Question 56

Which of the following best explains how the foreign exchange market operates?

a.

Imports of goods into a country immediately generate an increase in the supply of the currency used by the importing country

b.

Imports of goods into a country immediately generate an increase in the supply of the currency used by the exploiting country

c.

Imports of goods into a country immediately generate an increase in the demand for the currency used by the exporting country

d.

Imports of goods into a country immediately generate a decrease in the supply of the currency used by the exploiting country

Question57

Suppose that the value of imports exceeds the value of exports in a country. Which of the following statements is true?

a.

The current account of the balance of payments is balanced

b.

The capital account of the balance of payments has a surplus

c.

The capital account of the balance of payments has a deficit

d.

The current account of the balance of payments has a surplus

Question58

Suppose that private savings, S, are $45 million. The taxes paid to all levels of government, T, are $15 million. Government spending, G, is $68 million. Investment, I, is $22 million. Which of the following is true for this country? (Hint: recall the savings and investment identity S +(M - X) = I +(G - T)

a.

The country's savings deficit is $23 million

b.

The country has a trade surplus of $30 million

c.

The country has a budget surplus of $53 million

d.

The country's capital account has a surplus of $30 million

Question59

An increase in tariffs and other trade restrictions for products entering a country will have what effect on the country's trade balance?

a.

Trade surpluses will decrease, as exports decrease

b.

Trade surpluses will decrease, as imports increase

c.

Trade deficits will increase, as exports decrease

d.

Trade deficits will decrease, as imports decrease

Question60

A country's government is concerned about importing economic problems from abroad, so it sets up an exchange rate system that can service as a buffer to insulate the economy from the impact of international events. Which of the following exchange rate systems is the best candidate to achieve this goal?

a.

A fixed exchange rate system

b.

A free-floating exchange rate system

c.

A managed fixed rate exchange rate system

d.

A managed float exchange rate system