Question 1

The following table shows the 2012 balance of payments data for the hypothetical nation of Zabella.All figures are in billions of dollars.
Current Account:
 
-Refer to the above data.Zabella's balance on capital account shows a:

Accepted Answer

A)   deficit of $10 billion.
B)   surplus of $5 billion.
C)   deficit of $28 billion.
D)   surplus of $13 billion.E) B) and C)
F) C) and D)

Question 2

Evidence of a chronic balance of payments deficit is:

Accepted Answer

A)   a decline in amount of the nation's currency held by other nations.
B)   an excess of exports over imports.
C)   diminishing reserves of foreign currencies.
D)   an increase in the international value of the nation's currency.E) A) and B)
F) All of the above

Question 3

It may be misleading to label a trade deficit as "unfavourable" or "adverse" because:

Accepted Answer

A)   the multiplier does not apply to a trade deficit.
B)   it increases our aggregate output and employment.
C)   Canadian consumers benefit from a trade deficit during the period it occurs.
D)   all of the above reasons.E) B) and C)
F) C) and D)

Question 4

Assume that Switzerland and Britain have flexible exchange rates.Other things unchanged,if the price level is stable in Britain but Switzerland experiences rapid inflation:

Accepted Answer

A)   gold bullion will flow into Switzerland.
B)   the Swiss franc will depreciate.
C)   the British pound will depreciate.
D)   the Swiss franc will appreciate.E) B) and C)
F) A) and C)

Question 5

If the equilibrium exchange rate changes so that fewer dollars are required to buy a pound,then:

Accepted Answer

A)   Canadians will buy fewer British goods and services.
B)   the pound has appreciated in value.
C)   fewer Canadian goods and services will be demanded by the British.
D)   the dollar has depreciated in value.E) C) and D)
F) All of the above

Question 6

Which of the following countries is a G-8 nation?

Accepted Answer

A)   India
B)   France
C)   Mexico
D)   Saudi ArabiaE) B) and C)
F) A) and B)

Question 7

1 and S1.If the decline in Canadian imports from Mexico described in the previous question occurred under a system of flexible exchange rates: A)  gold would flow from Mexico to Canada. B)  the peso price of dollars would rise from 1/B pesos equals $1 to,1/A pesos equals $1. C)  a problem of rationing a shortage of pesos would arise in Canada. D)  the dollar price of pesos would increase to C dollars equals 1 peso." class="answers-bank-image d-inline" rel="preload" >
-Refer to the above diagram.The initial demand for and supply of pesos are shown by D1 and S1.If the decline in Canadian imports from Mexico described in the previous question occurred under a system of flexible exchange rates:

Accepted Answer

A)   gold would flow from Mexico to Canada.
B)   the peso price of dollars would rise from 1/B pesos equals $1 to,1/A pesos equals $1.
C)   a problem of rationing a shortage of pesos would arise in Canada.
D)   the dollar price of pesos would increase to C dollars equals 1 peso.E) A) and B)
F) None of the above

Question 8

Under the managed floating exchange rate system,a government may be able to reduce the international value of its currency by:

Accepted Answer

A)   selling its currency in the foreign exchange market.
B)   buying its currency in the foreign exchange market.
C)   selling foreign currencies in the foreign exchange market.
D)   increasing its domestic interest rates.E) A) and D)
F) A) and C)

Question 9

The following table shows the 2008 balance of payments statement for Transylvania.All figures are in billions of dollars.
 
-Refer to the above data.In 2008 Transylvania imported more products than it exported.

Accepted Answer

A) True 
 B)False

Question 10

Refer to the diagram below.The initial demand for and supply of pesos are shown by D1 and S1.Suppose Canada reduces its imports of Mexican goods,shifting its demand for pesos from D1 and D2.If Canada was operating under a system of exchange controls that maintains the exchange rate at E,the Canadian government would: 1 and S1.Suppose Canada reduces its imports of Mexican goods,shifting its demand for pesos from D1 and D2.If Canada was operating under a system of exchange controls that maintains the exchange rate at E,the Canadian government would:   A)  find that,at the controlled exchange rate,pesos would be in surplus. B)  be faced with deteriorating terms of trade. C)  be faced with the problem of rationing BG pesos to Canadian importers who want BF pesos. D)  be faced with the problem of rationing BF pesos to Canadian importers who want BG pesos." class="answers-bank-image d-inline" rel="preload" >

Accepted Answer

A)   find that,at the controlled exchange rate,pesos would be in surplus.
B)   be faced with deteriorating terms of trade.
C)   be faced with the problem of rationing BG pesos to Canadian importers who want BF pesos.
D)   be faced with the problem of rationing BF pesos to Canadian importers who want BG pesos.E) A) and B)
F) B) and C)

Question 11

The following table shows the trade between Canada and Transylvania for the year 2012.All figures are in billions of dollars.
 
