Question Details

The narrowing of the trade deficit caused the price of bonds to rise because 



1. "They conclude that in many Canadian export sectors the devaluation of the Canadian dollar will not greatly aid sales. Progress will be slow, they stated, because any U.S. slowdown would overshadow the price effects of the devalued dollar." Canadian export sales will not jump because 
a) American imports fall during a recession 
b) American exports will dominate Canadian exports 
c) an American balance of payments deficit will overpower the Canadian exports 
d) the price of Canadian exports will increase by more than the dollar devaluation 
2. "'The stronger yen is the best single thing that could have happened to the trade deficit,' a senior Administration official said last week." The stronger yen will 
a) increase U.S. exports b) increase U.S. imports 
c) increase U.S. capital inflows d) decrease U.S. capital inflows 
3. "The U.S. trade deficit is not permanent. When the U.S. ceases to be a major importer of capital......" Complete this clipping. 
a) the demand for the dollar will fall causing the exchange rate to fall causing exports to rise and imports to fall 
b) the demand for the dollar will fall causing the exchange rate to rise causing exports to fall and imports to rise 
c) the demand for the dollar will rise causing the exchange rate to rise causing exports to fall and imports to rise 
d) the demand for the dollar will rise causing the exchange rate to fall causing exports to increase and imports to decrease 
"The April U.S. trade deficit narrowed by 41 percent from March. Investors greeted the news with gusto, driving bonds more than a point higher in minutes. It was a classic suckers' rally. Traders soon realized the trade improvement was because of a 23 percent climb in exports. Fears of surging demand in an environment of near-full employment and capacity constraints were rekindled. Prices turned on a dime and wound up nearly two points off their highs by the end of the day." 
4. The narrowing of the trade deficit caused the price of bonds to rise because 
a) the balance of payments deficit should narrow, pushing up interest rates 106 
b) the current account should move towards deficit, causing the interest rate to rise 
c) fewer capital inflows are needed for international balance so the interest rate should fall 
d) exports are up and imports down, so that domestic prosperity is assured, increasing the demand for domestic bonds 
5. Bond prices fell because higher exports 
a) cause higher imports, decreasing economic activity, causing bond sales 
b) means higher demand for the U.S. dollar, causing people to sell bonds to get dollars 
c) create inflationary pressures, increasing inflation expectations and thus increasing the interest rate 
d) create inflationary pressures, increasing inflation expectations and thus decreasing the interest rate



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