Question 1

Which of the following would increase the balance on the current account?

Accepted Answer

A)  an increase in foreign direct investment 
B)  an increase in the amount of aid money the government sends abroad 
C)  an increase in imports 
D)  an increase in the balance of trade 
A)  an increase in foreign direct investment 
B)  an increase in the amount of aid money the government sends abroad 
C)  an increase in imports 
D)  an increase in the balance of trade

Question 2

Figure 29-1  
-Refer to Figure 29-1. The depreciation of the euro is represented as a movement from

Accepted Answer

A)  D to A. 
B)  C to D. 
C)  B to C. 
D)  B to A. 
A)  D to A. 
B)  C to D. 
C)  B to C. 
D)  B to A.

Question 3

If a country has a ________ exchange rate, its central bank must buy and sell its holdings of currencies to maintain a given exchange rate.

Accepted Answer

A)  floating 
B)  flexible 
C)  fixed 
D)  all of the above 
A)  floating 
B)  flexible 
C)  fixed 
D)  all of the above

Question 4

If net foreign investment is positive, which of the following must be true? (Assume that the capital account is zero and net transfers are zero.)

Accepted Answer

A)  Capital outflows are less than capital inflows. 
B)  Domestic investment must be less than national saving. 
C)  Net exports are negative. 
D)  None of the above are true when net foreign investment is positive. 
A)  Capital outflows are less than capital inflows. 
B)  Domestic investment must be less than national saving. 
C)  Net exports are negative. 
D)  None of the above are true when net foreign investment is positive.

Question 5

The current account does not include which of the following?

Accepted Answer

A)  net exports 
B)  net investment income 
C)  net transfers 
D)  U.S. holdings of foreign assets 
A)  net exports 
B)  net investment income 
C)  net transfers 
D)  U.S. holdings of foreign assets

Question 6

You're traveling in Ireland and are thinking about buying a new digital camera. You've decided you'd be willing to pay $125 for a new camera, but cameras in Ireland are all priced in euros. If the exchange rate is 0.85 euros per dollar, what's the highest price in euros you'd be willing to pay for a camera?

Accepted Answer

A)  105 euros 
B)  106.25 euros 
C)  110.15 euros 
D)  147 euros 
A)  105 euros 
B)  106.25 euros 
C)  110.15 euros 
D)  147 euros

Question 7

The United States has a closed economy.

Accepted Answer

A) True 
 B)False

Question 8

When the market value of the dollar falls relative to other currencies around the world, we say that

Accepted Answer

A)  the dollar has appreciated. 
B)  the dollar has depreciated. 
C)  the demand for dollars has decreased. 
D)  the supply of dollars has decreased. 
A)  the dollar has appreciated. 
B)  the dollar has depreciated. 
C)  the demand for dollars has decreased. 
D)  the supply of dollars has decreased.

Question 9

If the dollar appreciates against the Mexican peso

Accepted Answer

A)  Mexican imports to the U.S. become more expensive. 
B)  U.S. exports to Mexico become less expensive. 
C)  U.S. exports to Mexico become more expensive. 
D)  The value of Mexican imports to the United States does not change. 
A)  Mexican imports to the U.S. become more expensive. 
B)  U.S. exports to Mexico become less expensive. 
C)  U.S. exports to Mexico become more expensive. 
D)  The value of Mexican imports to the United States does not change.

Question 10

If you know that a country's net foreign investment is positive, what does that tell you about the relationship between the country's national saving and private investment? (Assume that the capital account is zero and net transfers are zero.)

Accepted Answer

For any country, national saving must eq

Question 11

If net exports are equal to net foreign investment

Accepted Answer

A)  the balance of payments is zero. 
B)  the current account balance is equal to the negative of the financial account balance. 
C)  net capital inflows are equal to imports minus exports. 
D)  All of the above are true when net exports are equal to net foreign investment. 
A)  the balance of payments is zero. 
B)  the current account balance is equal to the negative of the financial account balance. 
C)  net capital inflows are equal to imports minus exports. 
D)  All of the above are true when net exports are equal to net foreign investment.

Question 12

An increase in capital inflows will

Accepted Answer

A)  increase net foreign investment. 
B)  increase capital outflows. 
C)  decrease capital outflows. 
D)  increase the equilibrium exchange rate. 
A)  increase net foreign investment. 
B)  increase capital outflows. 
C)  decrease capital outflows. 
D)  increase the equilibrium exchange rate.

Question 13

How will an interest rate increase in the United States affect equilibrium in the market for dollars against foreign currencies? (Assume the exchange rate is stated in terms of foreign currency per U.S. dollar.)

