Exam 29: Macroeconomics in an Open Economy

The price of domestic goods in terms of foreign goods is referred to as

Contractionary monetary policy should increase foreign financial investment in the United States.

An increase in U.S. federal government budget deficits that raises U.S. interest rates relative to the rest of the world should

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

Based on the following information from a balance of payments table, what is the balance on the financial account? Exports of goods and services = $5 billion Imports of goods and services = $3 billion Net income on investments = -$2 billion Net transfers = -$2 billion Increase in foreign holdings of assets in the United States = $4 billion Increase in U.S. holdings of assets in foreign countries = -$1 billion

Explain why economies with financial account surpluses usually have current account deficits.

How might a budget deficit affect the balance of trade?

Public saving equals taxes minus government spending minus transfer payments.

Monetary policy has a ________ effect on aggregate demand in a(n) ________ economy, and fiscal policy has a ________ effect on aggregate demand in a(n) ________ economy.

Suppose the U.S. Congress is successful in enacting tariffs large enough to eliminate the current account deficit. What would happen to the level of domestic investment?

How will an interest rate decrease in the United States affect equilibrium in the foreign exchange market?

Explain how "net capital flows" are related to "net foreign investment," "net foreign direct investment," and "net foreign portfolio investment."

Contractionary monetary policy and expansionary fiscal policy both reduce net exports in an open economy.

Which of the following is "crowded out" by higher interest rates that can be the result of expansionary fiscal policy?

Why is the U.S. trade deficit almost always larger than the U.S. current account deficit?

When net capital flows are negative

Why is the multiplier for contractionary fiscal policy smaller in an open economy?

The possibility that a government budget deficit will also lead to a current account deficit is an idea sometimes referred to as the twin deficits.

If the balance of the current account in the United States is -$900 billion, which of the following is most likely to be true?

Suppose the majority of the shares of Ford stock were sold to a Japanese firm. Assuming all else remains constant, this will