Question 1 Capital account transactions occur because of exports. imports. inves

Question

Question 1

Capital account transactions occur because of

exports.

imports.

investments made between countries.

unilateral transfers.

Question 2

Under floating exchange rates, the exchange rate is set by

negotiations among central banks of G-7 nations.

the U.S. Federal Reserve Board.

the International Monetary Fund.

the intersection of demand and supply curves in the currency markets.

Question 3

When a country intervenes in foreign currency markets to maintain a fixed exchange rate

it is engaged in hedging.

it increases the foreign exchange risk faced by its citizens.

it does so by using its foreign exchange reserves.

it smoothes out fluctuations in the level of business activity.

Question 4

When there is a current account deficit, it is likely that

the country is an exporter of capital.

the capital account has a surplus.

the country has a budget surplus.

exports exceed imports for the country.

Question 5

Which of the following is FALSE?

Exports are imports are included in the current account.

The current account and the capital account are more-or-less mirror images of one another.

The United States doesn't have a balance of trade.

Sales and purchases of assets are included in the capital account.

Question 6

If increasing prosperity in Europe causes European citizens to purchase more products from the United States, the demand for dollars will increase, leading to an appreciation of the dollar in world currency markets.

True

False

Question 7

In international trade, all payments and gifts that are related to the purchase or sale of both goods and services are referred to as the

capital account.

labor account.

current account.

official reserve transactions account.

Question 8

An example of a unilateral transfer is

a gift to your university in the United States.

gold payments to foreign companies.

a gift to a relative who lives abroad.

receipts from the export of financial services.

Question 9

The current account and the capital account

are more-or-less mirror images of one another.

together add up to the total amount of exports from a country.

determine the equilibrium foreign exchange rate.

determine the balance of trade.

Question 10

Which of the following is FALSE?

Countries that import more than they export are experiencing a trade deficit.

To the extent that consumers enjoy the goods being imported, a country experiences an increase in its well-being when it is incurring a trade deficit.

A country seeking to maintain a fixed exchange rate has to maintain foreign currency reserves.

A floating exchange rate has the effect of exacerbating domestic fluctuations in the level of business activity.

Question 11

If a country maintains a fixed exchange rate,

then it will not have a balance of payments deficit.

then it will not have a trade deficit.

the citizens of the country face more foreign exchange risk than they would otherwise.

it does so by using its foreign exchange reserves to intervene in currency markets.

Question 12

A reduction in a country's rate of inflation should

lead to a trade deficit.

increase its exports.

lead to a depreciation of its currency.

increase its imports.

Question 13

An increase in bond prices is usually accompanied by

a decrease in interest rates.

an increase in interest rates.

a decrease in the quantity of investment.

an increase in the opportunity cost of holding money.

Question 14

The Open Market Committee of the Federal Reserve guides money supply growth.

True

False

Question 15

Interest rates typically rise when

the coupon payout on existing bonds increase.

bond prices increase.

bond prices decrease.

the maturity date on existing bonds extends farther into the future.

Question 16

If the Fed sells U.S. government securities on the open market,

reserves in the banking system will decrease.

there will be no effect on the money supply, but aggregate demand will increase.

interest rates will decrease.

there will be no effect on the money supply, but aggregate demand will decrease.

Question 17

If the Federal Reserve follows a monetary rule, it will not use discretionary monetary policy to counteract fluctuations in the level of business activity.

True

False

Question 18

A contractionary monetary policy

will lead to an increase in aggregate demand.

will lead to a decrease in aggregate demand.

is brought about by a lowering of the required reserve ratio.

is brought about by lower interest rates.

Question 19

Which one of the following statements is true?

The federal funds rate cannot be changed without an act of Congress.

Traditionally, the Fed has kept the discount rate below the federal funds rate.

The federal funds rate is the rate the Fed charges member banks when they borrow reserves.

Traditionally, the Fed has kept the discount rate above the federal funds rate.

Question 20

The Fed engages in open market operations and sells government securities. The result is

lower interest rates.

uncertain since more information is needed.

higher interest rates.

interest rates remain unchanged since there is no reason to think bond prices changed.

Question 21

Expansionary monetary policy during periods of underutilized resources can cause

real national income to increase without a change in interest rates.

real national income to increase with an increase in the price level.

nominal national income to increase but cannot affect real national income.

real national income to increase with a decrease in the pric level.

Question 22

If Federal Reserve chairman Alan Greenspan announces a reduction in interest rates, this means that

the Fed will be following a contractionary monetary policy.

the Fed will be increasing the required reserve ratio.

the Fed will be selling government securities on the open market.

the Fed will be buying government securities on the open market.

Question 23

An increase in the supply of money, other things constant,

reduces the rate of growth of the price level.

stimulates an increase in demand for money.

generates significant changes in relative prices.

reduces the purchasing power of money.

Question 24

If you buy a bond which pays 5 percent and subsequently the interest rate rises to 6 percent, then it is true that

the interest payment on the bond will fall.

the price of the bond will rise.

the price of the bond will fall.

the price of the bond is still $1,000.

Question 25

Which one of the following is FALSE?

A country has a comparative advantage in producing a good if it can do so at a lower opportunity cost than any other country can.

A country can only have a comparative advantage in producing a good if it also has an absolute advantage in producing that good.

Trade allows each country to specialize in producing those goods for which it enjoys a comparative advantage.

Both tariffs and quotas reduce the volume of trade.

Tell us a question you need help with

Question 1

Capital account transactions occur because of

exports.

imports.

investments made between countries.

unilateral transfers.

Explanation / Answer

1 A

3 C

5 A

6 T

7 D

11 C

15 C

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