土豆妮

The U.S. eliminates high tariffs on major imported goods. Under a system of flexible exchange rates, this would tend to:

A) cause the dollar to appreciate in value.

B) decrease the U.S. balance of payments.

C) cause the dollar to depreciate in value.

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The elimination of tariffs causes imported goods to be cheaper and the demand for imported goods to increase. In order to purchase the goods, Americans will sell dollars to purchase other currencies, thus causing the dollar to depreciate.

土豆妮

In a flexible exchange rate system, exchange rates are determined by:

A) supply and demand in the currency market.

B) the total value of the country's gold reserves.

C) governmental fiat.

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Exchange rates are determined by supply and demand. British importers needing dollars to purchase U.S. goods will buy U.S. dollars and sell British pounds. British exporters needing to convert dollars to pounds will sell dollars and buy pounds.

土豆妮

Under a system of flexible exchange rates, a decrease in the foreign demand for a nation’s currency will cause the nation’s:

A) currency to depreciate in value.

B) currency to appreciate in value.

C) consumer prices to increase, in terms of foreign currencies.

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As foreign demand for a currency decreases, its price decreases and it depreciates.

土豆妮

Depreciation in the value of the U.S. dollar on the foreign exchange market will:

A) make imports less expensive for U.S. consumers.

B) cause the U.S. to run a balance of payments surplus in the long run.

C) make U.S. exports cheaper to foreigners.

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Depreciation of a currency makes a country's goods more attractive to foreign buyers. "Make imports less expensive for U.S. consumers" would be true if the dollar was appreciating.The balance of payments equation should always equal 0.

土豆妮

Which of the following accurately describes current account and official reserve account, respectively?

Current account

Official reserve account

A) measures the exchange of merchandise goods, the exchange of services, the exchange of investment income, and unilateral transfers. consists of all metal commodities like gold and silver.

B) measures the exchange of merchandise goods, the exchange of services, the exchange of investment income, and unilateral transfers. funds held at the International Monetary Fund (IMF) in the form of gold, other foreign currencies, and special drawing rights.

C) measures the flow of funds for debt and equity investment into and out of the country. funds held at the International Monetary Fund (IMF) in the form of gold, other foreign currencies, and special drawing rights.

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The Balance of Payments (BOP) equation is comprised of three parts:

• The Current Account measures the exchange of merchandise goods, the exchange of services, the exchange of investment income, and unilateral transfers.
• The Capital Account measures the flow of funds for debt and equity investment into and out of the country.
• The Official Reserve Account transactions are funds held at the IMF in the form of gold, other foreign currencies, and SDRs.