Question 1

Which of the following is true for the foreign direct investment (FDI)and Canadian direct investment abroad (CDIA)?

Accepted Answer

A) Although FDI has been historically lower than CDIA in Canada,the trend has recently changed in favour of FDI. 
B) Canadians now own a smaller amount of foreign companies than foreigners own of Canadian companies. 
C) Although CDIA has been historically lower than CDIA,the trend has recently changed in favour of CDIA. 
D) FDI has always been greater than CDIA in Canada. 
A) Although FDI has been historically lower than CDIA in Canada,the trend has recently changed in favour of FDI. 
B) Canadians now own a smaller amount of foreign companies than foreigners own of Canadian companies. 
C) Although CDIA has been historically lower than CDIA,the trend has recently changed in favour of CDIA. 
D) FDI has always been greater than CDIA in Canada. A

Question 2

When there are two large open economies,if desired international borrowing by the domestic country exceeds desired international lending by the foreign country,then

Accepted Answer

A) domestic investment must fall. 
B) domestic investment must rise. 
C) the world real interest rate must fall. 
D) the world real interest rate must rise. 
A) domestic investment must fall. 
B) domestic investment must rise. 
C) the world real interest rate must fall. 
D) the world real interest rate must rise. D

Question 3

If a Canadian company imports 10 Toyotas from Japan at $15,000 each,and the Japanese company buys airline tickets on a Canadian airline with the money,how does this affect the Canadian balance of payments accounts?

Accepted Answer

A) debit: merchandise trade;credit: capital account 
B) debit: capital account;credit: merchandise trade 
C) debit: merchandise trade;credit: services 
D) debit: services;credit: merchandise trade 
A) debit: merchandise trade;credit: capital account 
B) debit: capital account;credit: merchandise trade 
C) debit: merchandise trade;credit: services 
D) debit: services;credit: merchandise trade C

Question 4

Real domestic interest rates would increase in a large open economy if

Accepted Answer

A) there were a temporary negative domestic supply shock. 
B) the government imposed capital controls and the capital account had been in deficit. 
C) foreigners were more willing to save. 
D) there were a temporary negative supply shock abroad in a small open economy. 
A) there were a temporary negative domestic supply shock. 
B) the government imposed capital controls and the capital account had been in deficit. 
C) foreigners were more willing to save. 
D) there were a temporary negative supply shock abroad in a small open economy.

Question 5

Due to a change in the regulatory structure of a small open economy,the desired capital stock becomes higher for both private investment and government investment.Increased government investment spending is financed by borrowing,not by higher taxes.If both desired investment and government spending rise at the same time,will there be "twin deficits"?

Accepted Answer

Desired saving shifts left,des

Question 6

When a temporary adverse supply shock hits a large open economy,it causes the current account to ________ and investment to ________.

Accepted Answer

A) fall;fall 
B) rise;remain unchanged 
C) fall;remain unchanged 
D) rise;fall 
A) fall;fall 
B) rise;remain unchanged 
C) fall;remain unchanged 
D) rise;fall

Question 7

Which of the following would be part of the nation's current account?

Accepted Answer

A) an old house purchased by a Canadian in Croatia 
B) the purchase of a Canadian Treasury bond by a foreigner 
C) the interest a Canadian earns on a British bond 
D) a factory built by the Japanese in Canada 
A) an old house purchased by a Canadian in Croatia 
B) the purchase of a Canadian Treasury bond by a foreigner 
C) the interest a Canadian earns on a British bond 
D) a factory built by the Japanese in Canada

Question 8

Suppose a country has the following balance of payments data:
Merchandise exports100
Merchandise imports130
Service exports60
Service Imports50
Investment income receipts75
Investment income payments100
Transfers to other countries15
Increase in home country assets abroad130
Increase in foreign assets in home country190
a.Calculate the current account balance.
b.Calculate the capital account balance.
c.Calculate the trade balance.
d.Calculate net factor payments.

Accepted Answer

a.-60
b.60

Question 9

Which of the following is the true description of the impacts of a temporary positive oil price shock on an oil-importing country like the U.S.?

Accepted Answer

A) National saving and current account surplus increase. 
B) National saving decreases but current account surplus increases. 
C) National saving increases but current account surplus decreases. 
D) National saving and current account surplus decrease. 
A) National saving and current account surplus increase. 
B) National saving decreases but current account surplus increases. 
C) National saving increases but current account surplus decreases. 
D) National saving and current account surplus decrease.

