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Multiple Choice Quiz
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1
If a British citizen buys $50,000 worth of U.S. Treasury bills, the transaction will be recorded as
A)a surplus item in the U.S. current account
B)a surplus item in the U.S. capital account
C)an increase in U.S. net exports
D)a decrease in Great Britain's GDP
2
Which of the following items is a surplus item in the balance of payments for the United Sates?
A)a U.S. car dealer buys 20 BMWs from Germany and sells them at a profit in the U.S.
B)a U.S. citizen deposits funds in a bank in the Bahamas
C)a German firm pays to get a license for the use of American technology
D)Bill Gates buys himself a small island off the coast of Indonesia
3
An exchange rate system in which central banks always are ready to buy and sell their currency at a predetermined price is called
A)a dirty floating exchange rate system
B)a fixed exchange rate system
C)a managed exchange rate system
D)a flexible exchange rate system
4
If the price level of U.S. goods is P = 110, the price level of foreign goods is Pf = 220, and the dollar price of foreign currency is e = 1.20, what is the real exchange rate?
A)R = 0.50
B)R = 0.60
C)R = 1.20
D)R = 2.40
5
If the U.S. real exchange rate is less than 1, we can expect that
A)the relative demand for U.S. goods will rise
B)the price level in the U.S. is likely to increase rapidly until we reach purchasing power parity
C)the real exchange rate has to decrease until we reach purchasing power parity
D)a market basket of goods in the U.S. is more expensive than the same market basket of goods abroad
6
The concept of relative purchasing power parity implies that
A)the real exchange rate adjusts slowly to its long-run average level
B)the domestic price level will change rapidly until the real exchange rate is equal to 1
C)the relative demand for domestic goods will rise if the real exchange rate is below 1
D)the long-run relative price level of domestic to foreign goods (P/Pf) is equal to 1
7
Restrictive monetary policy in the U.S.
A)lowers the value of the U.S. dollar relative to other currencies
B)increases the value of the U.S. dollar relative to other currencies
C)increases U.S. net exports
D)should not have any effect on the U.S. trade balance
8
In a fixed exchange rate system with perfect capital mobility, monetary policy
A)is more effective than fiscal policy in changing the level of national income
B)is ineffective in changing the level of national income
C)is very effective in changing domestic interest rates
D)can be used to change domestic interest rates but not to change national income
9
In a model with flexible exchange rates and perfect capital mobility, restrictive fiscal policy is likely to cause
A)an appreciation of the domestic currency
B)a decrease in the current account surplus
C)an increase in net exports
D)an inflow of funds
10
A country that follows a beggar-thy-neighbor policy
A)induces an exchange rate depreciation to increase domestic output via monetary policy
B)uses fiscal policy to increase its competitiveness on world markets
C)imposes a tariff on imported goods
D)tries to benefit from an increase in world demand by selling domestic products at higher prices





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