Question 1

Canada's balance of payment accounts

Accepted Answer

A)  are a record of all Canadian international transactions. 
B)  are part of the national income accounting. 
C)  show a flow of funds into Canada as credit and the flow of funds out of Canada as debit. 
D)  all of the above. 
A)  are a record of all Canadian international transactions. 
B)  are part of the national income accounting. 
C)  show a flow of funds into Canada as credit and the flow of funds out of Canada as debit. 
D)  all of the above.

Question 2

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, de

Question 3

If a Canadian firm buys stereos from a Japanese firm and the Japanese firm uses the dollars it gets to buy Canadian Treasury bonds, what items are recorded in the Canadian balance of payments accounts?

Accepted Answer

A)  credit the trade account; credit the capital account 
B)  credit the trade account; debit the capital account 
C)  debit the trade account; debit the capital account 
D)  debit the trade account; credit the capital account 
A)  credit the trade account; credit the capital account 
B)  credit the trade account; debit the capital account 
C)  debit the trade account; debit the capital account 
D)  debit the trade account; credit the capital account

Question 4

Which of the statements below is not a reason for the high level of lending to less developed countries in the 1970s?

Accepted Answer

A)  Most countries borrow large amounts of money in the initial stages of development. 
B)  The world real interest rate was high in the 1970s. 
C)  In a growing developing economy, investment opportunities exceed the domestic population's capacity to save. 
D)  The OPEC price increases caused consumers in non-oil-exporting LDCs to reduce their savings. 
A)  Most countries borrow large amounts of money in the initial stages of development. 
B)  The world real interest rate was high in the 1970s. 
C)  In a growing developing economy, investment opportunities exceed the domestic population's capacity to save. 
D)  The OPEC price increases caused consumers in non-oil-exporting LDCs to reduce their savings.

Question 5

A large open economy is an economy

Accepted Answer

A)  that has a large government sector. 
B)  that has a positive net exports. 
C)  that is large enough to affect the world real interest rate. 
D)  that has a positive balance of payments. 
A)  that has a large government sector. 
B)  that has a positive net exports. 
C)  that is large enough to affect the world real interest rate. 
D)  that has a positive balance of payments.

Question 6

Suppose the government of a large open economy announces a major expansion of government spending to dig a tunnel to the earth's core, to be financed entirely by borrowing. What effect does this have on the world real interest rate, national saving, investment, and the current account balance in equilibrium?

Accepted Answer

Desired national saving shifts

Question 7

One important reason why the loans to less developed countries went bad was

Accepted Answer

A)  lower inflation rates in developed countries. 
B)  higher oil prices after 1982. 
C)  larger government deficits among developing countries. 
D)  higher interest rates in the early 1980s. 
A)  lower inflation rates in developed countries. 
B)  higher oil prices after 1982. 
C)  larger government deficits among developing countries. 
D)  higher interest rates in the early 1980s.

Question 8

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 9

A small open economy increases its investment demand. This causes the world real interest rate to ________ and the country's current account balance to ________.

Accepted Answer

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

Question 10

In a small open economy,
Sd = $20 billion + ($100 billion) r%
Id = $30 billion - ($100 billion) r%
Y = $70 billion
G = $20 billion
rw = .04.
a. Calculate the current account balance.
b. Calculate net exports.
c. Calculate desired consumption.
d. Calculate absorption.

Accepted Answer

a. -$2 billion
b. -$

Question 11

If Ricardian equivalence proposition is true, a budget deficit resulting from a tax cut will have

Accepted Answer

A)  no effect on government expenditures. 
B)  no effect on current account because it does not affect national saving. 
C)  no effect on current account because people expect to pay lower taxes in the future. 
D)  no effect on current account because people expect to increase their consumption. 
A)  no effect on government expenditures. 
B)  no effect on current account because it does not affect national saving. 
C)  no effect on current account because people expect to pay lower taxes in the future. 
D)  no effect on current account because people expect to increase their consumption.

Question 12

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 13

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 14

The world as a whole has a current account deficit because

Accepted Answer

A)  some countries export less than they import. 
B)  There are statistical discrepancies. 
C)  The United States and China have current account deficit. 
D)  Income from assets held abroad is misreported. 
A)  some countries export less than they import. 
B)  There are statistical discrepancies. 
C)  The United States and China have current account deficit. 
D)  Income from assets held abroad is misreported.

Question 15

For a small open economy, an increase in the world real interest rate would necessarily

Accepted Answer

A)  increase net foreign lending. 
B)  decrease net exports. 
C)  decrease the current account balance. 
D)  worsen the balance of payments. 
A)  increase net foreign lending. 
B)  decrease net exports. 
C)  decrease the current account balance. 
D)  worsen the balance of payments.

