Qatar University

College of Business and Economics

Department of Finance and Economics
Principles of Macroeconomics ECON112
Dr. Salem Nechi

Review Questions - Chapter 15

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.

1) Which of the following decreases the price of the dollar relative to the British pound? 1)
A) a decrease in the supply of dollars B) an increase in the demand for dollars
C) a decrease in the demand for pounds D) an increase in the supply of dollars

2) An increase in the supply of dollars and an increase in the demand for Japanese yen 2)
A) increases the yen price of dollars.
B) increases the dollar price of yen.
C) decreases the dollar price of yen.
D) does not change the exchange rate between dollars and yen.

3) A decrease in the supply of dollars and a decrease in the demand for Japanese yen 3)
A) increases the value of the dollar.
B) increases the value of the yen.
C) does not change the exchange rate between dollars and yen.
D) increases the yen price of dollars.

4) The value of the dollar relative to the euro would increase if 4)

A) the demand for dollars decreases and the supply of euros increases.
B) the demand for dollars increases and the supply of euros increases.
C) the supply of dollars increases and the demand for euros increases.
D) the supply of dollars increases and the demand for euros decreases.

5) Any transaction that causes foreign exchange to leave a country is a 5)

A) debit item in that country's balance of payments.
B) debit item in that country's balance of trade.
C) credit item in that country's balance of trade.
D) credit item in that country's balance of payments.

6) Exports 6)
A) cause foreign exchange to leave the country, and thus they are registered as debit in the
balance of payments.
B) bring foreign exchange, and thus they are registered as credit in the balance of payments.
C) cause foreign exchange to leave the country, and thus they are registered as credit in the
balance of payments.
D) bring foreign exchange, and thus they are registered as debit in the balance of payments.

7) When a country's exports of goods are greater than its imports of goods in a given period, it has a 7)
A) trade surplus. B) capital account surplus.
C) current account deficit. D) trade deficit.

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 8) A Qatari citizen buys shares in a Swiss company. This transaction will be entered as 8)
A) a credit in the current account of Qatar. B) a debit in the financial account of Qatar.
C) a credit in the Qatar financial account. D) a debit in the Swiss current account.

9) When a foreigner buys shares in a U.S. company, the transaction 9)

A) is registered as a credit in the financial account, and it increases foreign private assets in the
United States.
B) is registered as a debit in the capital account, and it increases private U.S. assets abroad.
C) is registered as a credit in the capital account, and it decreases foreign private assets in the
United States.
D) is registered as a debit in the current account, and it decreases private U.S. assets abroad.

10) Which of the following statements is true? 10)

A) A decreases in imports causes a balance of payments surplus.
B) A decrease in exports causes a balance of payments deficit.
C) An increase in exports causes a balance of payments surplus.
D) The balance of payments is always in balance.

11) When foreign assets in the United States decrease, 11)

A) foreign residents debts to the United States residents also increase.
B) the United States residents are increasing their stock of assets.
C) the United States residents are increasing their debt to the rest of the world.
D) the United States residents are reducing their debt to the rest of the world.

12) When United States residents acquire assets abroad, they are in essence 12)
A) lending money, and foreign debts to the United States increase.
B) borrowing money, and foreign debts to the United States increase.
C) borrowing money, and foreign debts to the United States decrease.
D) lending money, and foreign debts to the United States decrease.

13) Which of the following decreases the price of the dollar relative to the euro? 13)
A) a decrease in the demand for euros B) a decrease in the supply of euros
C) an increase in the supply for euros D) an increase in the demand for dollars

14) Which of the following increases the price of the dollar relative to the Japanese yen? 14)
A) a decrease in the demand for yen B) a decrease in the demand for dollars
C) a decrease in the supply of yen D) an increase in the supply of dollars

15) The value of the Swiss franc relative to the dollar would decrease if the demand for dollars 15)
increases and the supply of Swiss francs
A) decreases. B) increases.
C) remains unchanged. D) all of the above are correct

16) Any transaction that causes foreign exchange to enter a country is a 16)
A) credit item in that country's balance of payments.
B) debit item in that country's balance of trade.
C) debit item in that country's balance of payments.
D) credit item in that country's balance of trade.

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17) ________ cause foreign exchange to leave the country, and thus they are registered as a ________ in 17)
the balance of payments.
A) Imports; credit B) Exports; credit C) Imports; debit D) Exports; debit

18) Which of the following statements is true? 18)

A) A decrease in exports causes a balance of payments deficit.
B) An increase in exports causes a balance of payments surplus.
C) A decreases in imports causes a balance of payments surplus.
D) none of the above

19) When domestic assets in the United States increase 19)

A) there is no change in the U.S. debt to the rest of the world.
B) the U.S. residents are decreasing their stock of assets.
C) the U.S. residents are increasing their debt to the rest of the world.
D) the U.S. residents are reducing their debt to the rest of the world.

20) When U.S. residents sell assets abroad, they are in essence 20)
A) lending money, and foreign debts to the United States decrease.
B) borrowing money, and foreign debts to the United States increase.
C) lending money, and foreign debts to the United States increase.
D) borrowing money, and foreign debts to the United States decrease.

21) If planned aggregate expenditures are $400 billion, consumption is $120 billion, investment is $60 21)
billion, government spending is $70 billion, there is a
A) trade surplus of $250 billion. B) trade deficit of $650 billion.
C) trade balance. D) trade surplus of $150 billion.

22) If planned aggregate expenditures are $240 billion, consumption is $140 billion, investment is $70 22)
billion, government spending is $50 billion, there is a
A) trade deficit of $10 billion. B) trade surplus of $20 billion.
C) trade balance. D) trade deficit of $20 billion.

