Question 1

Suppose that the euro depreciates against the dollar. Assuming all other factors remain constant, the real exchange rate of euros to Australian dollars will:

Accepted Answer

A) increase. 
B) decrease. 
C) increase and then decrease. 
D) remain constant. 
A) increase. 
B) decrease. 
C) increase and then decrease. 
D) remain constant.

Question 2

The 'current account balance' is defined as:

Accepted Answer

A) exports minus imports. 
B) the value of net exports + net primary income + net secondary income. 
C) the amount of exported capital assets + net primary income. 
D) the value of exports + imports + net primary income. 
A) exports minus imports. 
B) the value of net exports + net primary income + net secondary income. 
C) the amount of exported capital assets + net primary income. 
D) the value of exports + imports + net primary income.

Question 3

An increase in net foreign investment is possible through either a decrease in national saving or a decrease in domestic investment.

Accepted Answer

A) True 
 B)False

Question 4

The major difference between an open economy and a closed economy is that:

Accepted Answer

A) an open economy interacts with the rest of the world, a closed economy does not. 
B) a closed economy uses rules rather than discretionary policy, an open economy uses discretionary policy. 
C) an open economy is a market economy while a closed economy relies on central planning. 
D) a closed economy balances budgets, an open economy does not. 
A) an open economy interacts with the rest of the world, a closed economy does not. 
B) a closed economy uses rules rather than discretionary policy, an open economy uses discretionary policy. 
C) an open economy is a market economy while a closed economy relies on central planning. 
D) a closed economy balances budgets, an open economy does not.

Question 5

How does contractionary monetary policy affect interest rates and net exports in an open economy?

Accepted Answer

A) Contractionary monetary policy increases exports and reduces imports because of higher interest rates. 
B) Contractionary monetary policy reduces exports and increases imports because of higher interest rates. 
C) Contractionary monetary policy increases exports and increases imports because of lower interest rates. 
D) Contractionary monetary policy reduces exports and reduces imports because of lower interest rates. 
A) Contractionary monetary policy increases exports and reduces imports because of higher interest rates. 
B) Contractionary monetary policy reduces exports and increases imports because of higher interest rates. 
C) Contractionary monetary policy increases exports and increases imports because of lower interest rates. 
D) Contractionary monetary policy reduces exports and reduces imports because of lower interest rates.

Question 6

A decrease in capital outflows from Australia 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 7

An economy that does not have interactions in trade or finance with other economies is referred to as:

Accepted Answer

A) an open economy. 
B) a closed economy. 
C) a trade-balanced economy. 
D) a zero foreign investment economy. 
A) an open economy. 
B) a closed economy. 
C) a trade-balanced economy. 
D) a zero foreign investment economy.

Question 8

An excess demand of the dollar in exchange for yen will cause:

Accepted Answer

A) no change in the exchange rate of the yen to the dollar. 
B) the dollar to depreciate relative to the yen. 
C) the yen to depreciate against all major currencies. 
D) the dollar to appreciate relative to the yen. 
A) no change in the exchange rate of the yen to the dollar. 
B) the dollar to depreciate relative to the yen. 
C) the yen to depreciate against all major currencies. 
D) the dollar to appreciate relative to the yen.

Question 9

Monetary policy has a ________ effect on aggregate demand in a(n)________ economy, and fiscal policy has a ________ effect on aggregate demand in a(n)________ economy.

Accepted Answer

A) weaker; open; weaker; open 
B) weaker; closed; stronger; closed 
C) stronger; open; weaker; closed 
D) stronger; closed; weaker; open 
A) weaker; open; weaker; open 
B) weaker; closed; stronger; closed 
C) stronger; open; weaker; closed 
D) stronger; closed; weaker; open

Question 10

If Australian demand for purchases of British goods has decreased, how would you expect the equilibrium exchange rate in the market for dollars to respond? Support your answer graphically.
_____________________________________________________________________________________________
_____________________________________________________________________________________________

Accepted Answer

@#IMG-DLM& If Australians are demanding fewer Brit

Question 11

If the Australian government sells a bond to the Bank of China, how is this recorded in Australia's balance of payments?

Accepted Answer

A) a positive entry on the trade account 
B) capital inflow into Australia's financial account 
C) a negative entry on the financial account 
D) an increase in foreign direct investment into Australia 
A) a positive entry on the trade account 
B) capital inflow into Australia's financial account 
C) a negative entry on the financial account 
D) an increase in foreign direct investment into Australia

Question 12

What is the relationship across the current account, the capital account, the financial account and the balance of payments?
_____________________________________________________________________________________________
_____________________________________________________________________________________________

Accepted Answer

Leaving aside the statistical discrepanc

Question 13

When imports are greater than exports, there will be a net capital outflow.

Accepted Answer

A) True 
 B)False

Question 14

When an Australian investor buys a bond issued in a foreign country, ceteris paribus, the:

Accepted Answer

A) balance on the capital account decreases. 
B) balance on the current account decreases. 
C) balance on the financial account decreases. 
D) balance of trade on goods and services decreases. 
A) balance on the capital account decreases. 
B) balance on the current account decreases. 
C) balance on the financial account decreases. 
D) balance of trade on goods and services decreases.

