Question 1

A financial account surplus necessarily implies

Accepted Answer

A) a balance of payments surplus. 
B) a current account surplus. 
C) a current account deficit. 
D) an increase in the nation's official reserve assets. 
A) a balance of payments surplus. 
B) a current account surplus. 
C) a current account deficit. 
D) an increase in the nation's official reserve assets.

Question 2

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

Accepted Answer

A) An old house purchased by an American in Italy 
B) The purchase of a U.S. Treasury bond by a foreigner 
C) The interest an American earns on a British bond 
D) A factory built by the Japanese in the United States 
A) An old house purchased by an American in Italy 
B) The purchase of a U.S. Treasury bond by a foreigner 
C) The interest an American earns on a British bond 
D) A factory built by the Japanese in the United States

Question 3

An increase in a small open economy's government budget deficit that reduces national saving and the current account balance causes an

Accepted Answer

A) increase in desired saving. 
B) increase in the world real interest rate. 
C) increase in exports. 
D) increase in absorption. 
A) increase in desired saving. 
B) increase in the world real interest rate. 
C) increase in exports. 
D) increase in absorption.

Question 4

Suppose output is $440 billion,government purchases are $40 billion,desired consumption is $320 billion,and net exports are $35 billion.Absorption is equal to

Accepted Answer

A) $405 billion. 
B) $420 billion. 
C) $435 billion. 
D) $440 billion. 
A) $405 billion. 
B) $420 billion. 
C) $435 billion. 
D) $440 billion.

Question 5

An increase in a small open economy's government budget deficit that reduces national saving and the current account balance causes an

Accepted Answer

A) increase in desired saving. 
B) increase in the world real interest rate. 
C) increase in exports. 
D) increase in absorption. 
A) increase in desired saving. 
B) increase in the world real interest rate. 
C) increase in exports. 
D) increase in absorption.

Question 6

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

Question 7

Assuming no change in the effective tax rate on capital,a decrease in the government budget deficit will reduce the current account deficit if and only if the decrease 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 8

In goods market equilibrium in an open economy,

Accepted Answer

A) the desired amount of exports must equal the desired amount of imports. 
B) the desired amount of exports must equal the desired amount of imports less the amount lent abroad. 
C) the desired amount of national saving must equal the desired amount of domestic investment. 
D) the desired amount of national saving must equal the desired amount of domestic investment plus the amount lent abroad. 
A) the desired amount of exports must equal the desired amount of imports. 
B) the desired amount of exports must equal the desired amount of imports less the amount lent abroad. 
C) the desired amount of national saving must equal the desired amount of domestic investment. 
D) the desired amount of national saving must equal the desired amount of domestic investment plus the amount lent abroad.

Question 9

In a large open economy,the home country's saving and investment equations are: Sd = 200 + 700rw and Id = 300 - 200rw.The foreign country's saving and investment equations are: Sd = 50 + 300rw and Id = 75 - 50rw.In equilibrium,the world real interest rate =

Accepted Answer

A) 0)10. 
B) 0)20. 
C) 0)25. 
D) 0)40. 
A) 0)10. 
B) 0)20. 
C) 0)25. 
D) 0)40.

Question 10

Suppose a country has the following balance of payments data.
   
(a)Calculate the current account balance.
(b)Calculate the financial account balance.
(c)Calculate the trade balance.
(d)Calculate net factor payments.

Accepted Answer

(a)-70
(b)

Question 11

Assuming no change in the effective tax rate on capital,an increase in the government budget deficit will reduce 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 12

A small open economy reduces its desired saving.This causes the world real interest rate to ________ and the country's current account balance to ________

Accepted Answer

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

Question 13

In a large open economy,the home country's saving and investment equations are:
Sd = 200 + 1400 rw and Id = 300 - 400 rw.
The foreign country's saving and investment equations are:
Sd = 50 + 600rw and Id = 75 - 100 rw.
Calculate the equilibrium world real interest rate,saving and investment in each country,and the current account balance in each country.

Accepted Answer

Worldwide savings equals 200 + 1400 r^w +

Question 14

The best weather in a decade has given Australia a bumper wheat crop.Australia is a small open economy.Based on this information alone,you would expect that

Accepted Answer

A) desired investment would decrease. 
B) desired investment would increase. 
C) the current account would increase. 
D) the current account would decrease. 
A) desired investment would decrease. 
B) desired investment would increase. 
C) the current account would increase. 
D) the current account would decrease.

Question 15

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 and financial 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 and financial 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 16

Suppose the government of a large open economy reduces its spending,so that national saving increases.The result is

Accepted Answer

A) a decrease in the foreign country's net exports. 
B) an increase in the real interest rate. 
C) an increase in the foreign country's net exports. 
D) a decrease in investment. 
A) a decrease in the foreign country's net exports. 
B) an increase in the real interest rate. 
C) an increase in the foreign country's net exports. 
D) a decrease in investment.

Question 17

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

Accepted Answer

(a)In equilibrium,S^d + @#IMG-DLM& = I^d + @#IMG-DLM& so that 60

Question 18

Consider a small open economy with desired national saving of Sd = 200 + 10,000rw and desired investment of Id = 1000 - 5000rw.If rw = 0.05,and output = 5000,then absorption equals

Accepted Answer

A) 5100. 
B) 5050. 
C) 4950. 
D) 4900. 
A) 5100. 
B) 5050. 
C) 4950. 
D) 4900.

