Answers to questions can be found in the answers section.

  1. The current account measures
    1. trade in goods and services.
    2. unilateral transfers.
    3. income from foreign assets.
    4. All of the above.
  1. The current account measures
    1. trade in goods and services.
    2. domestic investment and saving.
    3. changes in world stock market values.
    4. All of the above.
  1. The _________ account measures trade in financial and real assets.
    1. financial and capital
    2. current
    3. national income
    4.  checking
  1. If a country’s domestic investment is greater than its saving it is like to encounter
    1. an increase in assets owned abroad.
    2. an increase in foreign owned assets at home.
    3. a current account surplus.
    4. All of the above.
  1. A country’s net foreign investment position is a measure of
    1. it’s investment abroad.
    2. inbound foreign investment.
    3. stock of assets owned abroad less stock of assets owned by foreigners.
    4. bond debt to foreigners less stock of assets owned abroad.
  1. If Asian firms become more competitive and world shoppers buy fewer goods from the U.S. in favor of Asia, then the changes in the U.S. would be
    1. the dollar should depreciate.
    2. the current account deficit would improve.
    3. the capital and financial account would go into deficit.
    4. All of the above.
  1. If the U.S. Fed raises interest rates, this should cause a capital inflow into the US and the value of the dollar should
    1. appreciate.
    2. depreciate.
    3. become zero.
    4. All of the above.
  1. If the U.S. Fed wanted to increase the value of the dollar, it would probably
    1. raise the growth rate of the domestic money supply.
    2. sell yen and euros in the foreign exchange market.
    3. sell dollars in the foreign exchange market.
    4. All of the above.
  1. If the Fed did the above and speculators firmly believed that the Fed’s success would be temporary, then speculators would be _________ (buying or selling dollars) and the value of the dollar would _______ (rise or fall).
    1. buying/rise
    2. buying/fall
    3. selling/rise
    4. selling/fall
  1. During the 1990s, the U.S. trade deficit worsened largely because
    1. U.S. productivity increased.
    2. of a net capital inflow to the U.S.
    3. the U.S. stock market created wealthier U.S. consumers.
    4. All of the above.
  1. If the deficit in the current account in a particular year was about $200 billion, then you would expect
    1. the capital & financial account had a deficit of $200 billion.
    2. the capital and financial account had a surplus of $200 billion.
    3. the value of the dollar to increase.
    4. unilateral transfers were quite small.
  1. The U.S. inflation rate of consumer goods was 5%.  European prices rose by 3%.  The value of the dollar relative to the euro fell by 2%.  From this information you can conclude what about the real value of the dollar?  The real value of the dollar
    1. rose by 2%.
    2. fell by 2%.
    3. was unchanged.
    4. rose by 4%.
  1. In the late 1990s, the _______ for/of dollars increased primarily because foreigners wanted to purchase more U.S. capital.
    1. demand
    2. supply
    3. elasticity
    4. quality
  1. If a foreign country worried that the value of its currency was getting too low, then it might try to increase the value of its currency relative to the dollar by
    1. buying dollars.
    2. selling dollars.
    3. reducing its interest rates.
    4. increasing its money supply.
  1. A country has a current account surplus if
    1. exports of goods are larger than imports of goods.
    2. receipts of income from foreign assets is smaller than its outflows of income to foreigners.
    3. exports of capital assets are larger than it imports of capital assets.
    4. imports of services are larger than exports of services.
  1. If you wanted to know how the value of the dollar was changing relative to the group of currencies of the major trading partners of the U.S., then you would look for
    1. a real exchange rate.
    2. a major currency index.
    3. a bilateral exchange rate.
    4. a nominal exchange rate.