Question 1

In recent decades the United States has incurred overall balance of payments deficits.

Accepted Answer

A) True 
 B)False

Question 2

Which of the following would increase the balance on the current account?

Accepted Answer

A) an increase in foreign direct investment 
B) an increase in the amount of aid money the government sends abroad 
C) an increase in imports 
D) an increase in the balance of trade 
A) an increase in foreign direct investment 
B) an increase in the amount of aid money the government sends abroad 
C) an increase in imports 
D) an increase in the balance of trade

Question 3

Explain how "net capital flows" are related to "net foreign investment," "net foreign direct investment," and "net foreign portfolio investment."

Accepted Answer

Net capital flows measure the difference

Question 4

A decrease in United States net foreign direct investment would occur if

Accepted Answer

A) U.S.citizens have decreased the value of foreign stocks and bonds they own. 
B) U.S.citizens have decreased their building or purchasing of facilities in foreign countries. 
C) net foreign investment decreases. 
D) net capital flows increase. 
A) U.S.citizens have decreased the value of foreign stocks and bonds they own. 
B) U.S.citizens have decreased their building or purchasing of facilities in foreign countries. 
C) net foreign investment decreases. 
D) net capital flows increase.

Question 5

If Californians increase their purchases of Italian wine,assuming all else remains constant,this will ________ of the United States.

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 6

If foreign holdings of U.S.dollars increase,holding all else constant

Accepted Answer

A) the balance on the U.S.financial account will increase. 
B) the balance on the U.S.current account will increase. 
C) the balance on the U.S.capital account will increase. 
D) the U.S.balance of trade will increase. 
A) the balance on the U.S.financial account will increase. 
B) the balance on the U.S.current account will increase. 
C) the balance on the U.S.capital account will increase. 
D) the U.S.balance of trade will increase.

Question 7

How does a decrease in the federal budget deficit affect the demand for dollars and the supply of dollars on the foreign exchange market?

Accepted Answer

A) The demand for dollars falls,and the supply of dollars falls. 
B) The demand for dollars rises,and the supply of dollars rises. 
C) The demand for dollars rises,and the supply of dollars falls. 
D) The demand for dollars falls,and the supply of dollars rises. 
A) The demand for dollars falls,and the supply of dollars falls. 
B) The demand for dollars rises,and the supply of dollars rises. 
C) The demand for dollars rises,and the supply of dollars falls. 
D) The demand for dollars falls,and the supply of dollars rises.

Question 8

You're traveling in Ireland and are thinking about buying a new digital camera.You've decided you'd be willing to pay $125 for a new camera,but cameras in Ireland are all priced in euros.If the camera you're looking at costs 115 euros,under which of the following exchange rates would you be willing to purchase the camera? (Assume no taxes or duties are associated with the purchase.)

Accepted Answer

A) 0.56 euros per dollar 
B) 0.89 euros per dollar 
C) 0.92 euros per dollar 
D) You would purchase the new camera at any of the above exchange rates. 
A) 0.56 euros per dollar 
B) 0.89 euros per dollar 
C) 0.92 euros per dollar 
D) You would purchase the new camera at any of the above exchange rates.

Question 9

Since 1999,the U.S.________ account has recorded relatively minor transactions,such as migrants' transfers,and sales and purchases of nonproduced,nonfinancial assets.

Accepted Answer

A) current 
B) capital 
C) financial 
D) balance of trade account 
A) current 
B) capital 
C) financial 
D) balance of trade account

Question 10

Suppose the government cuts taxes.We would expect interest rates to ________ and the dollar to ________ in foreign exchange markets.

