Exam 31: Open-Economy Macroeconomics: Basic Concepts

Saving in the Australian economy shows up as investment in the Australian economy or as the Australian net foreign investment.

How can one derive the identity that saving equals the sum of domestic investment and net foreign investment from the national income accounting identity?

An economy with a current account deficit must also have

The law which states that the price of identical goods should be the same across national boundaries when converted to a common currency value through the exchange rate is called the::

The purchase of foreign assets by domestic residents minus the purchase of domestic assets by foreigners is known as net foreign investment.

Macroeconomic variables that describe an open economy's interactions in world markets include exchange rates, the trade balance and imports.

Group the following according to whether they may affect the demand, supply or both the demand and supply of $A in the foreign exchange market? a.a fall in the incomes of Australians b.a fall in the inflation rate in Australia relative to the rates in other countries with which Australia trades c.a fall in interest rates in Australia d.an increase in the income of citizens of the United Kingdom

The real exchange rate is the:

Ceteris paribus, an increase in the level of imports desired by a nation's households leads to a decrease in GDP.

Appreciation of a currency will lead to:

The nominal exchange rate is the:

Purchasing power parity is the theory that nominal exchange rates are determined as necessary for the law of one price to hold.

The nominal exchange rate is the real exchange rate adjusted for the:

Purchasing-power parity describes the forces that determine:

Factors that might influence a country's exports, imports and net exports include the cost of transporting goods from country to country, and government international trade policies.

A trade surplus occurs when:

Net exports of a country are:

International trade is based on the:

The real exchange rate depends on the nominal exchange rate and on the price difference between two countries measured in the local currencies.

When the money supply decreases: