1. Under a flexible exchange rate system, if the quantity supplied of dollars is less than the quantity demanded of dollars, there is a:

• balance of payments deficit and the dollar would appreciate.
• balance of payments surplus and the dollar would appreciate.
• balance of payments deficit and the dollar would depreciate.
• balance of payments surplus and the dollar would depreciate.

1. A decrease in the demand for dollars on the foreign exchange market, all else equal, will result in:

• appreciation of the U.S. dollar and depreciation of the foreign currency.
• appreciation of the U.S. dollar and appreciation of the foreign currency.
• depreciation of the U.S. dollar and depreciation of the foreign currency.
• depreciation of the U.S. dollar and appreciation of the foreign currency.

1. In the foreign exchange market, foreign residents wishing to purchase U.S. exports or U.S. real and financial assets must:

• demand U.S. dollars by supplying U.S. dollars.
• demand U.S. dollars by supplying their foreign currency.
• supply U.S. dollars by demanding their foreign currency.
• none of the above.

1. The major factor contributing to the depreciation of the dollar in 2007-2008 was:

• higher U.S. interest rates resulting in higher capital outflows.
• lower U.S. interest rates resulting in lower capital outflows.
• higher U.S. interest rates resulting in lower capital outflows.
• lower U.S. interest rates resulting in higher capital outflows.

1. The difference between interest income or receipts earned on investments in the rest of the world by the residents of a given country and the payments to foreigners on investments they have made in a given country is called:

• net investment income.
• capital expenditures.
• unilateral transfers.
• none of the above.

1. In the foreign exchange market, U.S. residents wishing to purchase foreign exports or foreign real and financial assets must:

• demand U.S. dollars by supplying U.S. dollars.
• supply U.S. dollars by demanding foreign currency.
• demand U.S. dollars by supplying foreign currency.
• none of the above.