## Chapter Seven: Module Quiz -- Foreign Exchange and the Balance of Payments

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1. Suppose that one British pound buys two U.S. dollars. From the U.S. point of view, the exchange rate is

1.0
0.5
2.0
None of the Above

2. From the first question above, if the pound can now purchase 1.5 dollars instead of 2 dollars, then the dollar has

appreciated.
depreciated.
not changed.
none of the above.

3. The U.S. has run a trade deficit with Japan for some time. To eliminate this gap, it is necessary for the dollar to _______ against the yen.

strengthen
weaken
compete
None of the Above

4. Suppose the U.S. has a negative balance on goods and services (i.e. it imports more than it exports), and the exchange rate decreases. This will have the effect of

leaving the goods and services balance unchanged.
reducing the deficit on goods and services.
increasing the deficit on goods and services.
making imports more expensive.
None of the Above

5. Under a flexible exchange rate system, if the current account deficit is \$100 billion, then the capital account balance must be

a surplus of \$100 billion.
a deficit of \$100 billion.
a surplus of something more than \$100 million.
None of the Above

6. All the following are examples of a U.S. capital outflow except

General Motors invests in an automobile plant in Canada.
Charles Schwab, Inc. invests mutual fund money in the Hong Kong stock market.
Microsoft opens a new office in Hawaii.
All of the above are capital outflows.

7. In 2005, the value of U.S. exports as a percentage of GDP was approximately

2%.
10%.
23%
51%

8. Other things equal, an increase in capital inflows into the U.S. will

decrease U.S. exports.
increase U.S. imports.
decrease the U.S. exchange rate.
strengthen the dollar.
all of the above

9. From the U.S. perspective, a capital outflow occurs when a German investor, for example, buys a portion of the U.S. government debt.

True
False

10. The U.S. has imported more than it has exported every year for the last couple of decades. The U.S. has been able to run persistent trade deficits because the U.S. has a persistent surplus in the capital account.

True
False