Question 10

Consider a small open economy with desired national saving of Sᵈ = 20 + 200 rʷ and desired investment of Iᵈ = 30 - 200 rʷ.Calculate national saving,investment,and the current account balance in equilibrium when the real world interest rate is
a.rʷ = 0.025
b.rʷ = 0.05
c.rʷ = 0.0
d.Now suppose something causes desired national saving to increase by 10,so that it is now $S d = 30 + 200 r ^w$ Repeat parts a,b,and c.
e.Suppose,with desired national saving at its original level of Sᵈ = 20 + 200 rʷ,something causes desired investment to rise by 10,Iᵈ = 40 - 200 rʷ.Repeat parts a,b,and c.

Accepted Answer

a.S = 25,I = 25,CA = 0
b.S = 30,I = 20,C

Question 11

Consider a large open economy that has a zero current account balance.What are the effects on the world real interest rate,national saving,investment,and the current account balance in equilibrium if
a.future income rises?
b.business taxes decline?
c.government purchases decline?
d.the future marginal product of capital declines?

Accepted Answer

a.rʷ rises,S falls,I falls,CA

Question 12

A large open economy has desired national saving of Sᵈ = 20 + 200 rʷ and desired national investment of Iᵈ = 30 - 200 rʷ.The foreign economy has desired national saving of Sᵈ = 40 + 100 rʷ and desired national investment of ᴵᵈFor = 75 - 400 rʷ.
a.Calculate the equilibrium values of rʷ,CA,CAFor,S,I,SFor,and IFor.
b.Suppose Sᵈ rises by 45,so that now Sᵈ = 65 + 200 rʷ.Calculate the equilibrium values of rʷ CA,CAFor,S,I,SFor,and IFor.
c.Suppose with Sᵈ back to Sᵈ = 20 + 200 rʷ as in part a,that Iᵈ rises by 45,to Iᵈ = 75 - 200 rʷ.Calculate the equilibrium values of rʷ,CA,CAFor,S,I,SFor and IFor.

Accepted Answer

a.In equilibrium,Sᵈ ⁺ Sᵈ_For= Iᵈ ⁺ ᴵᵈ_For,so tha

Question 13

An increase in the number of international students in Canada

Accepted Answer

A) has no effect on the Canadian current account. 
B) decreases the Canadian current account. 
C) decreases Canadian imports. 
D) increases the Canadian current account. 
A) has no effect on the Canadian current account. 
B) decreases the Canadian current account. 
C) decreases Canadian imports. 
D) increases the Canadian current account.

Question 14

If there is an increase in the future marginal product of capital in a small open economy,it causes the current account to ________ and saving to ________.

Accepted Answer

A) fall;rise 
B) rise;remain unchanged 
C) fall;remain unchanged 
D) rise;rise 
A) fall;rise 
B) rise;remain unchanged 
C) fall;remain unchanged 
D) rise;rise

Question 15

Briefly discuss the idea of "twin deficit." In your answer,include historical evidence,if any,and explain why some economists do not agree with the idea.Is Ricardian equivalence proposition consistent with the idea of twin deficit? Why?

Accepted Answer

The twin deficit idea is that the budget

Question 16

If all international factor payment flows are investment income,then net investment income from abroad equals

Accepted Answer

A) net exports. 
B) the current account balance. 
C) the trade balance. 
D) net factor payments from abroad. 
A) net exports. 
B) the current account balance. 
C) the trade balance. 
D) net factor payments from abroad.

Question 17

Assuming no change in the effective tax rate on capital,an increase in the government budget deficit will raise the current account deficit if and only if the increase in the budget deficit

Accepted Answer

A) reduces desired national saving. 
B) increases desired national saving. 
C) reduces desired national investment. 
D) increases desired national investment. 
A) reduces desired national saving. 
B) increases desired national saving. 
C) reduces desired national investment. 
D) increases desired national investment.

Question 18

You just read that forecasters predict Canada will run a current account deficit in 2004.From this you would infer that Canada will also

Accepted Answer

A) run a capital account deficit in 2004. 
B) decrease its official reserve assets. 
C) run a balance of payments surplus. 
D) decrease its holding of net foreign assets. 
A) run a capital account deficit in 2004. 
B) decrease its official reserve assets. 
C) run a balance of payments surplus. 
D) decrease its holding of net foreign assets.

Question 19

Which of the following is true when the expected future marginal product of capital increases?

Accepted Answer

A) The investment and the current account rise. 
B) The investment rises but the current account declines. 
C) The investment and the current account declines. 
D) The investment declines but the current account rises. 
A) The investment and the current account rise. 
B) The investment rises but the current account declines. 
C) The investment and the current account declines. 
D) The investment declines but the current account rises.

Question 20

Assume that an increase in Costa Rica's government budget deficit reduced desired national saving by 10 million colon.Assuming Costa Rica is a small open economy,you would expect the government's action to

Accepted Answer

A) increase the current account balance by exactly 10 million colon. 
B) increase the current account balance by less than 10 million colon. 
C) reduce the current account balance by exactly 10 million colon. 
D) reduce the current account balance by more than 10 million colon. 
A) increase the current account balance by exactly 10 million colon. 
B) increase the current account balance by less than 10 million colon. 
C) reduce the current account balance by exactly 10 million colon. 
D) reduce the current account balance by more than 10 million colon.

