AP Macro Topic 6.1-6.6 Quiz

Which of the following is recorded in a country’s current account?

• (A) The value of goods produced and consumed in the country

• (B) The value of domestic financial assets sold to foreign investors

• (C) The value of foreign bonds purchased by the country’s residents

• (D) The value of goods produced abroad and purchased by the country’s residents

• (E) The value of the country’s government bonds purchased by the country’s central bank

Which of the following transactions in the balance of payments is recorded as a credit entry in a nation’s capital and financial account?

• (A) The sale of common stock to foreign households

• (B) Imports of computers used by domestic businesses

• (C) The interest earned by the nation on foreign financial assets

• (D) The nation’s purchases of consumer goods from foreign firms

• (E) The nation’s purchases of accounting services from foreign firms

If a country has a current account deficit, which of the following must be true?

• (A) It must also show a deficit in its capital and financial account.

• (B) It must show a surplus in its capital and financial account.

• (C) It must increase the purchases of foreign goods and services.

• (D) It must increase the domestic interest rates on its bonds.

• (E) It must limit the flow of foreign capital investment.

Which of the following will increase the United States trade deficit?

• (A) United States firms buying technologically advanced computers from Germany

• (B) European citizens traveling in large numbers to the United States

• (C) A United States company being hired to build a production plant in another country

• (D) The United States dollar depreciating in the foreign exchange market

• (E) The United States selling one million tons of wheat to China

The price of a Japanese-made pen in Japan is ¥500. If at the current exchange rate a German buyer can buy the pen in Japan for €100, then which of the following is the exchange rate between the two currencies?

• (A) €5/¥

• (B) €500/¥

• (C) ¥0.2/€

• (D) ¥5/€

• (E) ¥20/€

The price of one nation’s currency expressed in terms of another nation’s currency is called

• (A) the world price

• (B) the exchange rate

• (C) the law of one price

• (D) terms of trade

• (E) purchasing-power parity

If the current exchange rate of the Mexican peso and the Brazilian real is 0.20 real per peso, and the equilibrium exchange rate is 0.18 real per peso, which of the following describes the foreign exchange market for the Mexican peso?

• (A) There is a shortage of pesos and the peso will appreciate.

• (B) There is a shortage of pesos and the peso will depreciate.

• (C) There is a surplus of pesos and the peso will appreciate.

• (D) There is a surplus of pesos and the peso will depreciate.

• (E) There is a surplus of pesos and the real will depreciate.

Suppose that Country A is experiencing high inflation relative to Country B, which is enjoying steady growth with a stable price level. Which of the following would occur in the foreign exchange market?

• (A) An increase in the demand for Country A’s currency

• (B) An increase in the supply of Country B’s currency

• (C) A decrease in the supply of Country A’s currency

• (D) A decrease in the demand for Country B’s currency

• (E) A depreciation of Country A’s currency

Which of the following would cause the United States dollar to increase in value compared to the Japanese yen?

• (A) An increase in the money supply in the United States

• (B) An increase in interest rates in the United States

• (C) An increase in the United States trade deficit with Japan

• (D) The United States purchase of gold on the open market

• (E) The sale of $2 billion dollars worth of Japanese television sets to the United States

Which of the following will lead to an increase in United States net exports?

• (A) An increase in United States real gross domestic product

• (B) Appreciation of the United States dollar on the foreign exchange market

• (C) Depreciation of the United States dollar on the foreign exchange market

• (D) An increase in government expenditures in the United States

• (E) A decrease in income tax rates in the United States