-Refer to the above information.Canada had a current account:

Accepted Answer

A)   surplus of $3 billion.
B)   deficit of $11 billion.
C)   surplus of $10 billion.
D)   surplus of $15 billion.E) C) and D)
F) B) and D)

Question 12

Refer to the diagram below where D and S are Canada's demand for and supply of Swiss francs.At the equilibrium exchange rate,E,Canada's balance of payments is in equilibrium.A shift of the demand curve to D' might be the result of:

Accepted Answer

A)   a relative decline in interest rates in Switzerland.
B)   a reduction in Canada's relative price level.
C)   a recession in Canada,which slows its rate of growth.
D)   a relative decline in interest rates in Canada.E) All of the above
F) A) and B)

Question 13

The following table shows the trade between Canada and Transylvania for the year 2012.All figures are in billions of dollars.
 
-Refer to the above information.Canada had a balance of services by:

Accepted Answer

A)   surplus of $3 billion.
B)   deficit of $9 billion.
C)   surplus of $15 billion.
D)   deficit of $6 billion.E) B) and C)
F) All of the above

Question 14

The current account on a nation's balance of payments statement includes net investment income.

Accepted Answer

A) True 
 B)False

Question 15

The following table shows the 2008 balance of payments statement for Transylvania.All figures are in billions of dollars.
 
-Refer to the above data.In 2008 Transylvania had a $2 billion balance of trade surplus.

Accepted Answer

A) True 
 B)False

Question 16

A nation which imports more goods and services than it exports is necessarily realizing an international balance of payments deficit.

Accepted Answer

A) True 
 B)False

Question 17

In using exchange controls,a nation attempts to eliminate a balance of payments deficit by:

Accepted Answer

A)   limiting its imports to the dollar value of its exports.
B)   decreasing the nation's domestic price level.
C)   limiting its exports to the dollar value of its imports.
D)   appreciating the value of its currency.E) B) and C)
F) All of the above

Question 18

The following table indicates the dollar price of libras,the currency used in the hypothetical nation of Libra.Assume that a system of flexible exchange rates is in place.
 
-Refer to the above table.The exchange rate is:

Accepted Answer

A)   4 libras for one dollar.
B)   .30 libras for one dollar.
C)   .40 libras for one dollar.
D)   none of the above.E) None of the above
F) C) and D)

Question 19

A system of fixed exchange rates is more likely to give rise to exchange controls than is a system of flexible exchange rates.

Accepted Answer

A) True 
 B)False

Question 20

Assume that Switzerland and Britain have flexible exchange rates.Other things unchanged,if a tight money policy raises interest rates in Britain as compared to Switzerland:

Accepted Answer

A)   gold bullion will flow into Switzerland.
B)   the Swiss franc will depreciate.
C)   the British pound will depreciate.
D)   the Swiss franc will appreciate.E) B) and D)
F) A) and C)

Exam 18: Exchange Rates and the Balance of Payments

Refer to the diagram below where D and S are Canada's demand for and supply of Swiss francs.At the equilibrium exchange rate,E,Canada's balance of payments is in equilibrium.A shift of the demand curve to D' might be the result of:

Correct Answer
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Under the managed floating exchange rate system,a government may be able to reduce the international value of its currency by:

Correct Answer
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The following table indicates the dollar price of libras,the currency used in the hypothetical nation of Libra.Assume that a system of flexible exchange rates is in place. -Refer to the above table.The exchange rate is:

Correct Answer
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The following table shows the 2012 balance of payments data for the hypothetical nation of Zabella.All figures are in billions of dollars. Current Account: -Refer to the above data.Zabella's balance on capital account shows a:

Correct Answer
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The following table shows the 2008 balance of payments statement for Transylvania.All figures are in billions of dollars. -Refer to the above data.In 2008 Transylvania imported more products than it exported.

Correct Answer
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Assume that Switzerland and Britain have flexible exchange rates.Other things unchanged,if the price level is stable in Britain but Switzerland experiences rapid inflation:

Correct Answer
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It may be misleading to label a trade deficit as "unfavourable" or "adverse" because:

Correct Answer
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The current account on a nation's balance of payments statement includes net investment income.

Correct Answer
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-Refer to the above diagram.The initial demand for and supply of pesos are shown by D₁ and S₁.If the decline in Canadian imports from Mexico described in the previous question occurred under a system of flexible exchange rates:

Correct Answer
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A nation which imports more goods and services than it exports is necessarily realizing an international balance of payments deficit.

