Question 1

If the demand for the yen increases relative to the dollar, which of the following would occur?

Accepted Answer

A)  The dollar will appreciate. 
B)  The yen will depreciate. 
C)  The dollar will depreciate. 
D)  The demand for the dollar will increase. 
A)  The dollar will appreciate. 
B)  The yen will depreciate. 
C)  The dollar will depreciate. 
D)  The demand for the dollar will increase. C

Question 2

The level of saving in the United States has historically been low relative to the level of domestic investment. Based on this information, we would expect that

Accepted Answer

A)  U.S. net foreign investment has been relatively high. 
B)  U.S. net exports have been relatively low. 
C)  U.S. capital inflows are negative. 
D)  U.S. private saving is less than its public saving. 
A)  U.S. net foreign investment has been relatively high. 
B)  U.S. net exports have been relatively low. 
C)  U.S. capital inflows are negative. 
D)  U.S. private saving is less than its public saving. B

Question 3

Holding all else constant, an economic expansion in Mexico should decrease the demand for U.S. dollars.

Accepted Answer

A) True 
 B)False  False

Question 4

Net foreign investment is equal to

Accepted Answer

A)  capital inflows minus capital outflows. 
B)  foreign direct investment. 
C)  the balance of trade. 
D)  net foreign portfolio investment plus net foreign direct investment. 
A)  capital inflows minus capital outflows. 
B)  foreign direct investment. 
C)  the balance of trade. 
D)  net foreign portfolio investment plus net foreign direct investment.

Question 5

A decision by foreign central banks to sell their holdings of U.S. Treasury bonds will

Accepted Answer

A)  lower bond prices and interest rates in the United States. 
B)  increase bond prices and interest rates in the United States. 
C)  increase bond prices and lower interest rates in the United States. 
D)  lower bond prices and increase interest rates in the United States. 
A)  lower bond prices and interest rates in the United States. 
B)  increase bond prices and interest rates in the United States. 
C)  increase bond prices and lower interest rates in the United States. 
D)  lower bond prices and increase interest rates in the United States.

Question 6

If there is currently a shortage of dollars, which of the following would you expect to see in the foreign exchange market?

Accepted Answer

A)  The dollar will appreciate. 
B)  The dollar will depreciate. 
C)  There will be an increase in the demand for dollars. 
D)  There will be an increase in the supply of dollars. 
A)  The dollar will appreciate. 
B)  The dollar will depreciate. 
C)  There will be an increase in the demand for dollars. 
D)  There will be an increase in the supply of dollars.

Question 7

Suppose that domestic investment in Canada is 10.7% of GDP, and Canadian national savings is 13% of GDP. What is Canada's foreign investment as a percentage of GDP?

Accepted Answer

A)  1.15% 
B)  2.3% 
C)  15.3% 
D)  23.7% 
A)  1.15% 
B)  2.3% 
C)  15.3% 
D)  23.7%

Question 8

How does an increase in a country's exchange rate affect its balance of trade?

Accepted Answer

A)  An increase in the exchange rate raises imports, reduces exports, and reduces the balance of trade. 
B)  An increase in the exchange rate reduces imports, raises exports, and reduces the balance of trade. 
C)  An increase in the exchange rate reduces imports, raises exports, and increases the balance of trade. 
D)  An increase in the exchange rate raises imports, reduces exports, and increases the balance of trade. 
A)  An increase in the exchange rate raises imports, reduces exports, and reduces the balance of trade. 
B)  An increase in the exchange rate reduces imports, raises exports, and reduces the balance of trade. 
C)  An increase in the exchange rate reduces imports, raises exports, and increases the balance of trade. 
D)  An increase in the exchange rate raises imports, reduces exports, and increases the balance of trade.

Question 9

Which of the following would increase the current account balance of the United States?

Accepted Answer

A)  an increase in imports 
B)  an increase in the amount of money the U.S. government sends in foreign aid to other countries 
C)  an increase in the balance of trade 
D)  an increase in the amount of income U.S. companies pay out to foreigners who own investments in the United States 
A)  an increase in imports 
B)  an increase in the amount of money the U.S. government sends in foreign aid to other countries 
C)  an increase in the balance of trade 
D)  an increase in the amount of income U.S. companies pay out to foreigners who own investments in the United States

Question 10

Figure 29-3  
-Refer to Figure 29-3. Consider the market for U.S. dollars against the Japanese yen shown above. An event which could have caused the changes shown in the graph would be

Accepted Answer

A)  an increase in U.S. real income. 
B)  speculators expect the dollar to depreciate in value in the near future. 
C)  an economic expansion in the United States. 
D)  a decrease in Japanese interest rates. 
A)  an increase in U.S. real income. 
B)  speculators expect the dollar to depreciate in value in the near future. 
C)  an economic expansion in the United States. 
D)  a decrease in Japanese interest rates.

Question 11

An increase in capital inflows will

Accepted Answer

A)  increase net foreign investment. 
B)  increase capital outflows. 
C)  decrease capital outflows. 
D)  increase the value of the domestic currency. 
A)  increase net foreign investment. 
B)  increase capital outflows. 
C)  decrease capital outflows. 
D)  increase the value of the domestic currency.

Question 12

What is the difference between net exports and the current account balance?

