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The following table contains hypothetical data for the U.S. balance of payments in a particular year. Answer the next question on the basis of this information. All figures are in billions of dollars.
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Refer to the above data. The U.S. balance on current account is a: |
| | A) | deficit of $10 billion. |
| | B) | deficit of $25 billion. |
| | C) | deficit of $35 billion. |
| | D) | surplus of $10 billion. |
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| 2 | |
Consider the following hypothetical exchange rates: $1 = .50 British pounds; 1 Chinese yuan = $.10. We can conclude that 1 pound trades for: |
| | A) | 10 yuan. |
| | B) | 5 yuan. |
| | C) | 1 yuan. |
| | D) | 20 yuan. |
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| 3 | |
If Nokia (a Finnish telephone manufacturer) purchases a production facility in the U.S., this will be recorded in the U.S. balance of payments as a: |
| | A) | debit in the current account. |
| | B) | foreign currency outflow. |
| | C) | credit in the capital and financial account. |
| | D) | credit in the reserve account. |
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| 4 | |
Use the following diagram to answer the next question:
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Refer to the diagram. At the equilibrium exchange rate: |
| | A) | $1 will buy 20 pesos. |
| | B) | $1 will buy 5 pesos. |
| | C) | 95 pesos will buy one dollar. |
| | D) | 5 pesos will buy one dollar. |
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Use the following diagram to answer the next question:
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Refer to the diagram. Suppose the U.S. increases its imports from Mexico. All else equal, this would: |
| | A) | shift the demand curve to the left, causing the dollar to depreciate. |
| | B) | shift the demand curve to the right, causing the dollar to depreciate. |
| | C) | shift the supply curve to the right, causing the dollar to appreciate. |
| | D) | shift the supply curve to the left, causing the peso to appreciate. |
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| 6 | |
Suppose that Canada and Mexico allow their currencies to float. Other things equal, if the Canadian central bank raises Canadian interest rates relative to Mexican rates: |
| | A) | the Canadian dollar will appreciate relative to the Mexican peso. |
| | B) | Mexico will be forced to accept policies leading to lower unemployment and higher prices. |
| | C) | gold will flow into Canada. |
| | D) | Mexico will be forced to sell official dollar reserves to maintain price stability. |
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| 7 | |
Which of the following is always entered as a negative number in the U.S. balance of payments? |
| | A) | Net transfers |
| | B) | Net investment income |
| | C) | Goods exports |
| | D) | U.S. purchases of assets abroad |
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| 8 | |
If the exchange rate changes so that fewer Swiss francs are required to buy a Mexican peso, then: |
| | A) | the franc has appreciated relative to the peso. |
| | B) | Mexicans will buy more Swiss goods and services. |
| | C) | the franc has depreciated relative to the peso. |
| | D) | gold will flow from Mexico to Switzerland. |
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| 9 | |
If a nation's balance on current account is positive and it has neither a deficit nor surplus in its overall balance of payments: |
| | A) | its imports exceed its exports. |
| | B) | foreign purchases of its assets exceed its purchases of assets abroad. |
| | C) | it has a trade deficit. |
| | D) | it has a capital and financial account deficit. |
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| 10 | |
Suppose the exchange rate is currently $1 = 6 Norwegian kroner. If a basket of groceries costs $150 in the U.S. and there is purchasing power parity, the price of this same basket of groceries in Oslo is: |
| | A) | 25 kroner. |
| | B) | 450 kroner. |
| | C) | 900 kroner. |
| | D) | 1500 kroner. |
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