The International Monetary Fund:

Accepted Answer

A)   was founded by the United Nations.
B)   was founded as part of the Bretton Woods agreements.
C)   was founded by the World Bank.
D)   was founded by the League of Nations.E) A) and B)
F) C) and D)

Question 6

If the dollar appreciates in terms of the euro, it is cheaper for Europeans to purchase U.S. goods.

Accepted Answer

A) True 
 B)False

Question 7

If rising inflation in an economy with fixed exchange rates puts downward pressure on the value of the currency, what action must the government take to maintain fixed exchange rates?

Accepted Answer

A)   lower interest rates to attract more borrowers to the country
B)   buy up more foreign currency, using money that it prints
C)   print more domestic currency to maintain an adequate supply of money
D)   buy up its own currency using foreign reservesE) C) and D)
F) B) and C)

Question 8

Assume that the vertical axis of the graph for the foreign exchange market measures the exchange rate in euros per dollar. As the exchange rate rises:

Accepted Answer

A)   American products become more attractive and more dollars are desired.
B)   the euro can buy more dollars.
C)   American goods become less attractive and fewer dollars are demanded.
D)   the dollar depreciates against the euro.E) None of the above
F) A) and C)

Question 9

Suppose last month 1 British pound could buy US$4. This month, 2 British pounds is equivalent to US$4. From this, we know that:

Accepted Answer

A)   both the U.S. dollar and the British pound appreciated.
B)   the U.S. dollar depreciated and the British pound appreciated.
C)   the U.S. dollar appreciated and the British pound depreciated.
D)   both the U.S. dollar and the British pound depreciated.E) A) and B)
F) All of the above

Question 10

In 2015, U.S. imports totaled about:

Accepted Answer

A)   $2,200 billion.
B)   $2,200 trillion.
C)   $2,700 billion.
D)   $2,700 trillion.E) B) and C)
F) A) and C)

Question 11

As long as assets are perfectly substitutable, an increase in the interest rate in France relative to Canada will cause:

Accepted Answer

A)   capital to move from Canada to France.
B)   capital to move from France to Canada.
C)   an interest rate decrease in Canada.
D)   nothing to happen because the assets are perfectly substitutable.E) B) and C)
F) All of the above

Question 12

If the domestic price level equals the foreign country's price level, the real exchange rate:

Accepted Answer

A)   equals one.
B)   equals the nominal exchange rate.
C)   exceeds the nominal exchange rate.
D)   is less than the nominal exchange rate.E) None of the above
F) A) and B)

Question 13

China's recent policy of currency management has _____ U.S. import prices and _____ U.S. manufacturing employment.

Accepted Answer

A)   decreased; decreased
B)   decreased; increased
C)   increased; decreased
D)   increased; increasedE) B) and D)
F) B) and C)

Question 14

Under a gold standard, if a country's exports exceed its imports, its gold stock _____, leading to a(n)  _____ in expenditures and a(n)  _____ in _____.

Accepted Answer

A)   declines; reduction; reduction; exports
B)   declines; increase; reduction; imports
C)   increases; increase; increase; imports
D)   increases; increase; reduction; importsE) None of the above
F) All of the above

Question 15

The capital account summarizes the flow of money into and out of domestic and foreign assets.

Accepted Answer

A) True 
 B)False

Question 16

The effects of expansionary fiscal and monetary policies differ under a flexible exchange rate system because they have different effects on:

Accepted Answer

A)   aggregate demand.
B)   interest rates.
C)   the long-run aggregate supply.
D)   expectations.E) A) and D)
F) C) and D)

Question 17

Most foreign exchange transactions are carried out:

Accepted Answer

A)   by tourists.
B)   by importers.
C)   for financial or speculative purposes.
D)   by coin collectors.E) B) and D)
F) B) and C)

Question 18

If there is a surplus of euros, then euros will:

Accepted Answer

A)   appreciate.
B)   depreciate.
C)   remain constant.
D)   move to the gold standard.E) B) and D)
F) B) and C)

Question 19

Why have many oil-producing countries stopped pricing oil in U.S. dollars?

Accepted Answer

A)   The supply of alternative forms of energy has increased elsewhere in the world.
B)   The demand for oil has increased in emerging markets that use different currencies.
C)   The U.S. dollar is used more as a reserve currency by central banks worldwide.
D)   Electronic markets have eliminated much of the need for paper currency.E) A) and B)
F) A) and D)

Question 20

The meaning behind "the balance of payments must balance" is that:

Accepted Answer

A)   a deficit in either the current or capital account must be offset by an equal surplus in the other account.
B)   income inflows must equal income outflows.
C)   imports always equal exports.
D)   net transfers equal the trade balance.E) B) and C)
F) C) and D)

Exam 16: Open Economy Macroeconomics

The balance of trade is(are) :

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Most foreign exchange transactions are carried out:

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The meaning behind "the balance of payments must balance" is that:

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The buying and selling of foreign currency is:

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The capital account summarizes the flow of money into and out of domestic and foreign assets.

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Assume that the vertical axis of the graph for the foreign exchange market measures the exchange rate in euros per dollar. As the exchange rate rises:

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If the domestic price level equals the foreign country's price level, the real exchange rate:

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Suppose last month 1 British pound could buy US$4. This month, 2 British pounds is equivalent to US$4. From this, we know that:

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If rising inflation in an economy with fixed exchange rates puts downward pressure on the value of the currency, what action must the government take to maintain fixed exchange rates?

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If the dollar appreciates in terms of the euro, it is cheaper for Europeans to purchase U.S. goods.

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Why have many oil-producing countries stopped pricing oil in U.S. dollars?

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The International Monetary Fund:

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Under a gold standard, if a country's exports exceed its imports, its gold stock _____, leading to a(n) _____ in expenditures and a(n) _____ in _____.

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The effects of expansionary fiscal and monetary policies differ under a flexible exchange rate system because they have different effects on:

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A country's _____ exchange rate is determined in international currency exchange markets.

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If there is a surplus of euros, then euros will:

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Other things equal, a rise in interest rates in one country leads to capital _____ that country, _____ its capital account surplus.

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In 2015, U.S. imports totaled about:

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As long as assets are perfectly substitutable, an increase in the interest rate in France relative to Canada will cause:

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China's recent policy of currency management has _____ U.S. import prices and _____ U.S. manufacturing employment.

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Under a gold standard, if a country's exports exceed its imports, its gold stock ___, leading to a(n) _ in expenditures and a(n) _ in ___.

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Other things equal, a rise in interest rates in one country leads to capital _ that country, _ its capital account surplus.

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China's recent policy of currency management has _ U.S. import prices and _ U.S. manufacturing employment.

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