Question 1

How does a decrease in value of a country's currency relative to other currencies affect its balance of trade?

Accepted Answer

A) A decrease in value of a country's currency relative to other currencies raises imports, reduces exports, and reduces the balance of trade. 
B) A decrease in value of a country's currency relative to other currencies reduces imports, raises exports, and reduces the balance of trade. 
C) A decrease in value of a country's currency relative to other currencies reduces imports, raises exports, and increases the balance of trade. 
D) A decrease in value of a country's currency relative to other currencies raises imports, reduces exports, and increases the balance of trade. 
E) A decrease in value of a country's currency relative to other currencies reduces imports, reduces exports, and reduces the balance of trade. 
A) A decrease in value of a country's currency relative to other currencies raises imports, reduces exports, and reduces the balance of trade. 
B) A decrease in value of a country's currency relative to other currencies reduces imports, raises exports, and reduces the balance of trade. 
C) A decrease in value of a country's currency relative to other currencies reduces imports, raises exports, and increases the balance of trade. 
D) A decrease in value of a country's currency relative to other currencies raises imports, reduces exports, and increases the balance of trade. 
E) A decrease in value of a country's currency relative to other currencies reduces imports, reduces exports, and reduces the balance of trade.

Question 2

The current account does not include which of the following?

Accepted Answer

A) exports of maple syrup to Vermont 
B) income received by Canadians from foreign investments 
C) transfers made to residents of other countries by Canadians 
D) purchases of shares in Toyota by Canadians 
E) imports of Kia cars from South Korea 
A) exports of maple syrup to Vermont 
B) income received by Canadians from foreign investments 
C) transfers made to residents of other countries by Canadians 
D) purchases of shares in Toyota by Canadians 
E) imports of Kia cars from South Korea

Question 3

Use the saving and investment equation to explain why Canada experienced large current account deficits in the late 1990s.

Accepted Answer

Investment in Canada was greater than sa

Question 4

If the exchange rate changes from $2.00 = £1 to $2.01 = £1 then

Accepted Answer

A) the dollar has depreciated. 
B) the dollar has appreciated. 
C) the British pound has depreciated. 
D) supply of pounds has increased. 
E) demand for dollars has increased. 
A) the dollar has depreciated. 
B) the dollar has appreciated. 
C) the British pound has depreciated. 
D) supply of pounds has increased. 
E) demand for dollars has increased.

Question 5

Net exports equals the balance of trade surplus.

Accepted Answer

A) True 
 B)False

Question 6

Based on the following information, what is the balance of the current account? Exports of goods and services = $12 billion
Imports of goods and services = $14 billion
Net income on investments = -$4 billion
Net transfers = -$1 billion
Increase in foreign holdings of assets in Canada = $6 billion
Increase in Canadian holdings of assets in foreign countries = -$3 billion

Accepted Answer

A) -$7 billion 
B) -$3 billion 
C) -$2 billion 
D) $1 billion 
E) $3 billion 
A) -$7 billion 
B) -$3 billion 
C) -$2 billion 
D) $1 billion 
E) $3 billion

Question 7

If net foreign investment in Canada is positive, how must national saving and domestic investment be related? (Assume that the capital account is zero and net transfers are zero.)

Accepted Answer

A) Domestic investment and national saving must also be positive. 
B) Domestic investment must be less than national saving. 
C) Domestic investment must be greater than national saving. 
D) Domestic investment can be greater than or less than national saving. 
E) Domestic investment must be falling. 
A) Domestic investment and national saving must also be positive. 
B) Domestic investment must be less than national saving. 
C) Domestic investment must be greater than national saving. 
D) Domestic investment can be greater than or less than national saving. 
E) Domestic investment must be falling.

Question 8

A federal budget deficit ________ interest rates, which ________ exchange rates (foreign currency per domestic currency)and ________ the balance of trade.

Accepted Answer

A) raises; raises; reduces 
B) reduces; raises; reduces 
C) raises; reduces; reduces 
D) reduces; reduces; raises 
E) raises; raises; raises 
A) raises; raises; reduces 
B) reduces; raises; reduces 
C) raises; reduces; reduces 
D) reduces; reduces; raises 
E) raises; raises; raises

Question 9

An increase in capital inflows will

Accepted Answer

A) increase net foreign investment. 
B) increase capital outflows. 
C) decrease capital outflows. 
D) increase the equilibrium exchange rate. 
E) make the balance of payments positive. 
A) increase net foreign investment. 
B) increase capital outflows. 
C) decrease capital outflows. 
D) increase the equilibrium exchange rate. 
E) make the balance of payments positive.