Question 16

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. r^w rises, S falls, I falls,

Question 17

In a large open economy like the United States, an increased government budget deficit that reduces national saving

Accepted Answer

A)  reduces investment and improves the current account balance. 
B)  reduces investment and reduces the current account balance. 
C)  has no effect on investment, but reduces the current account balance. 
D)  has no effect on either investment or the current account balance. 
A)  reduces investment and improves the current account balance. 
B)  reduces investment and reduces the current account balance. 
C)  has no effect on investment, but reduces the current account balance. 
D)  has no effect on either investment or the current account balance.

Question 18

Suppose output is $35 billion, government purchases are $10 billion, desired consumption is $15 billion, and desired investment is $6 billion. Net foreign lending would be equal to

Accepted Answer

A)  -$4 billion. 
B)  -$2 billion. 
C)  $2 billion. 
D)  $4 billion. 
A)  -$4 billion. 
B)  -$2 billion. 
C)  $2 billion. 
D)  $4 billion.

Question 19

A large open economy increases 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 20

The current account balance consists of

Accepted Answer

A)  the trade balance plus the services balance. 
B)  net exports of goods and services, minus net unilateral transfers. 
C)  net exports of goods and services, plus investment income from abroad, plus net unilateral transfers. 
D)  net exports of goods and services, plus investment income from abroad, plus net unilateral transfers, minus the capital account balance. 
A)  the trade balance plus the services balance. 
B)  net exports of goods and services, minus net unilateral transfers. 
C)  net exports of goods and services, plus investment income from abroad, plus net unilateral transfers. 
D)  net exports of goods and services, plus investment income from abroad, plus net unilateral transfers, minus the capital account balance.

Canada's balance of payment accounts

If a Canadian firm buys stereos from a Japanese firm and the Japanese firm uses the dollars it gets to buy Canadian Treasury bonds, what items are recorded in the Canadian balance of payments accounts?

Which of the statements below is not a reason for the high level of lending to less developed countries in the 1970s?

A large open economy is an economy

One important reason why the loans to less developed countries went bad was

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

A small open economy increases its investment demand. This causes the world real interest rate to and the country's current account balance to .

In a small open economy, S^d = $20 billion + ($100 billion) r% I^d = $30 billion - ($100 billion) r% Y = $70 billion G = $20 billion r^w = .04. a. Calculate the current account balance. b. Calculate net exports. c. Calculate desired consumption. d. Calculate absorption.

If Ricardian equivalence proposition is true, a budget deficit resulting from a tax cut will have

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

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

The world as a whole has a current account deficit because

For a small open economy, an increase in the world real interest rate would necessarily

In a large open economy like the United States, an increased government budget deficit that reduces national saving

Suppose output is $35 billion, government purchases are $10 billion, desired consumption is $15 billion, and desired investment is $6 billion. Net foreign lending would be equal to

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

The current account balance consists of

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-LMAD-AS Model: A General Framework for Macroeconomic Analysis

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

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

Canada's balance of payment accounts

If a Canadian firm buys stereos from a Japanese firm and the Japanese firm uses the dollars it gets to buy Canadian Treasury bonds, what items are recorded in the Canadian balance of payments accounts?

Which of the statements below is not a reason for the high level of lending to less developed countries in the 1970s?

A large open economy is an economy

One important reason why the loans to less developed countries went bad was

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

A small open economy increases its investment demand. This causes the world real interest rate to ________ and the country's current account balance to ________.

In a small open economy, Sd = $20 billion + ($100 billion) r% Id = $30 billion - ($100 billion) r% Y = $70 billion G = $20 billion rw = .04. a. Calculate the current account balance. b. Calculate net exports. c. Calculate desired consumption. d. Calculate absorption.

If Ricardian equivalence proposition is true, a budget deficit resulting from a tax cut will have

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

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

The world as a whole has a current account deficit because

For a small open economy, an increase in the world real interest rate would necessarily

In a large open economy like the United States, an increased government budget deficit that reduces national saving

Suppose output is $35 billion, government purchases are $10 billion, desired consumption is $15 billion, and desired investment is $6 billion. Net foreign lending would be equal to

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

The current account balance consists of

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-LMAD-AS Model: A General Framework for Macroeconomic Analysis

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

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

A small open economy increases its investment demand. This causes the world real interest rate to and the country's current account balance to .

In a small open economy, S^d = $20 billion + ($100 billion) r% I^d = $30 billion - ($100 billion) r% Y = $70 billion G = $20 billion r^w = .04. a. Calculate the current account balance. b. Calculate net exports. c. Calculate desired consumption. d. Calculate absorption.

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

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