1

An American buys a Japanese car, paying by writing a check on an account with a bank in New York. How would this be accounted for in the balance of payments?

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1 current account, a Japanese good import

2 current account, a U.S. good import

3 financial account, a U.S. asset import

4 financial account, a U.S. asset export

5 Only B and D.

2

Suppose the Federal Reserve wanted to reduce the money supply without using open-market operations. It could try to get the public to ________ their currency-deposit ratio and ________ banks' reserve requirements, which would in turn change the banks' reserve-deposit ratio.

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1 decrease; lower

2 decrease; raise

3 increase; lower

4 increase; raise

5 None of the above

3

The United States issues a $10,000 debt forgiveness to Argentina. How is this accounted for in the balance of payments?

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1 financial account, U.S. asset import

2 current account, Argentina transfer payment

3 current account, U.S. service export

4 financial account, U.S. asset export

5 current account, Argentina good import

4

The money supply is $10 million, currency held by the nonbank public is $2 million, and the reserve-deposit ratio is 0.2. Bank reserves are equal to

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1 $1.6 million

2 $2 million

3 $4 million

4 $8 million

5 $10 million

6

Assume that the currency-deposit ratio is 0.2 and the reserve-deposit ratio is 0.1. The Federal Reserve carries out open-market operations, purchasing $1 million worth of bonds from banks. This action will increase the money supply by

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1 $1 million

2 $2 million

3 $3 million

4 $4 million

5 $5 million

7

If a U.S. company imports 10 Toyotas from Japan at $15,000 each, and the Japanese company buys airline tickets on a U.S. airline with the money, how does this affect the U.S. balance of payments accounts?

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1 debit: imports; credit: capital and financial account

2 debit: capital and financial account; credit: imports

3 debit: imports; credit: exports

4 debit: exports; credit: imports

8 Which of the following transactions would be included in Japanʹs current account?

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1 A Japanese citizen purchases 50 shares of Google stock.

2 An American citizen purchases 50 shares of Toshiba stock

3 A Japanese citizen purchases a new Toyota made in Japan

4 An American citizen purchases a new Toyota made in Japan

5 None of the above

9

If there are no net factor payments from abroad and no unilateral transfers, net exports of $10 billion is the same as

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1 a current account deficit of $10 billion.

2 a capital and financial account surplus of $10 billion.

3 net acquisition of foreign assets of $10 billion.

4 net foreign borrowing of $10 billion.

10 Suppose a wealthy Canadian donates $10 million to charities in Mexico. Mexican net exports ________ and the current account balance ________.

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1 fall; rises

2 rise; rises

3 are unchanged; is unchanged

4 fall; is unchanged

11 Which of the following would increase net exports in the United States?

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1 The United States purchases 500 silver necklaces from Mexico

2 The government of Mexico purchases 500 Ford F-150 pickup trucks from the United States.

3 A Mexican citizen purchases 25 shares of stock in Ford Motor Company

4 The U.S. government donates $5 million to Mexico to help victims of drought in Mexico

12 If a country has a current account surplus, it also has

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1 a capital and financial account surplus.

2 an increase in its official reserve assets.

3 a balance of payments deficit.

4 an increase in its holding of net foreign assets.

13 The official settlements balance or balance of payments is the sum of

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1 the current account balance, the capital account balance, the non reserve portion of the financial account balance, the statistical discrepancy

2 the current account balance and the capital account balance

3 the current account balance, the capital account balance, the non reserve portion of the financial account balance

4 the current account balance and the non reserve portion of the financial account balance

5 None of the above

14 In a fractional reserve banking system with no currency where res is the ratio of reserves to deposits, the money multiplier is

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1 1 - res

2 1 + res

3 1/res

4 res2

5 res

15 Assume that the reserve-deposit ratio is 0.2. The Federal Reserve carries out open-market operations, purchasing $1 million worth of bonds from banks. This action increased the money supply by $2,600,000. What is the currency-deposit ratio?

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1 0.2

2 0.3

3 0.4

4 0.5

5 0.1

16 If a U.S. firm buys tulips from a Dutch firm and the Dutch firm uses the dollars it gets to buy U.S. stocks, the U.S. trade balance ________ and the U.S. capital and financial account ________.

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1 rises; rises

2 rises, falls

3 falls, falls

4 falls rises