Question 10

A decision by foreign central banks to sell their holdings of Canadian bonds will

Accepted Answer

A) lower bond prices and interest rates in Canada. 
B) increase bond prices and interest rates in Canada. 
C) increase bond prices and lower interest rates in Canada. 
D) lower bond prices and increase interest rates in Canada. 
A) lower bond prices and interest rates in Canada. 
B) increase bond prices and interest rates in Canada. 
C) increase bond prices and lower interest rates in Canada. 
D) lower bond prices and increase interest rates in Canada.

Question 11

If the demand for the yen increases relative to the Canadian dollar, which of the following would occur?

Accepted Answer

A) The Canadian dollar will appreciate. 
B) The yen will depreciate. 
C) The Canadian dollar will depreciate. 
D) The demand for the Canadian dollar will increase. 
E) The quantity of yen will decrease. 
A) The Canadian dollar will appreciate. 
B) The yen will depreciate. 
C) The Canadian dollar will depreciate. 
D) The demand for the Canadian dollar will increase. 
E) The quantity of yen will decrease.

Question 12

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

Question 13

What two measures of macroeconomic activity are often referred to as the "twin deficits"?

Accepted Answer

A) net capital flows and net exports 
B) the foreign exchange deficit and net foreign investment 
C) the budget deficit and net exports 
D) the saving-investment deficit and the export deficit 
E) household and corporate debt 
A) net capital flows and net exports 
B) the foreign exchange deficit and net foreign investment 
C) the budget deficit and net exports 
D) the saving-investment deficit and the export deficit 
E) household and corporate debt

Question 14

Figure 14.3   Alt text for Figure 14.3: In figure 14.3, a graph illustrates the quantity of dollars traded against the exchange rate.
Long description for Figure 14.3: The x-axis is labelled, quantity of dollars traded in millions per day, and the y-axis is labelled, exchange rate, Japanese yen against Canadian dollars, with the values 150 and 160 yen marked.2 straight line supply curves slope up from the bottom left corner to the top right corner.Supply curve D is a straight line which slopes down from the top left corner to the bottom right corner.Supply curves, S1 and S2, intersect curve D.The intersection point of S1 and D is connected to its corresponding y-axis value of 150 with a dotted line.The intersection point of S2 and D is connected to its corresponding y-axis value of 160 with a dotted line.An up pointing arrow indicates the difference between the 2 y-axis values.A left pointing arrow indicates the change from curve S1 to curve S2.
-Refer to Figure 14.3.Consider the market for Canadian dollars against the Japanese yen shown above.An event that could have caused the changes shown in the graph would be

Accepted Answer

A) an increase in Canadian real income. 
B) speculators expecting the dollar to depreciate in value in the near future. 
C) an economic expansion in Canada. 
D) a decrease in Japanese interest rates. 
E) the imposition of a tax on foreign investment in Canada. 
A) an increase in Canadian real income. 
B) speculators expecting the dollar to depreciate in value in the near future. 
C) an economic expansion in Canada. 
D) a decrease in Japanese interest rates. 
E) the imposition of a tax on foreign investment in Canada.

Question 15

If Ontarians increase their purchases of Italian wine, assuming all else remains constant, this will ________ of Canada.

Accepted Answer

A) decrease the balance of trade 
B) increase net exports 
C) increase the current account balance 
D) decrease the trade deficit 
E) decrease the balance of payments 
A) decrease the balance of trade 
B) increase net exports 
C) increase the current account balance 
D) decrease the trade deficit 
E) decrease the balance of payments

Question 16

How would a decrease in the Canadian budget deficit affect the exchange rate in the market for dollars?

Accepted Answer

A) The exchange rate will increase. 
B) The exchange rate will decrease. 
C) The quantity of dollars traded for foreign currencies will rise. 
D) The exchange rate will not be affected by a change in the budget deficit. 
E) The impact of the decrease in the budget deficit on the exchange rate cannot be predicted. 
A) The exchange rate will increase. 
B) The exchange rate will decrease. 
C) The quantity of dollars traded for foreign currencies will rise. 
D) The exchange rate will not be affected by a change in the budget deficit. 
E) The impact of the decrease in the budget deficit on the exchange rate cannot be predicted.

Question 17

Canada usually exports ________ goods than it imports and exports ________ services than it imports.

Accepted Answer

A) more; more 
B) more; fewer 
C) fewer; more 
D) fewer; fewer 
A) more; more 
B) more; fewer 
C) fewer; more 
D) fewer; fewer

Question 18

Holding all else constant, an economic expansion in Mexico should decrease the demand for U.S.dollars.

Accepted Answer

A) True 
 B)False

Question 19

If the balance on the current account is $842 billion and the balance on the financial account is -$603 billion, what is the balance on the capital account, assuming no statistical discrepancy?

Accepted Answer

A) $1,445 billion 
B) $842 billion 
C) $239 billion 
D) $0 
E) -$239 billion 
A) $1,445 billion 
B) $842 billion 
C) $239 billion 
D) $0 
E) -$239 billion

Question 20

Which of the groups below would benefit from a fall in the value of the Canadian dollar?

