Question 1

Which of the following statements about trade policy is true?

Accepted Answer

A)  A country's trade policy has no impact on the size of its trade balance. 
B)  None of these answers. 
C)  A restrictive import quota decreases a country's net exports. 
D)  A restrictive import quota increases a country's net exports. 
A)  A country's trade policy has no impact on the size of its trade balance. 
B)  None of these answers. 
C)  A restrictive import quota decreases a country's net exports. 
D)  A restrictive import quota increases a country's net exports.

Question 2

Consider this diagram of the market for foreign currency exchange. If the US government decides to increase import tariffs on imported steel, we could expect the

Accepted Answer

A)  Demand for dollars to shift from D1 to D2. 
B)  Demand for dollars to shift from D2 to D1. 
C)  Supply of dollars to increase. 
D)  Supply of dollars to decrease. 
A)  Demand for dollars to shift from D1 to D2. 
B)  Demand for dollars to shift from D2 to D1. 
C)  Supply of dollars to increase. 
D)  Supply of dollars to decrease.

Question 3

If a country experiences a tremendous increase in the demand for loanable funds as many new infrastructure building projects are initiated, then the interest rate will

Accepted Answer

A)  Rise, there will be a decrease in net capital outflow, and the real exchange rate will fall. 
B)  Rise, there will be a decrease in net capital outflow, and the real exchange rate will rise. 
C)  Fall, there will be an increase in net capital outflow, and the real exchange rate will rise. 
D)  Fall, there will be an increase in net capital outflow, and the real exchange rate will fall. 
A)  Rise, there will be a decrease in net capital outflow, and the real exchange rate will fall. 
B)  Rise, there will be a decrease in net capital outflow, and the real exchange rate will rise. 
C)  Fall, there will be an increase in net capital outflow, and the real exchange rate will rise. 
D)  Fall, there will be an increase in net capital outflow, and the real exchange rate will fall.

Question 4

Increased foreign investment in the UK causes the

Accepted Answer

A)  Balance on current accounts to become positive. 
B)  Sum of the capital and current accounts to be positive. 
C)  Balance of trade to become negative. 
D)  Foreign exchange value of the pound to increase. 
A)  Balance on current accounts to become positive. 
B)  Sum of the capital and current accounts to be positive. 
C)  Balance of trade to become negative. 
D)  Foreign exchange value of the pound to increase.

Question 5

All other things being equal, an increase in a country's real interest rate reduces net capital outflow.

Accepted Answer

A) True 
 B)False

Question 6

Government trade policies, such as tariffs and quota restrictions on imports,

Accepted Answer

A)  Can eliminate a trade imbalance. 
B)  Often increase a trade deficit. 
C)  Have no real effect on the trade balance. 
D)  Can lower a deficit on current accounts but not on the capital account. 
A)  Can eliminate a trade imbalance. 
B)  Often increase a trade deficit. 
C)  Have no real effect on the trade balance. 
D)  Can lower a deficit on current accounts but not on the capital account.

Question 7

An export subsidy should have the opposite effect of

Accepted Answer

A)  A government budget deficit. 
B)  Capital flight. 
C)  An increase in private saving. 
D)  A tariff. 
A)  A government budget deficit. 
B)  Capital flight. 
C)  An increase in private saving. 
D)  A tariff.

Question 8

If a country's net capital outflow is positive, it is an addition to its demand for loanable funds.

Accepted Answer

A) True 
 B)False

Question 9

Which of the following statements regarding the market for foreign currency exchange is true? An increase in UK net exports:

Accepted Answer

A)  Decreases the supply of pounds and the pound depreciates. 
B)  Increases the demand for pounds and the pound appreciates. 
C)  Increases the supply of pounds and the pound depreciates. 
D)  Decreases the demand for pounds and the pound appreciates. 
A)  Decreases the supply of pounds and the pound depreciates. 
B)  Increases the demand for pounds and the pound appreciates. 
C)  Increases the supply of pounds and the pound depreciates. 
D)  Decreases the demand for pounds and the pound appreciates.

Question 10

Suppose, due to political instability, Russia suddenly choose to invest in UK assets as opposed to Russian assets. Which of the following statements is true regarding UK net foreign investment?

Accepted Answer

A)  UK net foreign investment is unchanged because only UK residents can alter UK net foreign investment. 
B)  UK net foreign investment rises. 
C)  UK net foreign investment falls. 
D)  None of these answers. 
A)  UK net foreign investment is unchanged because only UK residents can alter UK net foreign investment. 
B)  UK net foreign investment rises. 
C)  UK net foreign investment falls. 
D)  None of these answers.

Question 11

If the EU imposes a quota on the importing of clothing produced in China, so reducing UK imports of clothing, which of the following is true regarding UK net exports?

Accepted Answer

A)  Net exports will rise. 
B)  None of these answers. 
C)  Net exports will fall. 
D)  Net exports will remain unchanged. 
A)  Net exports will rise. 
B)  None of these answers. 
C)  Net exports will fall. 
D)  Net exports will remain unchanged.

Question 12

Explain how an increase in the demand for capital goods in the Eurozone countries can lead to a change in the value of the euro against other currencies.

Accepted Answer

An increase in demand for capital goods

Question 13

A country's net capital outflow is always equal to its net exports.

