Unit 6 - Practice MC Test

Which of the following transactions is counted in the U.S. current account?

• A French importer buys a case of California wine

• An American working for a Brazilian company deposits her paycheck

• An American buys a bond from a Japanese company

• An American charity sends money to an African aid agency

• A Chinese national buys stock in a US company

The difference between a country's exports and imports of goods is that country's

• Balance of payments on its current account

• Balance of payments on its financial account

• Balance of payments on its capital account

• Merchandise trade balance

• Balance of payments on goods and services

Which of the following relationships between the current (CA) and the financial account (FA) must be true?

• CA - FA = 0

• CA + FA = 0

• CA = FA

• CA = 1/FA

• (CA) (FA) = 1

Which of the following is a reason for capital to flow into a country?

• a rapidly growing economy

• government budget surplus

• higher savings rates

• lower savings rates

• a relatively high supply of loanable funds

Suppose that Northlandia and Southlandia are the only two trading countries in the world, that each nation runs a balance of payments on both the current account and the financial account equal to zero, and that each nation sees the other's assets as identical to its own.

Given the situation depicted in the graphs, which of the following will happen?

• The interest rate in Northlandia will rise

• The interest rate in Southlandia will rise

• Capital will flow into Northlandia

• Capital will flow into Southlandia

• Southlandia will experience a balance of trade deficit

Suppose that Northlandia and Southlandia are the only two trading countries in the world, that each nation runs a balance of payments on both the current account and the financial account equal to zero, and that each nation sees the other's assets as identical to its own.

Which of the following will happen in Southlandia?

• The quantity of loanable funds supplied will decrease

• The supply of loanable funds will increase

• The demand for loanable funds will decrease

• The supply of loanable funds will decrease

• The interest rate will decrease

Suppose that Northlandia and Southlandia are the only two trading countries in the world, that each nation runs a balance of payments on both the current account and the financial account equal to zero, and that each nation sees the other's assets as identical to its own.

If the international equilibrium interest rate is 8%, which of the following will be true?

• Southlandia will experience a capital outflow of 250

• Southlandia will experience a capital outflow of 700

• Northlandia will experience a capital outflow of 250

• Northlandia will experience a capital outflow of 300

• The international equilibrium quantity of loanable funds will be 1,200

Which of the following is traded in a foreign exchange market?

• imported goods only

• exported goods only

• both imported and exported goods

• international stocks and bonds

• currency

The price in a foreign exchange market is a(n)

• real interest rate

• nominal interest rate

• tariff

• exchange rate

• discount rate

The graph shows the foreign exchange market for the bern, the currency used in the country of Albernia.

Given the equilibrium exchange rate on the graph which of the following is true regarding the bern?

• It takes $1.50 to buy 1 bern

• It takes $0.75 to buy 1 bern

• It takes $0.67 to buy 1 bern

• It takes 1.50 bern to buy $1

• It takes 0.75 bern to buy $1