Accepted Answer

A) Canadian consumers of imports. 
B) Canadian firms selling to other countries. 
C) Canadian firms with operations in other countries. 
D) Canadian firms that have borrowed from savers in other countries. 
E) Canadian families planning foreign vacations. 
A) Canadian consumers of imports. 
B) Canadian firms selling to other countries. 
C) Canadian firms with operations in other countries. 
D) Canadian firms that have borrowed from savers in other countries. 
E) Canadian families planning foreign vacations.

How does a decrease in value of a country's currency relative to other currencies affect its balance of trade?

The current account does not include which of the following?

Use the saving and investment equation to explain why Canada experienced large current account deficits in the late 1990s.

If the exchange rate changes from $2.00 = £1 to $2.01 = £1 then

Net exports equals the balance of trade surplus.

If net foreign investment in Canada is positive, how must national saving and domestic investment be related? (Assume that the capital account is zero and net transfers are zero.)

A federal budget deficit interest rates, which exchange rates (foreign currency per domestic currency)and the balance of trade.

An increase in capital inflows will

A decision by foreign central banks to sell their holdings of Canadian bonds will

If the demand for the yen increases relative to the Canadian dollar, which of the following would occur?

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

What two measures of macroeconomic activity are often referred to as the "twin deficits"?

If Ontarians increase their purchases of Italian wine, assuming all else remains constant, this will ________ of Canada.

How would a decrease in the Canadian budget deficit affect the exchange rate in the market for dollars?

Canada usually exports goods than it imports and exports services than it imports.

Holding all else constant, an economic expansion in Mexico should decrease the demand for U.S.dollars.

If the balance on the current account is $842 billion and the balance on the financial account is -$603 billion, what is the balance on the capital account, assuming no statistical discrepancy?

Which of the groups below would benefit from a fall in the value of the Canadian dollar?

Economics: Foundations and Models

Trade-Offs, Comparative Advantage, and the Market System

Where Prices Come From: The Interaction of Supply and Demand

GDP: Measuring Total Production and Income

Unemployment and Inflation

Economic Growth, The Financial System, and Business Cycles

Long-Run Economic Growth: Sources and Policies

Aggregate Expenditure and Output in the Short Run

Aggregate Demand and Aggregate Supply Analysis

Money, Banks, and the Bank of Canada

Monetary Policy

Fiscal Policy

Inflation, Unemployment, and Bank of Canada Policy

The International Financial System

Filters

Exam 14: Macroeconomics in an Open Economy

How does a decrease in value of a country's currency relative to other currencies affect its balance of trade?

The current account does not include which of the following?

Use the saving and investment equation to explain why Canada experienced large current account deficits in the late 1990s.

If the exchange rate changes from $2.00 = £1 to $2.01 = £1 then

Net exports equals the balance of trade surplus.

If net foreign investment in Canada is positive, how must national saving and domestic investment be related? (Assume that the capital account is zero and net transfers are zero.)

A federal budget deficit ________ interest rates, which ________ exchange rates (foreign currency per domestic currency)and ________ the balance of trade.

An increase in capital inflows will

A decision by foreign central banks to sell their holdings of Canadian bonds will

If the demand for the yen increases relative to the Canadian dollar, which of the following would occur?

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

What two measures of macroeconomic activity are often referred to as the "twin deficits"?

If Ontarians increase their purchases of Italian wine, assuming all else remains constant, this will ________ of Canada.

How would a decrease in the Canadian budget deficit affect the exchange rate in the market for dollars?

Canada usually exports ________ goods than it imports and exports ________ services than it imports.

Holding all else constant, an economic expansion in Mexico should decrease the demand for U.S.dollars.

If the balance on the current account is $842 billion and the balance on the financial account is -$603 billion, what is the balance on the capital account, assuming no statistical discrepancy?

Which of the groups below would benefit from a fall in the value of the Canadian dollar?

Economics: Foundations and Models

Trade-Offs, Comparative Advantage, and the Market System

Where Prices Come From: The Interaction of Supply and Demand

GDP: Measuring Total Production and Income

Unemployment and Inflation

Economic Growth, The Financial System, and Business Cycles

Long-Run Economic Growth: Sources and Policies

Aggregate Expenditure and Output in the Short Run

Aggregate Demand and Aggregate Supply Analysis

Money, Banks, and the Bank of Canada

Monetary Policy

Fiscal Policy

Inflation, Unemployment, and Bank of Canada Policy

The International Financial System

Filters

A federal budget deficit interest rates, which exchange rates (foreign currency per domestic currency)and the balance of trade.

Canada usually exports goods than it imports and exports services than it imports.