Question 1

How would a decrease in the U.S. budget deficit affect the exchange rate in the market for dollars?

Accepted Answer

A)  The exchange rate will increase. 
B)  The exchange rate will decrease. 
C)  The exchange rate will not be affected by a change in the budget deficit. 
D)  The impact of the decrease in the budget deficit on the exchange rate cannot be predicted. 
A)  The exchange rate will increase. 
B)  The exchange rate will decrease. 
C)  The exchange rate will not be affected by a change in the budget deficit. 
D)  The impact of the decrease in the budget deficit on the exchange rate cannot be predicted.

Question 2

An expansionary monetary policy in the United States should

Accepted Answer

A)  decrease the foreign currency price of U.S. exports. 
B)  cause the dollar to appreciate. 
C)  decrease the dollar price of imports. 
D)  decrease net exports. 
A)  decrease the foreign currency price of U.S. exports. 
B)  cause the dollar to appreciate. 
C)  decrease the dollar price of imports. 
D)  decrease net exports.

Question 3

A real appreciation of the dollar is caused by either a nominal appreciation of the dollar, a rise in the foreign price level, or a fall in the U.S. price level.

Accepted Answer

A) True 
 B)False

Question 4

Investment (I) in the United States may increase with either an increase in national saving or an increase in net foreign investment.

Accepted Answer

A) True 
 B)False

Question 5

A decrease in capital outflows from the United States will

Accepted Answer

A)  decrease the balance on the financial account. 
B)  increase the balance on the financial account. 
C)  increase the balance on the capital account. 
D)  decrease the balance on the current account. 
A)  decrease the balance on the financial account. 
B)  increase the balance on the financial account. 
C)  increase the balance on the capital account. 
D)  decrease the balance on the current account.

Question 6

Based on the following information, calculate public saving, net foreign investment, and national income. Assume that the capital account is zero and net transfers are zero.
private saving = $145 billion
exports = $285 billion
imports = $240 billion
consumption = $600 billion
private investment = $125 billion
government purchases = $75 billion

Accepted Answer

Based on the macroeconomic equation for

Question 7

An increase in the demand for American-made goods will

Accepted Answer

A)  increase the supply of dollars on the foreign exchange market. 
B)  decrease the supply of dollars on the foreign exchange market. 
C)  increase the demand for dollars on the foreign exchange market. 
D)  decrease the demand for dollars on the foreign exchange market. 
A)  increase the supply of dollars on the foreign exchange market. 
B)  decrease the supply of dollars on the foreign exchange market. 
C)  increase the demand for dollars on the foreign exchange market. 
D)  decrease the demand for dollars on the foreign exchange market.

Question 8

What two measures of macroeconomic activity are often referred to as the "twin deficits"?

Accepted Answer

A)  net capital flows and net exports 
B)  the foreign exchange deficit and net foreign investment 
C)  the budget deficit and the current account deficit 
D)  the saving-investment deficit and the export deficit 
A)  net capital flows and net exports 
B)  the foreign exchange deficit and net foreign investment 
C)  the budget deficit and the current account deficit 
D)  the saving-investment deficit and the export deficit

Question 9

Suppose the majority of the shares of British Airways stock were sold to a firm in the United States. Assuming all else remains constant, this will

Accepted Answer

A)  decrease the balance of the U.S. financial account. 
B)  decrease foreign direct investment in the United States. 
C)  decrease the balance of the U.S. current account. 
D)  increase net portfolio investment in the United States. 
E)  create a capital inflow in the United States. 
A)  decrease the balance of the U.S. financial account. 
B)  decrease foreign direct investment in the United States. 
C)  decrease the balance of the U.S. current account. 
D)  increase net portfolio investment in the United States. 
E)  create a capital inflow in the United States.

Question 10

Which of the following is an example of foreign direct investment in China?

Accepted Answer

A)  U.S. auto entrepreneur Elon Musk buys stock in Alibaba Group Holding Limited of Hangzhou, China. 
B)  Chinese Shenzen Airlines company buys a small U.S. midwest airline company, Air Chicago. 
C)  The U.S. company Wal-Mart buys a warehouse in Shanghai. 
D)  The bank of China purchases U.S. Treasury bonds. 
E)  A U.S. foreign exchange speculator buys $200,000 worth of the Chinese currency the yuan. 
A)  U.S. auto entrepreneur Elon Musk buys stock in Alibaba Group Holding Limited of Hangzhou, China. 
B)  Chinese Shenzen Airlines company buys a small U.S. midwest airline company, Air Chicago. 
C)  The U.S. company Wal-Mart buys a warehouse in Shanghai. 
D)  The bank of China purchases U.S. Treasury bonds. 
E)  A U.S. foreign exchange speculator buys $200,000 worth of the Chinese currency the yuan.

Question 11

What is the relationship among the current account, the financial account, and the balance of payments?

Accepted Answer

Leaving aside the statistical

Question 12

Which of the following transactions would be included in Germany's current account?

