McqMate
Chapters
| 1. |
On the balance-of-payments statements, merchandise imports are classified in the: |
| A. | Current account |
| B. | Capital account |
| C. | Unilateral transfer account |
| D. | Official settlements account |
| Answer» A. Current account | |
| 2. |
The balance of international indebtedness is a record of a country’s international: |
| A. | Investment position over a period of time |
| B. | Investment position at a fixed point in time |
| C. | Trade position over a period of time |
| D. | Trade position at a fixed point in time |
| Answer» B. Investment position at a fixed point in time | |
| 3. |
Which balance-of-payments item does not directly enter into the calculation of the U.S.gross domestic product? |
| A. | Merchandise imports |
| B. | Shipping and transportation receipts |
| C. | Direct foreign investment |
| D. | Service exports |
| Answer» C. Direct foreign investment | |
| 4. |
Which of the following is considered a capital inflow? |
| A. | A sale of U.S. financial assets to a foreign buyer |
| B. | A loan from a U.S. bank to a foreign borrower |
| C. | A purchase of foreign financial assets by a U.S. buyer |
| D. | A U.S. citizen’s repayment of a loan from a foreign bank |
| Answer» A. A sale of U.S. financial assets to a foreign buyer | |
| 5. |
Which of the following would call for inpayments to the United States? |
| A. | American imports of German steel |
| B. | Gold flowing out of the United States |
| C. | American unilateral transfers to less-developed countries |
| D. | American firms selling insurance to British shipping companies |
| Answer» D. American firms selling insurance to British shipping companies | |
| 6. |
In a country’s balance of payments, which of the following transactions are debits? |
| A. | Domestic bank balances owned by foreigners are decreased |
| B. | Foreign bank balances owned by domestic residents are decreased |
| C. | Assets owned by domestic residents are sold to nonresidents |
| D. | Securities are sold by domestic residents to nonresidents |
| Answer» A. Domestic bank balances owned by foreigners are decreased | |
| 7. |
Which of the following is classified as a credit in the U.S. balance of payments? |
| A. | U.S. exports |
| B. | U.S. gifts to other countries |
| C. | A flow of gold out of the U.S. |
| D. | Foreign loans made by U.S. companies |
| Answer» A. U.S. exports | |
| 8. |
What is "immiserizing growth"? |
| A. | Export-biased growth that worsens terms of trade so that a country is worse off as a result. |
| B. | The specialization of low-income countries in production of low-wage products. |
| C. | Trade that hurts the poorest group of people. |
| D. | Improvement in a country's terms of trade at the expense of other countries. |
| Answer» A. Export-biased growth that worsens terms of trade so that a country is worse off as a result. | |
| 9. |
What is the "transfer problem"? |
| A. | The fact that international transfers affect terms of trade when they are not taken into account. |
| B. | Rich countries do not transfer a sufficient amount of money to poor countries. |
| C. | Negative effects on a country that transfers money to others. |
| D. | The severe indebtedness of some low-income countries. |
| Answer» A. The fact that international transfers affect terms of trade when they are not taken into account. | |
| 10. |
Unlike the balance of payments, the balance of international indebtedness indicates the international: |
| A. | Investment position of a country at a given moment in time |
| B. | Investment position of a country over a one-year period |
| C. | Trade position of a country at a given moment in time |
| D. | Trade position of a country over a one-year period |
| Answer» A. Investment position of a country at a given moment in time | |
| 11. |
Which of the following indicates the international investment position of a country at a given moment in time? |
| A. | The balance of payments |
| B. | The capital account of the balance of payments |
| C. | The current account of the balance of payments |
| D. | The balance of international indebtedness |
| Answer» D. The balance of international indebtedness | |
| 12. |
Concerning the U.S. balance of payments, which account is defined in essentially the same way as the net export of goods and services, which comprises part of the country’s gross domestic product? |
| A. | Merchandise trade account |
| B. | Goods and services account |
| C. | Current account |
| D. | Capital account |
| Answer» B. Goods and services account | |
| 13. |
If an American receives dividends from the shares of stock she or he owns in Toyota, Inc., a Japanese firm, the transaction would be recorded on the U.S. balance of payments as a: |
| A. | Capital account debit |
| B. | Capital account credit |