Accepted Answer

A)  The equilibrium exchange rate will increase, and the equilibrium quantity of dollars traded cannot be determined. 
B)  The equilibrium exchange rate will decrease, and the equilibrium quantity of dollars traded cannot be determined. 
C)  The equilibrium exchange rate cannot be determined, and the equilibrium quantity of dollars traded will increase. 
D)  The equilibrium exchange rate will increase, and the equilibrium quantity of dollars traded will increase. 
A)  The equilibrium exchange rate will increase, and the equilibrium quantity of dollars traded cannot be determined. 
B)  The equilibrium exchange rate will decrease, and the equilibrium quantity of dollars traded cannot be determined. 
C)  The equilibrium exchange rate cannot be determined, and the equilibrium quantity of dollars traded will increase. 
D)  The equilibrium exchange rate will increase, and the equilibrium quantity of dollars traded will increase.

Question 14

The balance of payments includes which three accounts?

Accepted Answer

A)  the current account, the financial account, and the capital account 
B)  the capital flows account, the financial account, and the trade account 
C)  the net investment account, the net exports account, and the net transfers account 
D)  the balance of trade account, the net foreign investment account, and statistical discrepancy 
A)  the current account, the financial account, and the capital account 
B)  the capital flows account, the financial account, and the trade account 
C)  the net investment account, the net exports account, and the net transfers account 
D)  the balance of trade account, the net foreign investment account, and statistical discrepancy

Question 15

In an open economy, expansionary monetary policy will cause

Accepted Answer

A)  consumption, investment, and net exports to rise. 
B)  consumption and investment to rise, but net exports will fall. 
C)  consumption to rise, but investment and net exports will fall. 
D)  consumption to fall, but investment and net exports will rise. 
A)  consumption, investment, and net exports to rise. 
B)  consumption and investment to rise, but net exports will fall. 
C)  consumption to rise, but investment and net exports will fall. 
D)  consumption to fall, but investment and net exports will rise.

Question 16

In the United States, domestic investment is greater than national saving.

Accepted Answer

A) True 
 B)False

Question 17

What's the difference between the nominal exchange rate and the real exchange rate?

Accepted Answer

The nominal exchange rate measures the v

Question 18

Which of the following would cause the dollar to appreciate?

Accepted Answer

A)  an increase in the demand for dollars 
B)  a decrease in the demand for dollars 
C)  an increase in the supply of dollars 
D)  an increase in the demand for imports from foreign countries 
A)  an increase in the demand for dollars 
B)  a decrease in the demand for dollars 
C)  an increase in the supply of dollars 
D)  an increase in the demand for imports from foreign countries

Question 19

An HMO hires radiology services from India to cut costs. If all else remains equal, this will

Accepted Answer

A)  decrease net exports. 
B)  decrease the balance of trade. 
C)  increase the current account balance. 
D)  decrease the financial account. 
A)  decrease net exports. 
B)  decrease the balance of trade. 
C)  increase the current account balance. 
D)  decrease the financial account.

Question 20

If the price level in the United States is 110, the price level is 120 in Mexico, and the nominal exchange rate is 140 pesos per dollar, what is the real exchange rate from the U.S. perspective?

Accepted Answer

A)  94 
B)  115 
C)  128 
D)  153 
A)  94 
B)  115 
C)  128 
D)  153

Exam 29: Macroeconomics in an Open Economy

Which of the following would increase the balance on the current account?

Figure 29-1 -Refer to Figure 29-1. The depreciation of the euro is represented as a movement from

If a country has a ________ exchange rate, its central bank must buy and sell its holdings of currencies to maintain a given exchange rate.

If net foreign investment is positive, which of the following must be true? (Assume that the capital account is zero and net transfers are zero.)

The current account does not include which of the following?

The United States has a closed economy.

When the market value of the dollar falls relative to other currencies around the world, we say that

If the dollar appreciates against the Mexican peso

If you know that a country's net foreign investment is positive, what does that tell you about the relationship between the country's national saving and private investment? (Assume that the capital account is zero and net transfers are zero.)

If net exports are equal to net foreign investment

An increase in capital inflows will

How will an interest rate increase in the United States affect equilibrium in the market for dollars against foreign currencies? (Assume the exchange rate is stated in terms of foreign currency per U.S. dollar.)

The balance of payments includes which three accounts?

In an open economy, expansionary monetary policy will cause

In the United States, domestic investment is greater than national saving.

What's the difference between the nominal exchange rate and the real exchange rate?

Which of the following would cause the dollar to appreciate?

An HMO hires radiology services from India to cut costs. If all else remains equal, this will

If the price level in the United States is 110, the price level is 120 in Mexico, and the nominal exchange rate is 140 pesos per dollar, what is the real exchange rate from the U.S. perspective?

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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