Accepted Answer

The current account

Question 13

If the balance on the current account is $346 billion and the balance on the financial account is -$204 billion, what is the balance on the capital account, assuming no statistical discrepancy?

Accepted Answer

A)  $550 billion 
B)  $142 billion 
C)  $0 
D)  -$142 billion 
A)  $550 billion 
B)  $142 billion 
C)  $0 
D)  -$142 billion

Question 14

A country which incurs a current account deficit will most likely have a financial or capital account surplus.

Accepted Answer

A) True 
 B)False

Question 15

The current account deficits incurred by the United States in the 1990s and early 2000s were caused, in the opinion of many economists, by

Accepted Answer

A)  federal budget deficits. 
B)  "flight to quality" as foreign investors favored U.S. investments. 
C)  a sharp decline in private saving. 
D)  Both B and C are correct. 
A)  federal budget deficits. 
B)  "flight to quality" as foreign investors favored U.S. investments. 
C)  a sharp decline in private saving. 
D)  Both B and C are correct.

Question 16

Which of the following equations is true in an open economy?

Accepted Answer

A)  Private saving = net foreign investment + domestic investment. 
B)  National saving = net capital flows. 
C)  Net exports = -Financial account balance. 
D)  Net exports = net foreign investment. 
A)  Private saving = net foreign investment + domestic investment. 
B)  National saving = net capital flows. 
C)  Net exports = -Financial account balance. 
D)  Net exports = net foreign investment.

Question 17

Ceteris paribus, an increase in the government's budget deficit will decrease the financial account surplus.

Accepted Answer

A) True 
 B)False

Question 18

Fiscal policy has a greater impact in a closed economy than it does in an open economy.

Accepted Answer

A) True 
 B)False

Question 19

Based on the following information, what is the balance on the current account? Exports of goods and services = $12 billion
Imports of goods and services = $14 billion
Net income on investments = -$4 billion
Net transfers = -$1 billion
Increase in foreign holdings of assets in the United States = $6 billion
Increase in U.S. holdings of assets in foreign countries = -$3 billion

Accepted Answer

A)  -$7 billion 
B)  -$3 billion 
C)  -$2 billion 
D)  $1 billion 
A)  -$7 billion 
B)  -$3 billion 
C)  -$2 billion 
D)  $1 billion

Question 20

An increase in net foreign investment is possible through a decrease in national saving or a decrease in domestic investment.

Accepted Answer

A) True 
 B)False

Exam 29: Macroeconomics in an Open Economy

If the demand for the yen increases relative to the dollar, which of the following would occur?

The level of saving in the United States has historically been low relative to the level of domestic investment. Based on this information, we would expect that

Holding all else constant, an economic expansion in Mexico should decrease the demand for U.S. dollars.

Net foreign investment is equal to

A decision by foreign central banks to sell their holdings of U.S. Treasury bonds will

If there is currently a shortage of dollars, which of the following would you expect to see in the foreign exchange market?

Suppose that domestic investment in Canada is 10.7% of GDP, and Canadian national savings is 13% of GDP. What is Canada's foreign investment as a percentage of GDP?

How does an increase in a country's exchange rate affect its balance of trade?

Which of the following would increase the current account balance of the United States?

Figure 29-3 -Refer to Figure 29-3. Consider the market for U.S. dollars against the Japanese yen shown above. An event which could have caused the changes shown in the graph would be

An increase in capital inflows will

What is the difference between net exports and the current account balance?

If the balance on the current account is $346 billion and the balance on the financial account is -$204 billion, what is the balance on the capital account, assuming no statistical discrepancy?

A country which incurs a current account deficit will most likely have a financial or capital account surplus.

The current account deficits incurred by the United States in the 1990s and early 2000s were caused, in the opinion of many economists, by

Which of the following equations is true in an open economy?

Ceteris paribus, an increase in the government's budget deficit will decrease the financial account surplus.

Fiscal policy has a greater impact in a closed economy than it does in an open economy.

An increase in net foreign investment is possible through a decrease in national saving or a decrease in domestic investment.

Economics: Foundations and Models

Trade-Offs, Comparative Advantage, and the Market System

Where Prices Come From: the Interaction of Demand and Supply

Economic Efficiency, Government Price Setting, and Taxes

Externalities, Environmental Policy, and Public Goods

Elasticity: the Responsiveness of Demand and Supply

The Economics of Health Care

Firms, the Stock Market, and Corporate Governance

Comparative Advantage and the Gains From International Trade

Consumer Choice and Behavioral Economics

Technology, Production, and Costs

Firms in Perfectly Competitive Markets

Monopolistic Competition: the Competitive Model in a More Realistic Setting

Oligopoly: Firms in Less Competitive Markets

Monopoly and Antitrust Policy

Pricing Strategy

The Markets for Labor and Other Factors of Production

Public Choice, Taxes, and the Distribution of Income

Gdp: Measuring Total Production and Income

Unemployment and Inflation

Economic Growth, the Financial System, and Business Cycles

Long-Run Economic Growth: Sources and Policies

Aggregate Expenditure and Output in the Short Run

Aggregate Demand and Aggregate Supply Analysis

Money, Banks, and the Federal Reserve System

Monetary Policy

Fiscal Policy

Inflation, Unemployment, and Federal Reserve Policy

The International Financial System

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