Question 15

Explain what the 'financial account' measures.
_____________________________________________________________________________________________
_____________________________________________________________________________________________

Accepted Answer

The financial account records purchases

Question 16

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 17

The dollar will appreciate relative to the yen if, ceteris paribus:

Accepted Answer

A) Australian interest rates decrease relative to interest rates in other countries. 
B) income in Japan falls. 
C) speculators think the value of the dollar relative to the yen will rise. 
D) there is a recession in Japan. 
A) Australian interest rates decrease relative to interest rates in other countries. 
B) income in Japan falls. 
C) speculators think the value of the dollar relative to the yen will rise. 
D) there is a recession in Japan.

Question 18

What is the 'real exchange rate' and how is it calculated?
_____________________________________________________________________________________________
_____________________________________________________________________________________________

Accepted Answer

The real exchange rate is the price of d

Question 19

Why is the net primary income component in Australia's current account always negative?
_____________________________________________________________________________________________
_____________________________________________________________________________________________

Accepted Answer

As Australia's domestic saving is low, A

Question 20

Suppose that large budget deficits in Australia lead to an increase in Australian interest rates. What effect will the increase in interest rates have on the value of the dollar relative to the $US? What will happen to net exports and aggregate demand as a result?
_____________________________________________________________________________________________
_____________________________________________________________________________________________

Accepted Answer

The increase in interest rates makes inv

Suppose that the euro depreciates against the dollar. Assuming all other factors remain constant, the real exchange rate of euros to Australian dollars will:

The 'current account balance' is defined as:

An increase in net foreign investment is possible through either a decrease in national saving or a decrease in domestic investment.

The major difference between an open economy and a closed economy is that:

How does contractionary monetary policy affect interest rates and net exports in an open economy?

A decrease in capital outflows from Australia will:

An economy that does not have interactions in trade or finance with other economies is referred to as:

An excess demand of the dollar in exchange for yen will cause:

Monetary policy has a effect on aggregate demand in a(n) economy, and fiscal policy has a effect on aggregate demand in a(n) economy.

If Australian demand for purchases of British goods has decreased, how would you expect the equilibrium exchange rate in the market for dollars to respond? Support your answer graphically. _ _

If the Australian government sells a bond to the Bank of China, how is this recorded in Australia's balance of payments?

What is the relationship across the current account, the capital account, the financial account and the balance of payments? _ _

When imports are greater than exports, there will be a net capital outflow.

When an Australian investor buys a bond issued in a foreign country, ceteris paribus, the:

Explain what the 'financial account' measures. _ _

In an open economy, expansionary monetary policy will cause:

The dollar will appreciate relative to the yen if, ceteris paribus:

What is the 'real exchange rate' and how is it calculated? _ _

Why is the net primary income component in Australia's current account always negative? _ _

Suppose that large budget deficits in Australia lead to an increase in Australian interest rates. What effect will the increase in interest rates have on the value of the dollar relative to the $US? What will happen to net exports and aggregate demand as a result? _ _

Economics: Foundations and Models

Choices and Trade Offs in the Market

Where Prices Come From: the Interaction of Demand and Supply

Gdp: Measuring Total Production, Income and Economic Growth

Economic Growth, the Financial System and Business Cycles

Long-Run Economic Growth: Sources and Policies

Unemployment

Inflation

Aggregate Expenditure and Output in the Short Run

Aggregate Demand and Aggregate Supply Analysis

Money, Banks and the Reserve Bank of Australia

Monetary Policy

Fiscal Policy

The International Financial System

Filters

Exam 14: Macroeconomics in an Open Economy

Suppose that the euro depreciates against the dollar. Assuming all other factors remain constant, the real exchange rate of euros to Australian dollars will:

The 'current account balance' is defined as:

An increase in net foreign investment is possible through either a decrease in national saving or a decrease in domestic investment.

The major difference between an open economy and a closed economy is that:

How does contractionary monetary policy affect interest rates and net exports in an open economy?

A decrease in capital outflows from Australia will:

An economy that does not have interactions in trade or finance with other economies is referred to as:

An excess demand of the dollar in exchange for yen will cause:

Monetary policy has a ________ effect on aggregate demand in a(n)________ economy, and fiscal policy has a ________ effect on aggregate demand in a(n)________ economy.

If the Australian government sells a bond to the Bank of China, how is this recorded in Australia's balance of payments?

When imports are greater than exports, there will be a net capital outflow.

When an Australian investor buys a bond issued in a foreign country, ceteris paribus, the:

Explain what the 'financial account' measures. _____________________________________________________________________________________________ _____________________________________________________________________________________________

In an open economy, expansionary monetary policy will cause:

The dollar will appreciate relative to the yen if, ceteris paribus:

What is the 'real exchange rate' and how is it calculated? _____________________________________________________________________________________________ _____________________________________________________________________________________________

Why is the net primary income component in Australia's current account always negative? _____________________________________________________________________________________________ _____________________________________________________________________________________________

Economics: Foundations and Models

Choices and Trade Offs in the Market

Where Prices Come From: the Interaction of Demand and Supply

Gdp: Measuring Total Production, Income and Economic Growth

Economic Growth, the Financial System and Business Cycles

Long-Run Economic Growth: Sources and Policies

Unemployment

Inflation

Aggregate Expenditure and Output in the Short Run

Aggregate Demand and Aggregate Supply Analysis

Money, Banks and the Reserve Bank of Australia

Monetary Policy

Fiscal Policy

The International Financial System

Filters

Monetary policy has a effect on aggregate demand in a(n) economy, and fiscal policy has a effect on aggregate demand in a(n) economy.

Explain what the 'financial account' measures. _ _

What is the 'real exchange rate' and how is it calculated? _ _

Why is the net primary income component in Australia's current account always negative? _ _