Accepted Answer

A) rise; appreciate 
B) rise; depreciate 
C) fall; depreciate 
D) fall; appreciate 
A) rise; appreciate 
B) rise; depreciate 
C) fall; depreciate 
D) fall; appreciate

Question 11

Suppose the Fed pursues a policy that leads to higher interest rates in the United States.How will this policy affect real GDP in the short run if the United States is an open economy? This policy

Accepted Answer

A) reduces investment spending,consumption spending and net exports,all of which reduce GDP. 
B) reduces investment spending and consumption spending,both of which reduce GDP.Net exports rise which increases GDP. 
C) reduces investment spending and consumption spending,both of which reduce GDP.Net exports fall which increases GDP. 
D) increases investment spending,consumption spending,and net exports,all of which increase GDP. 
A) reduces investment spending,consumption spending and net exports,all of which reduce GDP. 
B) reduces investment spending and consumption spending,both of which reduce GDP.Net exports rise which increases GDP. 
C) reduces investment spending and consumption spending,both of which reduce GDP.Net exports fall which increases GDP. 
D) increases investment spending,consumption spending,and net exports,all of which increase GDP.

Question 12

An increase in capital inflows will

Accepted Answer

A) increase net foreign investment. 
B) increase capital outflows. 
C) decrease capital outflows. 
D) increase the value of the domestic currency. 
A) increase net foreign investment. 
B) increase capital outflows. 
C) decrease capital outflows. 
D) increase the value of the domestic currency.

Question 13

Figure 18-2  
-Refer to Figure 18-2.Which of the events below cause the shifts in the supply and demand curves in the market for dollars against the British pound shown in the graph above?

Accepted Answer

A) Interest rates rise in England. 
B) Interest rates rise in the United States. 
C) Real income rises in the United States. 
D) Real income falls in England. 
A) Interest rates rise in England. 
B) Interest rates rise in the United States. 
C) Real income rises in the United States. 
D) Real income falls in England.

Question 14

Net foreign investment minus net foreign portfolio investment is equal to

Accepted Answer

A) capital outflows. 
B) net foreign financial investment. 
C) the balance of trade. 
D) net foreign direct investment. 
A) capital outflows. 
B) net foreign financial investment. 
C) the balance of trade. 
D) net foreign direct investment.

Question 15

Which of the following is "crowded out" by higher interest rates that can be the result of expansionary fiscal policy?

Accepted Answer

A) consumption 
B) private investment 
C) net exports 
D) All of the above are crowded out by higher interest rates. 
A) consumption 
B) private investment 
C) net exports 
D) All of the above are crowded out by higher interest rates.

Question 16

Japan has a fairly high saving rate and the level of saving in Japan is above domestic investment.Use the saving and investment equation to explain what Japan is doing with this excess of saving above domestic investment.

Accepted Answer

In an open economy,the saving and invest

Question 17

Based on the following information,what is the balance on 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 the United States = $6 billion
Increase in U.S.holdings of assets in foreign countries = -$3 billion

Accepted Answer

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

Question 18

If net exports are positive for China,it must be true that China is experiencing net outflows of capital.

Accepted Answer

A) True 
 B)False

Question 19

If the United States is a "net borrower" from abroad

Accepted Answer

A) the United States must be exporting more than it is importing. 
B) net capital flows must be negative. 
C) national saving is less than domestic investment. 
D) net foreign investment must be positive. 
A) the United States must be exporting more than it is importing. 
B) net capital flows must be negative. 
C) national saving is less than domestic investment. 
D) net foreign investment must be positive.

Question 20

When a foreign investor buys a bond issued in the United States

Accepted Answer

A) the balance on the capital account increases. 
B) the balance on the current account increases. 
C) the balance on the financial account increases. 
D) the balance of trade increases. 
A) the balance on the capital account increases. 
B) the balance on the current account increases. 
C) the balance on the financial account increases. 
D) the balance of trade increases.

In recent decades the United States has incurred overall balance of payments deficits.

Which of the following would increase the balance on the current account?

Explain how "net capital flows" are related to "net foreign investment," "net foreign direct investment," and "net foreign portfolio investment."

A decrease in United States net foreign direct investment would occur if

If Californians increase their purchases of Italian wine,assuming all else remains constant,this will ________ of the United States.