Which of the following is true for the foreign direct investment (FDI)and Canadian direct investment abroad (CDIA)?

When there are two large open economies,if desired international borrowing by the domestic country exceeds desired international lending by the foreign country,then

If a Canadian company imports 10 Toyotas from Japan at $15,000 each,and the Japanese company buys airline tickets on a Canadian airline with the money,how does this affect the Canadian balance of payments accounts?

Real domestic interest rates would increase in a large open economy if

When a temporary adverse supply shock hits a large open economy,it causes the current account to and investment to .

Which of the following would be part of the nation's current account?

Which of the following is the true description of the impacts of a temporary positive oil price shock on an oil-importing country like the U.S.?

An increase in the number of international students in Canada

If there is an increase in the future marginal product of capital in a small open economy,it causes the current account to and saving to .

Briefly discuss the idea of "twin deficit." In your answer,include historical evidence,if any,and explain why some economists do not agree with the idea.Is Ricardian equivalence proposition consistent with the idea of twin deficit? Why?

If all international factor payment flows are investment income,then net investment income from abroad equals

Assuming no change in the effective tax rate on capital,an increase in the government budget deficit will raise the current account deficit if and only if the increase in the budget deficit

You just read that forecasters predict Canada will run a current account deficit in 2004.From this you would infer that Canada will also

Which of the following is true when the expected future marginal product of capital increases?

Assume that an increase in Costa Rica's government budget deficit reduced desired national saving by 10 million colon.Assuming Costa Rica is a small open economy,you would expect the government's action to

Introduction to Macroeconomics

The Measurement and Structure of the Canadian Economy

Productivity, output, and Employment

Consumption, saving, and Investment

Long-Run Economic Growth

The Asset Market, money, and Prices

Business Cycles

The Is-Lm-Fe Model: a General Framework for Macroeconomic Analysis

Exchange Rates, business Cycles, and Macroeconomic Policy

Classical Business Cycle Analysis: Market-Clearing Macroeconomics

Keynesian Business Cycle Analysis: Non Market Clearing Macroeconomics

Unemployment and Inflation

Monetary Policy and the Bank of Canada

Government Spending and Its Financing

Filters

Exam 5: Saving and Investment in the Open Economy

Which of the following is true for the foreign direct investment (FDI)and Canadian direct investment abroad (CDIA)?

When there are two large open economies,if desired international borrowing by the domestic country exceeds desired international lending by the foreign country,then

If a Canadian company imports 10 Toyotas from Japan at $15,000 each,and the Japanese company buys airline tickets on a Canadian airline with the money,how does this affect the Canadian balance of payments accounts?

Real domestic interest rates would increase in a large open economy if

When a temporary adverse supply shock hits a large open economy,it causes the current account to ________ and investment to ________.

Which of the following would be part of the nation's current account?

Which of the following is the true description of the impacts of a temporary positive oil price shock on an oil-importing country like the U.S.?

An increase in the number of international students in Canada

If there is an increase in the future marginal product of capital in a small open economy,it causes the current account to ________ and saving to ________.

Briefly discuss the idea of "twin deficit." In your answer,include historical evidence,if any,and explain why some economists do not agree with the idea.Is Ricardian equivalence proposition consistent with the idea of twin deficit? Why?

If all international factor payment flows are investment income,then net investment income from abroad equals

Assuming no change in the effective tax rate on capital,an increase in the government budget deficit will raise the current account deficit if and only if the increase in the budget deficit

You just read that forecasters predict Canada will run a current account deficit in 2004.From this you would infer that Canada will also

Which of the following is true when the expected future marginal product of capital increases?

Assume that an increase in Costa Rica's government budget deficit reduced desired national saving by 10 million colon.Assuming Costa Rica is a small open economy,you would expect the government's action to

Introduction to Macroeconomics

The Measurement and Structure of the Canadian Economy

Productivity, output, and Employment

Consumption, saving, and Investment

Long-Run Economic Growth

The Asset Market, money, and Prices

Business Cycles

The Is-Lm-Fe Model: a General Framework for Macroeconomic Analysis

Exchange Rates, business Cycles, and Macroeconomic Policy

Classical Business Cycle Analysis: Market-Clearing Macroeconomics

Keynesian Business Cycle Analysis: Non Market Clearing Macroeconomics

Unemployment and Inflation

Monetary Policy and the Bank of Canada

Government Spending and Its Financing

Filters

When a temporary adverse supply shock hits a large open economy,it causes the current account to and investment to .

If there is an increase in the future marginal product of capital in a small open economy,it causes the current account to and saving to .