| C. | Current account debit |
| D. | Current account credit |
| Answer» D. Current account credit | |
| 14. |
If the United States government sells military hardware to Saudi Arabia, the transaction would be recorded on the U.S. balance of payments as a: |
| A. | Current account debit |
| B. | Current account credit |
| C. | Capital account debit |
| D. | Capital account credit |
| Answer» B. Current account credit | |
| 15. |
The U.S. balance of trade is determined by: |
| A. | Exchange rates |
| B. | Growth of economies overseas |
| C. | Relative prices in world markets |
| D. | All of the above |
| Answer» D. All of the above | |
| 16. |
U.S. military aid granted to foreign countries is entered in the: |
| A. | Merchandise trade account |
| B. | Capital account |
| C. | Current account |
| D. | Official settlements account |
| Answer» C. Current account | |
| 17. |
If the U.S. faces a balance-of-payments deficit on the current account, it must run a surplus on: |
| A. | The official settlements account |
| B. | The capital account |
| C. | Either the official settlements account or the capital account |
| D. | Both the official settlements account and the capital account |
| Answer» C. Either the official settlements account or the capital account | |
| 18. |
The current account of the U.S. balance of payments does not include: |
| A. | Investment income |
| B. | Merchandise exports and imports |
| C. | The sale of securities to foreigners |
| D. | Unilateral transfers |
| Answer» C. The sale of securities to foreigners | |
| 19. |
The U.S. has a balance of trade deficit when its: |
| A. | Merchandise exports exceed its merchandise imports |
| B. | Merchandise imports exceed its merchandise exports |
| C. | Goods and services exports exceed its goods and services imports |
| D. | Goods and services imports exceed its goods and services exports |
| Answer» B. Merchandise imports exceed its merchandise exports | |
| 20. |
The value to American residents of income earned from overseas investments shows up in which account in the U.S. balance of payments? |
| A. | Current account |
| B. | Trade account |
| C. | Unilateral transfers account |
| D. | Capital account |
| Answer» A. Current account | |
| 21. |
What would be the effects of an export subsidy on oil imposed by Russia? |
| A. | Relative world supply of oil rises and relative world demand falls. |
| B. | Relative world supply of oil falls and relative world demand rises. |
| C. | Relative world supply of and relative world demand for oil rise. |
| D. | Relative world supply of and relative world demand for oil fall. |
| Answer» A. Relative world supply of oil rises and relative world demand falls. | |
| 22. |
What is the Metzler paradox? |
| A. | An export subsidy can lead to an increase in the internal price of the subsidized good. |
| B. | It is the same as immiserizing growth. |
| C. | A tariff on imports can lead to a decline in the internal price of the go |
| Answer» C. A tariff on imports can lead to a decline in the internal price of the go | |
| 23. |
A country that is a net international debtor initially experiences: |
| A. | An augmented savings pool available to finance domestic spending |
| B. | A higher interest rate, which leads to lower domestic investment |
| C. | A loss of funds to trading partners overseas |
| D. | A decrease in its services exports to other countries |
| Answer» A. An augmented savings pool available to finance domestic spending | |
| 24. |
Credit (+) items in the balance of payments correspond to anything that: |
| A. | Involves receipts from foreigners |
| B. | Involves payments to foreigners |
| C. | Decreases the domestic money supply |
| D. | Increases the demand for foreign exchange |
| Answer» A. Involves receipts from foreigners | |
| 25. |
Debt (–) items in the balance of payments correspond to anything that: |
| A. | Involves receipts from foreigners |
| B. | Involves payments to foreigners |
| C. | Increases the domestic money supply |
| D. | Decreases the demand for foreign exchange |
| Answer» B. Involves payments to foreigners | |
| 26. |
When all of the debit or credit items in the balance of payments are combined: |
| A. | Merchandise imports equal merchandise exports |
| B. | Capital imports equal capital exports |
| C. | Services exports equal services imports |
| D. | The total surplus or deficit equals zero |
| Answer» D. The total surplus or deficit equals zero | |
| 27. |
In the balance of payments, the statistical discrepancy is used to: |
| A. | Ensure that the sum of all debits matches the sum of all credits |
| B. | Ensure that trade imports equal the value of trade exports |
| C. | Obtain an accurate account of a balance-of-payments deficit |
| D. | Obtain an accurate account of a balance-of-payments surplus |