Accepted Answer

A)  A German citizen purchases 100 shares of Texas Instruments stock. 
B)  An American citizen purchases 100 shares of BMW stock. 
C)  A German citizen purchases a new Volkswagen made in Germany. 
D)  An American citizen purchases a new Volkswagen made in Germany. 
A)  A German citizen purchases 100 shares of Texas Instruments stock. 
B)  An American citizen purchases 100 shares of BMW stock. 
C)  A German citizen purchases a new Volkswagen made in Germany. 
D)  An American citizen purchases a new Volkswagen made in Germany.

Question 13

Based on the following information from a balance of payments table, what is the balance on the financial 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 = $5 billion
Increase in U.S. holdings of assets in foreign countries = -$3 billion

Accepted Answer

A)  $8 billion 
B)  $2 billion 
C)  $1 billion 
D)  -$1 billion 
A)  $8 billion 
B)  $2 billion 
C)  $1 billion 
D)  -$1 billion

Question 14

If the balance on the current account in the United States is $750 billion, which of the following is most likely to be true?

Accepted Answer

A)  The balance on the financial account is negative. 
B)  The trade balance is negative. 
C)  Net foreign investment is negative. 
D)  The balance on the capital account is positive. 
A)  The balance on the financial account is negative. 
B)  The trade balance is negative. 
C)  Net foreign investment is negative. 
D)  The balance on the capital account is positive.

Question 15

The large budget deficits of the early 1990s resulted in large current account deficits.

Accepted Answer

A) True 
 B)False

Question 16

In 2016, global revenue for Amazon was $550 million lower when measured in dollars than when measured in local currencies. The reason for this discrepancy is the value of the

Accepted Answer

A)  euro decreased relative to the British pound. 
B)  British pound increased relative to the U.S. dollar. 
C)  U.S. dollar increased relative to most other currencies. 
D)  U.S. dollar decreased relative to the Japanese yen. 
A)  euro decreased relative to the British pound. 
B)  British pound increased relative to the U.S. dollar. 
C)  U.S. dollar increased relative to most other currencies. 
D)  U.S. dollar decreased relative to the Japanese yen.

Question 17

Japan has a fairly high saving rate and the level of saving in Japan is above domestic investment. Use the saving and investment equation to explain what Japan is doing with this excess of saving above domestic investment.

Accepted Answer

In an open economy, the saving and inves

Question 18

When exchange rates are not determined in the market but are instead set by a country's central bank, we say that the country's exchange rate is

Accepted Answer

A)  flexible. 
B)  fixed. 
C)  a nominal exchange rate. 
D)  a real exchange rate. 
A)  flexible. 
B)  fixed. 
C)  a nominal exchange rate. 
D)  a real exchange rate.

Question 19

An increase in the government budget deficit will not lead to a current account deficit if domestic investment declines.

Accepted Answer

A) True 
 B)False

Question 20

The impact of crowding out

Accepted Answer

A)  is larger in a closed economy as compared to an open economy. 
B)  is larger in an open economy as compared to a closed economy. 
C)  is larger in an open economy as compared to a closed economy when fiscal policy is contractionary. 
D)  is larger in a closed economy as compared to an open economy when fiscal policy is contractionary. 
A)  is larger in a closed economy as compared to an open economy. 
B)  is larger in an open economy as compared to a closed economy. 
C)  is larger in an open economy as compared to a closed economy when fiscal policy is contractionary. 
D)  is larger in a closed economy as compared to an open economy when fiscal policy is contractionary.

Exam 29: Macroeconomics in an Open Economy

How would a decrease in the U.S. budget deficit affect the exchange rate in the market for dollars?

An expansionary monetary policy in the United States should

A real appreciation of the dollar is caused by either a nominal appreciation of the dollar, a rise in the foreign price level, or a fall in the U.S. price level.

Investment (I) in the United States may increase with either an increase in national saving or an increase in net foreign investment.

A decrease in capital outflows from the United States will

An increase in the demand for American-made goods will

What two measures of macroeconomic activity are often referred to as the "twin deficits"?

Suppose the majority of the shares of British Airways stock were sold to a firm in the United States. Assuming all else remains constant, this will

Which of the following is an example of foreign direct investment in China?

What is the relationship among the current account, the financial account, and the balance of payments?

Which of the following transactions would be included in Germany's current account?

If the balance on the current account in the United States is $750 billion, which of the following is most likely to be true?

The large budget deficits of the early 1990s resulted in large current account deficits.

In 2016, global revenue for Amazon was $550 million lower when measured in dollars than when measured in local currencies. The reason for this discrepancy is the value of the

Japan has a fairly high saving rate and the level of saving in Japan is above domestic investment. Use the saving and investment equation to explain what Japan is doing with this excess of saving above domestic investment.

When exchange rates are not determined in the market but are instead set by a country's central bank, we say that the country's exchange rate is

An increase in the government budget deficit will not lead to a current account deficit if domestic investment declines.

The impact of crowding out

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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