If foreign holdings of U.S.dollars increase,holding all else constant

How does a decrease in the federal budget deficit affect the demand for dollars and the supply of dollars on the foreign exchange market?

Since 1999,the U.S.________ account has recorded relatively minor transactions,such as migrants' transfers,and sales and purchases of nonproduced,nonfinancial assets.

Suppose the government cuts taxes.We would expect interest rates to and the dollar to in foreign exchange markets.

Suppose the Fed pursues a policy that leads to higher interest rates in the United States.How will this policy affect real GDP in the short run if the United States is an open economy? This policy

An increase in capital inflows will

Figure 18-2 -Refer to Figure 18-2.Which of the events below cause the shifts in the supply and demand curves in the market for dollars against the British pound shown in the graph above?

Net foreign investment minus net foreign portfolio investment is equal to

Which of the following is "crowded out" by higher interest rates that can be the result of expansionary fiscal policy?

Japan has a fairly high saving rate and the level of saving in Japan is above domestic investment.Use the saving and investment equation to explain what Japan is doing with this excess of saving above domestic investment.

If net exports are positive for China,it must be true that China is experiencing net outflows of capital.

If the United States is a "net borrower" from abroad

When a foreign investor buys a bond issued in the United States

Economics: Foundations and Models

Trade-Offs, Comparative Advantage, and the Market System

Where Prices Come From: The Interaction of Demand and Supply

Economic Efficiency, Government Price Setting, and Taxes

The Economics of Health Care

Firms, the Stock Market, and Corporate Governance

Comparative Advantage and the Gains From International Trade

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 Federal Reserve System

Monetary Policy

Fiscal Policy

Inflation, Unemployment, and Federal Reserve Policy

The International Financial System

Filters

Exam 18: Macroeconomics in an Open Economy

In recent decades the United States has incurred overall balance of payments deficits.

Which of the following would increase the balance on the current account?

Explain how "net capital flows" are related to "net foreign investment," "net foreign direct investment," and "net foreign portfolio investment."

A decrease in United States net foreign direct investment would occur if

If Californians increase their purchases of Italian wine,assuming all else remains constant,this will ________ of the United States.

If foreign holdings of U.S.dollars increase,holding all else constant

How does a decrease in the federal budget deficit affect the demand for dollars and the supply of dollars on the foreign exchange market?

Since 1999,the U.S.________ account has recorded relatively minor transactions,such as migrants' transfers,and sales and purchases of nonproduced,nonfinancial assets.

Suppose the government cuts taxes.We would expect interest rates to ________ and the dollar to ________ in foreign exchange markets.

Suppose the Fed pursues a policy that leads to higher interest rates in the United States.How will this policy affect real GDP in the short run if the United States is an open economy? This policy

An increase in capital inflows will

Figure 18-2 -Refer to Figure 18-2.Which of the events below cause the shifts in the supply and demand curves in the market for dollars against the British pound shown in the graph above?

Net foreign investment minus net foreign portfolio investment is equal to

Which of the following is "crowded out" by higher interest rates that can be the result of expansionary fiscal policy?

Japan has a fairly high saving rate and the level of saving in Japan is above domestic investment.Use the saving and investment equation to explain what Japan is doing with this excess of saving above domestic investment.

If net exports are positive for China,it must be true that China is experiencing net outflows of capital.

If the United States is a "net borrower" from abroad

When a foreign investor buys a bond issued in the United States

Economics: Foundations and Models

Trade-Offs, Comparative Advantage, and the Market System

Where Prices Come From: The Interaction of Demand and Supply

Economic Efficiency, Government Price Setting, and Taxes

The Economics of Health Care

Firms, the Stock Market, and Corporate Governance

Comparative Advantage and the Gains From International Trade

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 Federal Reserve System

Monetary Policy

Fiscal Policy

Inflation, Unemployment, and Federal Reserve Policy

The International Financial System

Filters

Suppose the government cuts taxes.We would expect interest rates to and the dollar to in foreign exchange markets.