| Answer» A. Ensure that the sum of all debits matches the sum of all credits | |
| 28. |
All of the following are credit items in the balance of payments, except: |
| A. | Investment inflows |
| B. | Merchandise exports |
| C. | Payments for American services to foreigners |
| D. | Private gifts to foreign residents |
| Answer» D. Private gifts to foreign residents | |
| 29. |
All of the following are debit items in the balance of payments, except: |
| A. | Capital outflows |
| B. | Merchandise exports |
| C. | Private gifts to foreigners |
| D. | Foreign aid granted to other nations |
| Answer» B. Merchandise exports | |
| 30. |
If the central bank purchases assets, it will result in: |
| A. | An increase in the central bank's net worth. |
| B. | A decline in the central bank's net worth. |
| C. | An increase in the money supply. |
| D. | A decline in the money supply. |
| Answer» C. An increase in the money supply. | |
| 31. |
If there is a decline in output, to keep the exchange rate fixed, the central bank has to: |
| A. | Sell domestic assets. |
| B. | Purchase foreign assets. |
| C. | Sell foreign assets. |
| D. | Purchase domestic assets. |
| Answer» C. Sell foreign assets. | |
| 32. |
What is the effect of an increase in taxes under fixed exchange rates and perfect asset substitutability in the short run? |
| A. | A decline in output and no change in interest rates. |
| B. | A decline in output and interest rates. |
| C. | An increase in output and no change in interest rates. |
| D. | An increase in output and interest rates. |
| Answer» C. An increase in output and no change in interest rates. | |
| 33. |
What is the effect of a currency devaluation under fixed exchange rates in the short run? |
| A. | A decline in output. |
| B. | A decline in foreign reserves. |
| C. | An increase in exports. |
| D. | An increase in imports. |
| Answer» C. An increase in exports. | |
| 34. |
Reducing a current account deficit requires a country to: |
| A. | Increase the government’s deficit and increase private investment relative to saving |
| B. | Increase the government’s deficit and decrease private investment relative to saving |
| C. | Decrease the government’s deficit increase private investment relative to saving |
| D. | Decrease the government’s deficit and decrease private investment relative to saving |
| Answer» D. Decrease the government’s deficit and decrease private investment relative to saving | |
| 35. |
Reducing a current account surplus requires a country to: |
| A. | Increase the government’s deficit and increase private investment relative to saving |
| B. | Increase the government’s deficit and decrease private investment relative to saving |
| C. | Decrease the government’s deficit and increase private investment relative to saving |
| D. | Decrease the government’s deficit and decrease private investment relative to saving |
| Answer» A. Increase the government’s deficit and increase private investment relative to saving | |
| 36. |
Concerning a country’s business cycle, rapid growth of production and employment is commonly associated with: |
| A. | Large or growing trade deficits and current account deficits |
| B. | Large or growing trade deficits and current account surpluses |
| C. | Small or shrinking trade deficits and current account deficits |
| D. | Small or shrinking trade deficits and current account surpluses |
| Answer» A. Large or growing trade deficits and current account deficits | |
| 37. |
The burden of a current account deficit would be the least if a nation uses what it borrows to finance: |
| A. | Unemployment compensation benefits |
| B. | Social Security benefits |
| C. | Expenditures on food and recreation |
| D. | Investment on plant and equipment |
| Answer» D. Investment on plant and equipment | |
| 38. |
A major difference between the spot market and the forward market is that the spot market deals with: |
| A. | The immediate delivery of currencies |
| B. | The merchandise trade account |
| C. | Currencies traded for future delivery |
| D. | Hedging of international currency risks |
| Answer» A. The immediate delivery of currencies | |
| 39. |
The relationship between the exchange rate and the prices of tradable goods is known as the: |
| A. | Purchasing-power-parity theory |
| B. | Asset-markets theory |
| C. | Monetary theory |
| D. | Balance-of-payments theory |
| Answer» A. Purchasing-power-parity theory | |
| 40. |
Low real interest rates in the United States tend to: |
| A. | Decrease the demand for dollars, causing the dollar to depreciate |
| B. | Decrease the demand for dollars, causing the dollar to appreciate |
| C. | Increase the demand for dollars, causing the dollar to depreciate |