23) If two countries don't trade with each other, an increase in the price level in one country 23)
A) increases the price level in the other country.
B) increases the price level in the other country then decreases it.
C) decreases the price level in the other country.
D) does not affect the price level in the other country.

24) U.S. exports tend to increase when 24)

A) U.S. prices are falling compared to those in the rest of the world.
B) foreign GDPs are falling.
C) economic activity abroad is decreasing.
D) the U.S. dollar is strong compared to foreign currencies.

25) An increase in U.S. exports to Japan ________ the demand for U.S. dollars and ________ the supply 25)
of yen.
A) decreases; decreases B) increases; increases
C) increases; decreases D) decreases; increases

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Refer to the information provided in Figure 19.2 below to answer the questions that follow.

Figure 19.2

26) Refer to Figure 19.2. The dollar is currently at Point A. An decrease in income in the U.S. causes a 26)
movement to Point
A) E. B) B. C) C. D) D.

27) Refer to Figure 19.2. The dollar is currently at Point A. A decrease in the price level in the EU causes 27)
a movement to Point
A) E. B) B. C) C. D) D.

28) Refer to Figure 19.2. The dollar is currently at Point A. A depreciation of the euro causes a 28)
movement to Point
A) E. B) B. C) C. D) D.

29) Income decreases in the United States. This will cause a(n) 29)
A) increase in the supply of pounds. B) decrease in the supply of pounds.
C) decrease in the demand for pounds. D) increase in the demand for pounds.

30) If the profitability of investment in the United States increases, we would expect 30)
A) the demand for foreign currency in the United States to increase.
B) the supply of foreign currency in the United States to decrease.
C) the demand for dollars to decrease.
D) the demand for dollars to increase.

31) More German companies start to invest in the United States. This will lead to a(n) 31)
A) increase in the demand for dollars and a decrease in the supply of euro.
B) decrease in the demand for dollars and an increase in the demand for euro.
C) increase in the supply of dollars and a decrease in the demand for euro.
D) increase in the demand for dollars and an increase in the supply of euro.

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 32) The rise in value of the Mexican peso relative to the Canadian dollar is a(n) 32)
A) depreciation of the peso. B) appreciation of the peso.
C) floating of the peso. D) weakening of the peso.

33) Suppose the exchange rate between the United States and Japan changed from $1 =150 yen to $1 = 33)
140 Yen, which of the following statements is true?
A) the price of yen in dollars decreased B) the dollar depreciated
C) the yen depreciated D) the price of dollars in yen increased

Refer to the information provided in Figure 19.4 below to answer the questions that follow.

Figure 19.4

34) Refer to Figure 19.4. If the demand and supply of pounds are D1 and S1, the equilibrium is 34)
A) 2 pounds per $ and the quantity is 500 pounds.
B) $2.50 per pound and the quantity is 400 pounds.
C) $2.00 per pound and the quantity is 500 pounds.
D) $1.50 per pound and the quantity is 300 pounds.

35) Refer to Figure 19.4. The demand and supply of pounds are D1 and S1 . If the demand shifts to D2 35)
and supply remains unchanged at S1
A) the dollar depreciates and the equilibrium quantity of pounds increases.
B) the dollar appreciates and the equilibrium quantity of pounds increases.
C) the dollar appreciates and the equilibrium quantity of pounds decreases.
D) the dollar depreciates and the equilibrium quantity of pounds decreases.

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36) Refer to Figure 19.4. The demand and supply of pounds are S2 and D2 . Which of the following can 36)
change the equilibrium exchange rate ($/pound) to $2.50 and the equilibrium quantity to 400
pounds?
A) a sudden dislike of British products in the United States
B) an increase in income in the United States
C) a decrease in the price level in the United States
D) an increase in the price level in Great Britain

37) Refer to Figure 19.4. The demand and supply of pounds are S1 and D1 . Which of the following can 37)
change the equilibrium exchange rate ($/pound) to $2.50 and the equilibrium quantity to 400
pounds?
A) an increase in income in Great Britain
B) an increase in the price level in Great Britain
C) a sudden dislike of U.S. products in Great Britain
D) a sudden dislike of British products in the United States

38) Why does the depreciation of a country's currency tend to increase its price level? 38)
A) a currency depreciation makes imported inputs less expensive
B) a currency depreciation makes imported inputs more expensive
C) domestic buyers tend to substitute imports for domestic products
D) a currency depreciation makes a country's products less competitive in world markets, so
exports fall

39) Expansionary monetary policy 39)

A) tends to lead to a depreciation of a nation's currency.
B) tends to lead to an appreciation of a nation's currency.
C) tends to lead to a depreciation of the currencies of other nations.
D) usually has no effect on a currency's exchange value.

40) Which of the following policies tends to cause the dollar to appreciate? 40)
A) a combination of an expansionary monetary policy and a contractionary fiscal policy
B) a contractionary fiscal policy
C) an expansionary monetary policy
D) an expansionary fiscal policy

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Answer Key
Testname: CHAPTER15-OPENECONOMYMACRO

1) D
2) B
3) A
4) B
5) A
6) B
7) A
8) B
9) A
10) D
11) D
12) A
13) B
14) A
15) B
16) A
17) C
18) D
19) A
20) D
21) D
22) D
23) D
24) A
25) B
26) A
27) D
28) B
29) C
30) D
31) D
32) B
33) B
34) C
35) C
36) B
37) C
38) B
39) A
40) D