Economics (McConnell) AP Edition, 19th Edition

Chapter 38: The Balance of Payments, Exchange Rates, and Trade Deficits

Quiz

1
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
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
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
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
5
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
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
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
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
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
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
McConnell Economics Nineteenth Edition Large Cover Image
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