| D. | Increase the demand for dollars, causing the dollar to appreciate |
| Answer» A. Decrease the demand for dollars, causing the dollar to depreciate | |
| 41. |
Assume that the United States faces an 8 percent inflation rate while no (zero) inflation existsin Japan. According to the purchasing-power-parity theory, the dollar would be expected to: |
| A. | Appreciate by 8 percent against the yen |
| B. | Depreciate by 8 percent against the yen |
| C. | Remain at its existing exchange rate |
| D. | None of the above |
| Answer» B. Depreciate by 8 percent against the yen | |
| 42. |
Suppose Mexico and the United States were the only two countries in the world. There exists anexcess supply of pesos on the foreign exchange market. This suggests that: |
| A. | Mexico’s current account is in surplus |
| B. | Mexico’s current account is in deficit |
| C. | The U.S. current account is in deficit |
| D. | The U.S. current account is in equilibrium |
| Answer» B. Mexico’s current account is in deficit | |
| 43. |
If Canada runs a current account surplus and exchange rates are floating: |
| A. | The value of other currencies will rise relative to the dollar |
| B. | The dollar will depreciate relative to other currencies |
| C. | The price of foreign goods will become cheaper for Canadians |
| D. | The price of foreign goods will rise for Canadians |
| Answer» C. The price of foreign goods will become cheaper for Canadians | |
| 44. |
Gold standard means: |
| A. | Currency of the country is made of gold |
| B. | Paper currency is not used |
| C. | Currency of the country is freely convertible into gold |
| D. | (a) & (c) of above |
| Answer» D. (a) & (c) of above | |
| 45. |
If a country decreases the external value of its currency, it will affect: |
| A. | Volume of exports |
| B. | Volume of imports |
| C. | General price level |
| D. | All of the above |
| Answer» D. All of the above | |
| 46. |
Rich countries have deficit in their balance of payments: |
| A. | Sometimes |
| B. | Never |
| C. | Alternate years |
| D. | Always |
| Answer» A. Sometimes | |
| 47. |
Balance of payments means: |
| A. | The balance of receipts and payments of all banks |
| B. | The balance of receipts and payments of State Bank |
| C. | The balance of receipts and payments of foreign exchange by a country |
| D. | The balance of govt. receipts and payments |
| Answer» C. The balance of receipts and payments of foreign exchange by a country | |
| 48. |
Assume a two-country world: Country A and Country B. Which of the following is correct about purchasing power parity (PPP) as related to these two countries? |
| A. | If Country A's inflation rate exceeds Country B's inflation rate, Country A's currency will weaken. |
| B. | If Country A's interest rate exceeds Country B's inflation rate, Country A's currency will weaken. |
| C. | If Country A's interest rate exceeds Country B's inflation rate, Country A's currency will strengthen. |
| D. | If Country B's inflation rate exceeds Country A's inflation rate, Country A's currency will weaken. |
| Answer» A. If Country A's inflation rate exceeds Country B's inflation rate, Country A's currency will weaken. | |
| 49. |
The international Fisher effect (IFE) suggests that: |
| A. | a home currency will depreciate if the current home interest rate exceeds the current foreign interest rate. |
| B. | a home currency will appreciate if the current home interest rate exceeds the current foreign interest rate. |
| C. | a home currency will appreciate if the current home inflation rate exceeds the current foreign inflation rate. |
| D. | a home currency will depreciate if the current home inflation rate exceeds the current foreign inflation rate. |
| Answer» A. a home currency will depreciate if the current home interest rate exceeds the current foreign interest rate. | |
| 50. |
According to the IFE, if British interest rates exceed U.S. interest rates: |
| A. | the British pound's value will remain constant. |
| B. | the British pound will depreciate against the dollar. |
| C. | the British inflation rate will decrease. |
| D. | the forward rate of the British pound will contain a premium. |
| Answer» B. the British pound will depreciate against the dollar. | |
| 51. |
If interest rates on the euro are consistently below U.S. interest rates, then for the international Fisher effect (IFE) to hold: |
| A. | the value of the euro would often appreciate against the dollar. |
| B. | the value of the euro would often depreciate against the dollar. |
| C. | the value of the euro would remain constant most of the time. |
| D. | the value of the euro would appreciate in some periods and depreciate in other periods, but on average have a zero rate of appreciation. |
| Answer» A. the value of the euro would often appreciate against the dollar. | |
