Question 1

The official settlements balance equals

Accepted Answer

A)  the sum of the current account and the capital account. 
B)  the current account minus net unilateral transfers. 
C)  net investment income from abroad. 
D)  the net increase in a country's official reserve assets. 
A)  the sum of the current account and the capital account. 
B)  the current account minus net unilateral transfers. 
C)  net investment income from abroad. 
D)  the net increase in a country's official reserve assets.

Question 2

If there are no factor payments from abroad and no unilateral transfers, net exports of $10 billion is the same as

Accepted Answer

A)  a current account deficit of $10 billion. 
B)  a capital account surplus of $10 billion. 
C)  net acquisition of foreign assets of $10 billion. 
D)  net foreign borrowing of $10 billion. 
A)  a current account deficit of $10 billion. 
B)  a capital account surplus of $10 billion. 
C)  net acquisition of foreign assets of $10 billion. 
D)  net foreign borrowing of $10 billion.

Question 3

A small open economy has a current account balance of zero. A rise in its investment demand causes

Accepted Answer

A)  a current account surplus. 
B)  a capital account deficit. 
C)  income to exceed absorption. 
D)  net borrowing from abroad. 
A)  a current account surplus. 
B)  a capital account deficit. 
C)  income to exceed absorption. 
D)  net borrowing from abroad.

Question 4

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

Accepted Answer

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

Question 5

A friend claims that Canada is a net international debtor. The best way of testing this claim is to

Accepted Answer

A)  see whether Canadian foreign liabilities exceeded Canadian foreign income. 
B)  see whether Canadian receipts from foreign assets exceeded Canadian payments to foreign owners of Canadian assets. 
C)  see whether Canadian official reserve assets were positive or negative. 
D)  see whether Canada ran a balance of payments surplus or deficit last year. 
A)  see whether Canadian foreign liabilities exceeded Canadian foreign income. 
B)  see whether Canadian receipts from foreign assets exceeded Canadian payments to foreign owners of Canadian assets. 
C)  see whether Canadian official reserve assets were positive or negative. 
D)  see whether Canada ran a balance of payments surplus or deficit last year.

Question 6

The merchandise trade balance is a country's

Accepted Answer

A)  exports of goods. 
B)  net exports of goods. 
C)  exports of goods and services. 
D)  net exports of goods and services. 
A)  exports of goods. 
B)  net exports of goods. 
C)  exports of goods and services. 
D)  net exports of goods and services.

Question 7

When there are two large open economies, the world real interest rate will be such that

Accepted Answer

A)  desired international lending by one country equals desired international borrowing by the other country. 
B)  desired international lending will be the same in both countries. 
C)  desired international borrowing will be the same in both countries. 
D)  desired international lending and borrowing will be zero in both countries. 
A)  desired international lending by one country equals desired international borrowing by the other country. 
B)  desired international lending will be the same in both countries. 
C)  desired international borrowing will be the same in both countries. 
D)  desired international lending and borrowing will be zero in both countries.

Question 8

If business taxes rise in a large open economy, it causes the current account to ________ and saving 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 9

You have just read in the newspaper that a hurricane has destroyed Guatemala's coffee crop for this year. Guatemala is a small open economy. Based on this information alone, you would expect that

Accepted Answer

A)  desired investment would fall in Guatemala. 
B)  desired investment would increase in Guatemala. 
C)  net foreign lending by Guatemala would increase. 
D)  net foreign lending by Guatemala would decrease. 
A)  desired investment would fall in Guatemala. 
B)  desired investment would increase in Guatemala. 
C)  net foreign lending by Guatemala would increase. 
D)  net foreign lending by Guatemala would decrease.

Question 10

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, S^{d +}S^d_For = I^d + I^d_For, so that 6

Question 11

A large 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 12

Suppose output is $35 billion, government purchases are $10 billion, desired consumption is $15 billion, and desired investment is $6 billion. Desired savings is equal to

Accepted Answer

A)  $2 billion. 
B)  $10 billion. 
C)  $14 billion. 
D)  $16 billion. 
A)  $2 billion. 
B)  $10 billion. 
C)  $14 billion. 
D)  $16 billion.

Question 13

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 14

If there is an increase in taxes on business firms in a small open economy, it causes the current account to ________ and saving ________.

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 15

A small 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 16

Sweetland economy's GDP is $2000 billion, desired consumption spending $1200 billion, desired investment spending $500 billion, and government purchases $400 billion. The Sweetland economy's absorption is

Accepted Answer

A)  $2000 billion. 
B)  $1200 billion. 
C)  $2100 billion. 
D)  -$100 billion. 
A)  $2000 billion. 
B)  $1200 billion. 
C)  $2100 billion. 
D)  -$100 billion.

Question 17

When future labour income falls in a large open economy, it causes the current account to ________ and investment 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 18

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 Sd = 30 + 200 rw. 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 =

Question 19

When a temporary adverse supply shock hits a small 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

The official settlements balance equals

If there are no factor payments from abroad and no unilateral transfers, net exports of $10 billion is the same as

A small open economy has a current account balance of zero. A rise in its investment demand causes

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

A friend claims that Canada is a net international debtor. The best way of testing this claim is to

The merchandise trade balance is a country's

When there are two large open economies, the world real interest rate will be such that

If business taxes rise in a large open economy, it causes the current account to and saving to .

You have just read in the newspaper that a hurricane has destroyed Guatemala's coffee crop for this year. Guatemala is a small open economy. Based on this information alone, you would expect that

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

Suppose output is $35 billion, government purchases are $10 billion, desired consumption is $15 billion, and desired investment is $6 billion. Desired savings is equal to

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

If there is an increase in taxes on business firms in a small open economy, it causes the current account to and saving .

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

Sweetland economy's GDP is $2000 billion, desired consumption spending $1200 billion, desired investment spending $500 billion, and government purchases $400 billion. The Sweetland economy's absorption is

When future labour income falls in a large open economy, it causes the current account to and investment to .

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

The official settlements balance equals

If there are no factor payments from abroad and no unilateral transfers, net exports of $10 billion is the same as

A small open economy has a current account balance of zero. A rise in its investment demand causes

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

A friend claims that Canada is a net international debtor. The best way of testing this claim is to

The merchandise trade balance is a country's

When there are two large open economies, the world real interest rate will be such that

If business taxes rise in a large open economy, it causes the current account to ________ and saving to ________.

You have just read in the newspaper that a hurricane has destroyed Guatemala's coffee crop for this year. Guatemala is a small open economy. Based on this information alone, you would expect that

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

Suppose output is $35 billion, government purchases are $10 billion, desired consumption is $15 billion, and desired investment is $6 billion. Desired savings is equal to

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

If there is an increase in taxes on business firms in a small open economy, it causes the current account to ________ and saving ________.

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

Sweetland economy's GDP is $2000 billion, desired consumption spending $1200 billion, desired investment spending $500 billion, and government purchases $400 billion. The Sweetland economy's absorption is

When future labour income falls in a large open economy, it causes the current account to ________ and investment to ________.

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

If business taxes rise in a large open economy, it causes the current account to and saving to .

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

If there is an increase in taxes on business firms in a small open economy, it causes the current account to and saving .

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

When future labour income falls in a large open economy, it causes the current account to and investment to .

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