Download Practice 40

Mod 40-44 Practice Problems
Multiple Choice
Identify the choice that best completes the statement or answers the question.
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1. A trade surplus occurs:
A. during economic contractions only.
B. when the value of goods and services a country imports exceeds the value of goods and
services it exports.
C. when the value of goods and services a country imports is less than the value of goods and
services it exports.
D. when unemployment is rising.
E. when the government collects more tax revenues than it spends in a year.
Exports of goods and services
Imports of goods and services
Income receipts from abroad
Income receipts to foreigners
Transfers
Table 41-2: Balance of Payment
$1425 billion
$1800 billion
$420 billion
$400 billion
$0
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2. Use Table 41-2. The country's balance of payments on the current account is:
A. $355 billion.
B. –$395 billion.
C. $375 billion.
D. –$355 billion.
E. –$400 billion.
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3. If asset owners in Japan and the United States consider Japanese and U.S. assets as good substitutes for each
other and the U.S. interest rate is 5% and the Japanese interest rate is 2%, then all of the following will occur
EXCEPT:
A. financial inflows will reduce the U.S. interest rate.
B. financial outflows will increase the Japanese interest rate.
C. the interest rate gap between the United States and Japan will be eliminated.
D. loanable funds will be exported from the U.S. to Japan
E. the interest rate in the United States will equal the interest rate in Japan.
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4. When the value of a sterling pound changes from US$1.50 to US$2.00, it follows that the:
A. U.S. dollar has depreciated.
B. British pound has depreciated.
C. U.S. dollar has appreciated.
D. value of a U.S. dollar has gone from £0.5 to £0.6.E. products made in Britain have just
doubled in price for American consumers.
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5. If the U.S. dollar changes from $1.00 = 1€ to $0.80 = 1€, then:
A. the dollar has depreciated relative to the euro.
B. the dollar has been fixed by the United States and the euro bloc.
C. the dollar has appreciated relative to the euro.
D. U.S. goods are now cheaper in the euro bloc.
E. American consumers will decrease purchases of goods produced in the euro bloc.
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6. Suppose that in a particular year, the Japanese yen falls from 800 yen to the dollar to 1,200 yen to the dollar,
the price level in Japan increases by 50%, but there is no change in the price level in the United States. Which
of the following is true?
A. The nominal exchange rate of the yen has appreciated against the dollar.
B. The nominal exchange rate of the dollar as depreciated against the yen.
C. The real exchange rate of the yen has decreased.
D. The real exchange rate has remained unchanged.
E. The real exchange rate of the yen has increased.
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7. When a country's currency depreciates:
A. that country’s trade balance begins to decline.
B. the country's exports will fall.
C. the country's imports will rise.
D. foreign goods become cheaper.
E. foreigners find this country's goods to be relatively cheaper.
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8. The nominal exchange rate:
A. is adjusted for inflation.
B. always equals the purchasing power parity.
C. is unadjusted for inflation.
D. impacts the current account.
E. can never decline.
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9. A floating exchange rate:
A. retains the ability of monetary policy to help stabilize the economy.
B. reduces the ability of monetary policy to stabilize the economy.
C. reduces the uncertainty faced by business firms.
D. makes foreign goods easier to price.
E. neutralizes the effectiveness of monetary policy.
____ 10. Assume a country has adopted a floating exchange rate regime and the central bank decides to engage in a
contractionary monetary policy. Which of the following is LIKELY to occur?
A. The country's currency will depreciate.
B. Interest rates will rise, the currency will appreciate, and this will have the effect of closing
any inflationary gap that might exist.
C. Interest rates will fall, which will result in a reduction of aggregate demand.
D. This will have the effect of making net exports larger.
E. The financial account will move toward a deficit balance.
Mod 40-44 Practice Problems
Answer Section
MULTIPLE CHOICE
1. ANS:
SKL:
2. ANS:
SKL:
3. ANS:
SKL:
4. ANS:
SKL:
5. ANS:
SKL:
6. ANS:
SKL:
7. ANS:
SKL:
8. ANS:
SKL:
9. ANS:
SKL:
10. ANS:
SKL:
C
PTS:
Fact-Based
D
PTS:
Critical Thinking
D
PTS:
Critical Thinking
A
PTS:
Critical Thinking
C
PTS:
Critical Thinking
D
PTS:
Analytical Thinking
E
PTS:
Concept-Based
C
PTS:
Fact-Based
A
PTS:
Fact-Based
B
PTS:
Critical Thinking
1
DIF: E
REF: Module 41
1
DIF: M
REF: Module 41
1
DIF: D
REF: Module 41
1
DIF: E
REF: Module 42
1
DIF: M
REF: Module 42
1
DIF: D
REF: Module 42
1
DIF: M
REF: Module 42
1
DIF: E
REF: Module 42
1
DIF: M
REF: Module 43
1
DIF: M
REF: Module 44