| 52. |
If interest rate parity holds, then the one-year forward rate of a currency will ______ the predicted spot rate of the currency in one year according to the international Fisher effect. |
| A. | greater than |
| B. | less than |
| C. | equal to |
| D. | answer is dependent on whether the forward rate has a discount or premium |
| Answer» C. equal to | |
| 53. |
You have an opportunity to invest in Australia at an interest rate of 8%. Moreover, you expect the Australian dollar (A$) to appreciate by 2%. Your effective return from this investment is: |
| A. | 8.00%. |
| B. | 10.16%. |
| C. | 6.00%. |
| D. | 5.88%. |
| Answer» B. 10.16%. | |
| 54. |
The balance of payments equals: |
| A. | The difference between household spending and income |
| B. | The difference between government spending and income |
| C. | A measure of the value of economic transactions between residents of a country and the rest of the world |
| D. | The difference between inflation and unemployment |
| Answer» C. A measure of the value of economic transactions between residents of a country and the rest of the world | |
| 55. |
If there were a balance of payments deficit then in a floating exchange rate system: |
| A. | The external value of the currency would tend to fall |
| B. | The external value of the currency would tend to rise |
| C. | The injections from trade are greater than the withdrawals |
| D. | Aggregate demand is increasing |
| Answer» A. The external value of the currency would tend to fall | |
| 56. |
If the value of the pound in other currencies is strong, then other things being equal: |
| A. | The price of UK products abroad in foreign currency will fall |
| B. | The price of UK products abroad in foreign currency will rise |
| C. | The price of UK products in the UK will rise |
| D. | The price of UK products in the UK will fall |
| Answer» B. The price of UK products abroad in foreign currency will rise | |
| 57. |
If the value of the pound in terms of other currencies rises: |
| A. | The spending on UK exports in pounds must rise |
| B. | The spending on UK exports in foreign currency will rise if demand is price elastic |
| C. | The demand for UK exports will rise |
| D. | The spending on UK exports in foreign currency will fall if demand for UK exports is price elastic |
| Answer» D. The spending on UK exports in foreign currency will fall if demand for UK exports is price elastic | |
| 58. |
The supply of pounds to the currency market will be upward sloping if: |
| A. | The demand for UK exports is price elastic |
| B. | The demand for UK exports is price inelastic |
| C. | The demand for imports into the UK is price elastic |
| D. | The demand for imports into the UK is price inelastic |
| Answer» C. The demand for imports into the UK is price elastic | |
| 59. |
A fall in the value of the pound is likely to decrease spending on imports if: |
| A. | The price elasticity of demand for imports is price elastic |
| B. | The price elasticity of demand for imports is price inelastic |
| C. | The price elasticity of demand for imports has a unit price elasticity |
| D. | The price elasticity of demand for exports is price elastic |
| Answer» A. The price elasticity of demand for imports is price elastic | |
| 60. |
If the exchange rate is above the equilibrium level then in a floating exchange rate system: |
| A. | There is excess demand and the exchange rate should fall |
| B. | There is excess supply and the exchange rate should fall |
| C. | There is excess demand and the exchange rate should rise |
| D. | There is excess supply and the exchange rate should rise |
| Answer» B. There is excess supply and the exchange rate should fall | |
| 61. |
If the exchange rate is below the equilibrium level then in a floating exchange rate system: |
| A. | There is excess demand and the exchange rate should fall |
| B. | There is excess supply and the exchange rate should fall |
| C. | There is excess demand and the exchange rate should rise |
| D. | There is excess supply and the exchange rate should rise |
| Answer» C. There is excess demand and the exchange rate should rise | |
| 62. |
A depreciation of a currency occurs when: |
| A. | The value of the currency falls |
| B. | The value of the currency increases |
| C. | Inflation falls |
| D. | The balance of payments improves |
| Answer» A. The value of the currency falls | |
| 63. |
An appreciation of the currency is likely to occur if: |
| A. | Domestic interest rates fall |
| B. | There is an increase in demand for imports |
| C. | There is an increase in demand for exports |
| D. | There is an increase in the balance of payments deficit |
| Answer» C. There is an increase in demand for exports | |
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