Question 19

If a country's merchandise exports exceed its merchandise imports it has a

Accepted Answer

A) trade surplus. 
B) trade deficit. 
C) current account surplus. 
D) current account deficit. 
A) trade surplus. 
B) trade deficit. 
C) current account surplus. 
D) current account deficit.

Question 20

What were the principal causes of the U.S.government budget deficits of the 1980s? How did these budget deficits lead to the twin deficits? According to the Ricardian equivalence proposition,should twin deficits arise as a result of tax cuts?

Accepted Answer

The principal causes of the U.S.federal

A financial account surplus necessarily implies

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

An increase in a small open economy's government budget deficit that reduces national saving and the current account balance causes an

Suppose output is $440 billion,government purchases are $40 billion,desired consumption is $320 billion,and net exports are $35 billion.Absorption is equal to

An increase in a small open economy's government budget deficit that reduces national saving and the current account balance causes an

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,a decrease in the government budget deficit will reduce the current account deficit if and only if the decrease in the budget deficit

In goods market equilibrium in an open economy,

In a large open economy,the home country's saving and investment equations are: S^d = 200 + 700r^w and I^d = 300 - 200r^w.The foreign country's saving and investment equations are: S^d = 50 + 300r^w and I^d = 75 - 50r^w.In equilibrium,the world real interest rate =

Suppose a country has the following balance of payments data. (a)Calculate the current account balance. (b)Calculate the financial account balance. (c)Calculate the trade balance. (d)Calculate net factor payments.

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

A small open economy reduces its desired saving.This causes the world real interest rate to and the country's current account balance to

The best weather in a decade has given Australia a bumper wheat crop.Australia is a small open economy.Based on this information alone,you would expect that

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

Suppose the government of a large open economy reduces its spending,so that national saving increases.The result is

Consider a small open economy with desired national saving of S^d = 200 + 10,000r^w and desired investment of I^d = 1000 - 5000r^w.If r^w = 0.05,and output = 5000,then absorption equals

If a country's merchandise exports exceed its merchandise imports it has a

What were the principal causes of the U.S.government budget deficits of the 1980s? How did these budget deficits lead to the twin deficits? According to the Ricardian equivalence proposition,should twin deficits arise as a result of tax cuts?

Introduction to Macroeconomics

The Measurement and Structure of the National Economy

Productivity, output, and Employment

Consumption, saving, and Investment

Long-Run Economic Growth

The Asset Market, money, and Prices

Business Cycles

The Is-Lmad-As Model

Classical Business Cycle Analysis

Keynesianism: the Macroeconomics of Wage and Price Rigidity

Unemployment and Inflation

Exchange Rates, business Cycles, and Macroeconomic Policy in the Open Economy

Monetary Policy and the Federal Reserve System

Government Spending and Its Financing

Filters

Exam 5: Saving and Investment in the Open Economy

A financial account surplus necessarily implies

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

An increase in a small open economy's government budget deficit that reduces national saving and the current account balance causes an

Suppose output is $440 billion,government purchases are $40 billion,desired consumption is $320 billion,and net exports are $35 billion.Absorption is equal to

An increase in a small open economy's government budget deficit that reduces national saving and the current account balance causes an

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,a decrease in the government budget deficit will reduce the current account deficit if and only if the decrease in the budget deficit

In goods market equilibrium in an open economy,

In a large open economy,the home country's saving and investment equations are: Sd = 200 + 700rw and Id = 300 - 200rw.The foreign country's saving and investment equations are: Sd = 50 + 300rw and Id = 75 - 50rw.In equilibrium,the world real interest rate =

Suppose a country has the following balance of payments data. (a)Calculate the current account balance. (b)Calculate the financial account balance. (c)Calculate the trade balance. (d)Calculate net factor payments.

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

A small open economy reduces its desired saving.This causes the world real interest rate to ________ and the country's current account balance to ________

The best weather in a decade has given Australia a bumper wheat crop.Australia is a small open economy.Based on this information alone,you would expect that

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

Suppose the government of a large open economy reduces its spending,so that national saving increases.The result is

Consider a small open economy with desired national saving of Sd = 200 + 10,000rw and desired investment of Id = 1000 - 5000rw.If rw = 0.05,and output = 5000,then absorption equals

If a country's merchandise exports exceed its merchandise imports it has a

What were the principal causes of the U.S.government budget deficits of the 1980s? How did these budget deficits lead to the twin deficits? According to the Ricardian equivalence proposition,should twin deficits arise as a result of tax cuts?

Introduction to Macroeconomics

The Measurement and Structure of the National Economy

Productivity, output, and Employment

Consumption, saving, and Investment

Long-Run Economic Growth

The Asset Market, money, and Prices

Business Cycles

The Is-Lmad-As Model

Classical Business Cycle Analysis

Keynesianism: the Macroeconomics of Wage and Price Rigidity

Unemployment and Inflation

Exchange Rates, business Cycles, and Macroeconomic Policy in the Open Economy

Monetary Policy and the Federal Reserve System

Government Spending and Its Financing

Filters

In a large open economy,the home country's saving and investment equations are: S^d = 200 + 700r^w and I^d = 300 - 200r^w.The foreign country's saving and investment equations are: S^d = 50 + 300r^w and I^d = 75 - 50r^w.In equilibrium,the world real interest rate =

A small open economy reduces its desired saving.This causes the world real interest rate to and the country's current account balance to

Consider a small open economy with desired national saving of S^d = 200 + 10,000r^w and desired investment of I^d = 1000 - 5000r^w.If r^w = 0.05,and output = 5000,then absorption equals