Accepted Answer

A) True 
 B)False

Question 14

Other things the same, a lower real interest rate decreases the quantity of

Accepted Answer

A)  Loanable funds demanded. 
B)  Loanable funds supplied. 
C)  Domestic investment. 
D)  Net capital outflow. 
A)  Loanable funds demanded. 
B)  Loanable funds supplied. 
C)  Domestic investment. 
D)  Net capital outflow.

Question 15

A country experiencing capital flight will experience a reduction in its net capital outflow and its net exports.

Accepted Answer

A) True 
 B)False

Question 16

What impact do trade policies, such as tariffs and quotas, have on the standard of living?

Accepted Answer

Trade policies reduce both imports and e

Question 17

An increase in UK private saving

Accepted Answer

A)  Increases UK net exports and UK net capital outflow the same amount. 
B)  Increases UK net exports and decreases UK net capital outflow. 
C)  Decreases UK net exports and UK net capital outflow the same amount. 
D)  Decreases UK net exports and increases UK net capital outflow. 
A)  Increases UK net exports and UK net capital outflow the same amount. 
B)  Increases UK net exports and decreases UK net capital outflow. 
C)  Decreases UK net exports and UK net capital outflow the same amount. 
D)  Decreases UK net exports and increases UK net capital outflow.

Question 18

Net capital outflow is the purchase of domestic assets by foreigners minus the purchase of foreign assets by domestic residents.

Accepted Answer

A) True 
 B)False

Question 19

Assuming all other things unchanged, a higher UK real interest rate

Accepted Answer

A)  Decreases UK net capital outflow because UK residents and foreigners prefer to invest in the UK 
B)  None of these answers 
C)  Decreases UK net capital outflow because UK residents and foreigners prefer to invest abroad. 
D)  Increases UK net capital outflow because UK residents and foreigners prefer to invest in the UK. 
A)  Decreases UK net capital outflow because UK residents and foreigners prefer to invest in the UK 
B)  None of these answers 
C)  Decreases UK net capital outflow because UK residents and foreigners prefer to invest abroad. 
D)  Increases UK net capital outflow because UK residents and foreigners prefer to invest in the UK.

Question 20

Suppose that UK investors decide that investment opportunities in African countries have improved. What happens to UK net capital outflow? What happens to the UK real interest rate?

Accepted Answer

UK net capital outflow will in

Exam 30: A Macroeconomic Theory of the Open Economy

Which of the following statements about trade policy is true?

Consider this diagram of the market for foreign currency exchange. If the US government decides to increase import tariffs on imported steel, we could expect the

If a country experiences a tremendous increase in the demand for loanable funds as many new infrastructure building projects are initiated, then the interest rate will

Increased foreign investment in the UK causes the

All other things being equal, an increase in a country's real interest rate reduces net capital outflow.

Government trade policies, such as tariffs and quota restrictions on imports,

An export subsidy should have the opposite effect of

If a country's net capital outflow is positive, it is an addition to its demand for loanable funds.

Which of the following statements regarding the market for foreign currency exchange is true? An increase in UK net exports:

Suppose, due to political instability, Russia suddenly choose to invest in UK assets as opposed to Russian assets. Which of the following statements is true regarding UK net foreign investment?

If the EU imposes a quota on the importing of clothing produced in China, so reducing UK imports of clothing, which of the following is true regarding UK net exports?

Explain how an increase in the demand for capital goods in the Eurozone countries can lead to a change in the value of the euro against other currencies.

A country's net capital outflow is always equal to its net exports.

Other things the same, a lower real interest rate decreases the quantity of

A country experiencing capital flight will experience a reduction in its net capital outflow and its net exports.

What impact do trade policies, such as tariffs and quotas, have on the standard of living?

An increase in UK private saving

Net capital outflow is the purchase of domestic assets by foreigners minus the purchase of foreign assets by domestic residents.

Assuming all other things unchanged, a higher UK real interest rate

Suppose that UK investors decide that investment opportunities in African countries have improved. What happens to UK net capital outflow? What happens to the UK real interest rate?

What Is Economics

Thinking Like an Economist

The Market Forces of Supply and Demand

Elasticity and Its Applications

Background to Demand: Consumer Choices

Background to Supply: Firms in Competitive Markets

Consumers, Producers and the Efficiency of Markets

Supply, Demand and Government Policies

The Tax System

Public Goods, Common Resources and Merit Goods

Market Failure and Externalities

Information and Behavioural Economics

Firms Production Decisions

Market Structures I: Monopoly

Market Structures Ii: Monopolistic Competition

Market Structures Iii: Oligopoly

The Economics of Factor Markets

Income Inequality and Poverty

Interdependence and the Gains From Trade

Measuring a Nations Well-Being

Measuring the Cost of Living

Production and Growth

Unemployment

Saving, Investment and the Financial System

The Basic Tools of Finance

Issues in Financial Markets

The Monetary System

Money Growth and Inflation

Open-Economy Macroeconomics: Basic Concepts

Business Cycles

Keynesian Economics and the Is-Lm Analysis

Aggregate Demand and Aggregate Supply

The Influence of Monetary and Fiscal Policy on Aggregate Demand

The Short-Run Trade-Off Between Inflation and Unemployment

Supply-Side Policies

Common Currency Areas and European Monetary Union

The Financial Crisis and Sovereign Debt

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