Correct Answer
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The following table shows the trade between Canada and Transylvania for the year 2012.All figures are in billions of dollars. -Refer to the above information.Canada had a current account:

Correct Answer
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Which of the following countries is a G-8 nation?

Correct Answer
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Assume that Switzerland and Britain have flexible exchange rates.Other things unchanged,if a tight money policy raises interest rates in Britain as compared to Switzerland:

Correct Answer
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A system of fixed exchange rates is more likely to give rise to exchange controls than is a system of flexible exchange rates.

Correct Answer
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The following table shows the trade between Canada and Transylvania for the year 2012.All figures are in billions of dollars. -Refer to the above information.Canada had a balance of services by:

Correct Answer
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In using exchange controls,a nation attempts to eliminate a balance of payments deficit by:

Correct Answer
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The following table shows the 2008 balance of payments statement for Transylvania.All figures are in billions of dollars. -Refer to the above data.In 2008 Transylvania had a $2 billion balance of trade surplus.

Correct Answer
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If the equilibrium exchange rate changes so that fewer dollars are required to buy a pound,then:

Correct Answer
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Evidence of a chronic balance of payments deficit is:

Correct Answer
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Exam 18: Exchange Rates and the Balance of Payments

Refer to the diagram below where D and S are Canada's demand for and supply of Swiss francs.At the equilibrium exchange rate,E,Canada's balance of payments is in equilibrium.A shift of the demand curve to D' might be the result of:

Correct AnswerverifiedShow Answer

Under the managed floating exchange rate system,a government may be able to reduce the international value of its currency by:

Correct AnswerverifiedShow Answer

The following table indicates the dollar price of libras,the currency used in the hypothetical nation of Libra.Assume that a system of flexible exchange rates is in place. -Refer to the above table.The exchange rate is:

Correct AnswerverifiedShow Answer

The following table shows the 2012 balance of payments data for the hypothetical nation of Zabella.All figures are in billions of dollars. Current Account: -Refer to the above data.Zabella's balance on capital account shows a:

Correct AnswerverifiedShow Answer

The following table shows the 2008 balance of payments statement for Transylvania.All figures are in billions of dollars. -Refer to the above data.In 2008 Transylvania imported more products than it exported.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Assume that Switzerland and Britain have flexible exchange rates.Other things unchanged,if the price level is stable in Britain but Switzerland experiences rapid inflation:

Correct AnswerverifiedShow Answer

It may be misleading to label a trade deficit as "unfavourable" or "adverse" because:

Correct AnswerverifiedShow Answer

The current account on a nation's balance of payments statement includes net investment income.

Correct AnswerverifiedShow Answer

-Refer to the above diagram.The initial demand for and supply of pesos are shown by D1 and S1.If the decline in Canadian imports from Mexico described in the previous question occurred under a system of flexible exchange rates:

Correct AnswerverifiedShow Answer

A nation which imports more goods and services than it exports is necessarily realizing an international balance of payments deficit.

Correct AnswerverifiedShow Answer

The following table shows the trade between Canada and Transylvania for the year 2012.All figures are in billions of dollars. -Refer to the above information.Canada had a current account:

Correct AnswerverifiedShow Answer

Which of the following countries is a G-8 nation?

Correct AnswerverifiedShow Answer

Assume that Switzerland and Britain have flexible exchange rates.Other things unchanged,if a tight money policy raises interest rates in Britain as compared to Switzerland:

Correct AnswerverifiedShow Answer

A system of fixed exchange rates is more likely to give rise to exchange controls than is a system of flexible exchange rates.

Correct AnswerverifiedShow Answer

The following table shows the trade between Canada and Transylvania for the year 2012.All figures are in billions of dollars. -Refer to the above information.Canada had a balance of services by:

Correct AnswerverifiedShow Answer

In using exchange controls,a nation attempts to eliminate a balance of payments deficit by:

Correct AnswerverifiedShow Answer

The following table shows the 2008 balance of payments statement for Transylvania.All figures are in billions of dollars. -Refer to the above data.In 2008 Transylvania had a $2 billion balance of trade surplus.

Correct AnswerverifiedShow Answer

If the equilibrium exchange rate changes so that fewer dollars are required to buy a pound,then:

Correct AnswerverifiedShow Answer

Evidence of a chronic balance of payments deficit is:

Correct AnswerverifiedShow Answer

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-Refer to the above diagram.The initial demand for and supply of pesos are shown by D₁ and S₁.If the decline in Canadian imports from Mexico described in the previous question occurred under a system of flexible exchange rates:

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