1) The balance of payments is
A) the value of goods and services bought and sold in the world market.
B) a summary record of a country's economic transactions with foreign residents and governments.
C) a summary record of a country's purchases and sales of goods and services in the world market.
D) the value of merchandise goods bought and sold in the world market.

2) Net unilateral transfers would appear in a nation's
A) current account.
B) capital account.
C) official reserve transaction account.
D) financial account.

3) The balance of trade is defined as
A) the difference between the value of goods and services exported and the value of goods and services imported.
B) the difference between the value of goods exported and the value of goods imported.
C) the difference between the value of services exported and the value of services imported.
D) none of the above.

4) Which of the following is a deficit item on the balance of payments?
A) exports of merchandise
B) foreign tourist dollars spent domestically
C) sales of gold to foreigners
D) purchases of foreign assets

Country X-2015 Transactions (billions of dollars)

5) In the above table, the merchandise trade balance for Country X is ________ billion dollars.
A) +100
B) -150
C) +150
D) -100

6) In the above table, the trade balance on goods and services for Country X is ________ billion dollars.
A) +25
B) -100
C) +100
D) -25

7) In the above table, the fact that there is a minus sign before the number for unilateral transfers means that
A) Country X has significant inflation.
B) Country X imported more goods than it exported.
C) Country X received more in foreign aid than it gave in foreign aid.
D) Country X gave more to foreign residents than foreign residents gave to Country X.

8) In the above table, the balance on the current account for Country X is ________ billion dollars.
A) -35
B) -75
C) +75
D) -200

9) In the above table, the balance on the capital account for Country X is ________ billion dollars.
A) -80
B) +35
C) +80
D) -35

10) Which of the following would contribute to a positive trade balance for a country?
A) having tourists visit the country
B) importing textiles
C) having foreign residents buy the government bonds of the country
D) importing financial services

11) Official reserve assets include all of the following EXCEPT
A) foreign currencies.
B) gold.
C) special drawing rights.
D) gifts to foreign countries.

12) Exchanging dollars for euros to pay a computer manufacturer in Belgium would occur
A) in the foreign exchange market.
B) at the Federal Reserve.
C) at the European Central Bank.
D) in the letter of credit market.

13) If the exchange rate is such that $1 equals 10 Mexican pesos, then the price of a peso is
A) $10.
B) $1.
C) $0.20.
D) $0.10.

14) Every transaction concerning the exportation of U.S. goods constitutes a
A) demand for dollars, with no effect on markets for foreign currencies.
B) supply of foreign currency, with no effect on the market for dollars.
C) supply of foreign currency and demand for dollars.
D) demand for foreign currency and a supply of dollars.

15) Flexible exchange rates exist when
A) no one knows what the true value of a currency is.
B) governments and central banks spend foreign reserves to prop up an exchange rate at a certain level.
C) exchange rates are determined by forces of supply and demand.
D) speculators bet that a currency will soon be depreciated.

16) Suppose the exchange rate was $0.50 for one British pound. If the exchange rate falls to $0.20 for one pound, we would expect to see
A) more exports to the U.K. since the price of the pound has risen.
B) fewer exports to the U.K. since the price of the pound has risen.
C) more U.S. imports from the U.K. since the price of the pound has fallen.
D) more U.S. exports since the price of the dollar has fallen.

17) A depreciation of the U.S. dollar relative to the euro would tend to
A) increase U.S. imports from Germany.
B) increase U.S. exports to Germany.
C) decrease U.S. exports to Germany.
D) increase both U.S. imports from Germany and U.S. exports to Germany.

18) If the Mexican peso appreciates against the U.S. dollar
A) Mexican exports will become cheaper in the United States.
B) Mexican exports will become more expensive in the United States.
C) U.S. exports will become more expensive in Mexico.
D) there will be no change in the price of Mexican imports in the United States.

19) Under the gold standard, because all currencies had values fixed in units of gold
A) exchange rates were essentially fixed.
B) exchange rates were essentially floating.
C) exchange rates were set to a crawling peg.
D) none of the above

20) With the Bretton Woods system of international exchange rates
A) the value of a country's currency was determined strictly by the laws of supply and demand.
B) the value of a country's currency was determined by its stock of gold.
C) there were fixed exchange rates, and most countries were obligated to intervene to maintain the values of their currencies within 1 percent of par value.
D) a nation's balance of payments was eliminated.

21) A problem with the operation of the gold standard in the world economy was that
A) it involved too much government intervention in the economy.
B) the world economy was subject to too much inflation.
C) a country did not have control of its domestic monetary policy.
D) it caused the Great Depression.

22) Suppose a currency's value in the foreign exchange market is determined solely by market supply and demand without any intervention by the government authority, the currency has
A) a fixed exchange rate.
B) a gold standard.
C) a price control in its exchange rate.
D) a floating exchange rate.

23) Assume the U.S. government wants to hold the value of the dollar at $1.00 U.S. equals 100 Japanese yen, but it finds that the value of yen is appreciating against the U.S. dollar. What would be an appropriate policy to reverse this trend?
A) Buy more Japanese goods.
B) Buy U.S. dollars.
C) Sell U.S. dollars.
D) Encourage U.S. investments abroad.