Question 1

An HMO hires radiology services from India to cut costs. If all else remains equal, this will

Accepted Answer

A)  decrease net exports. 
B)  decrease the balance of trade. 
C)  increase the current account balance. 
D)  decrease the financial account. 
A)  decrease net exports. 
B)  decrease the balance of trade. 
C)  increase the current account balance. 
D)  decrease the financial account.

Question 2

Fiscal policy has a greater impact in a closed economy than it does in an open economy.

Accepted Answer

A) True 
 B)False

Question 3

A real appreciation of the dollar is caused by either a nominal appreciation of the dollar, a rise in the foreign price level, or a fall in the U.S. price level.

Accepted Answer

A) True 
 B)False

Question 4

How will an interest rate increase in the United States affect equilibrium in the market for dollars against foreign currencies? (Assume the exchange rate is stated in terms of foreign currency per U.S. dollar.)

Accepted Answer

A)  The equilibrium exchange rate will increase, and the equilibrium quantity of dollars traded cannot be determined. 
B)  The equilibrium exchange rate will decrease, and the equilibrium quantity of dollars traded cannot be determined. 
C)  The equilibrium exchange rate cannot be determined, and the equilibrium quantity of dollars traded will increase. 
D)  The equilibrium exchange rate will increase, and the equilibrium quantity of dollars traded will increase. 
A)  The equilibrium exchange rate will increase, and the equilibrium quantity of dollars traded cannot be determined. 
B)  The equilibrium exchange rate will decrease, and the equilibrium quantity of dollars traded cannot be determined. 
C)  The equilibrium exchange rate cannot be determined, and the equilibrium quantity of dollars traded will increase. 
D)  The equilibrium exchange rate will increase, and the equilibrium quantity of dollars traded will increase.

Question 5

Expansionary monetary policy lowers interest rates and forces a real appreciation of the dollar in international currency markets.

Accepted Answer

A) True 
 B)False

Question 6

Which of the following would result in a trade surplus for the United States?

Accepted Answer

A)  Exports of goods = $725 billion Imports of goods = $790 billion
Exports of services = $350 billion
Imports of services = $260 billion 
B)  Exports of goods = $625 billion Imports of goods = $625 billion
Exports of services = $300 billion
Imports of services = $375 billion 
C)  Exports of goods = $550 billion Imports of goods = $575 billion
Exports of services = $275 billion
Imports of services = $300 billion 
D)  All of the above will result in a trade surplus. 
A)  Exports of goods = $725 billion Imports of goods = $790 billion
Exports of services = $350 billion
Imports of services = $260 billion 
B)  Exports of goods = $625 billion Imports of goods = $625 billion
Exports of services = $300 billion
Imports of services = $375 billion 
C)  Exports of goods = $550 billion Imports of goods = $575 billion
Exports of services = $275 billion
Imports of services = $300 billion 
D)  All of the above will result in a trade surplus.

Question 7

When a U.S. investor buys a bond issued in a foreign country,

Accepted Answer

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

Question 8

Table 29-1
  
-Refer to Table 29-1. Use the information in the table to prepare a balance of payments account and find the value of the statistical discrepancy. Assume that the balance on the capital account is zero.

Accepted Answer

The answer of Table 29-1
  
-Refer to Table 29-1....

Question 9

An increase in perceived risk of foreign assets increased both the financial account surplus and current account deficit in the United States during the late 1990s.

Accepted Answer

A) True 
 B)False

Question 10

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 11

Which of the following is not "crowded out" by higher interest rates as a result of expansionary fiscal policy?

Accepted Answer

A)  consumption 
B)  private investment 
C)  net exports 
D)  government spending 
A)  consumption 
B)  private investment 
C)  net exports 
D)  government spending

Question 12

Figure 29-1  
-Refer to Figure 29-1. The French fall in love with California wines and triple their purchases of this beverage. Assuming all else remains constant, this would be represented as a movement from

Accepted Answer

A)  B to A. 
B)  C to D. 
C)  B to C. 
D)  A to D. 
E)  A to B. 
A)  B to A. 
B)  C to D. 
C)  B to C. 
D)  A to D. 
E)  A to B.

Question 13

Is fiscal policy more or less effective in manipulating aggregate demand in an open economy?

Accepted Answer

Expansionary fiscal policy (as from tax

Question 14

Ceteris paribus, an increase in the government's budget deficit will increase the current account deficit.

Accepted Answer

A) True 
 B)False

Question 15

Net foreign investment is equal to

Accepted Answer

A)  capital inflows minus capital outflows. 
B)  foreign direct investment. 
C)  the balance of trade. 
D)  net foreign portfolio investment plus net foreign direct investment. 
A)  capital inflows minus capital outflows. 
B)  foreign direct investment. 
C)  the balance of trade. 
D)  net foreign portfolio investment plus net foreign direct investment.

Question 16

If New Yorkers decrease their purchases of French champagne, assuming all else remains constant, this will ________ of the United States.

Accepted Answer

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

Question 17

Explain the relationship between net exports and net foreign investment.

Accepted Answer

Net exports equal net foreign investment

Question 18

China runs a current account surplus with the United States. Which of the following must be true about China's balance of payments with the United States?

Accepted Answer

A)  It must run a financial account deficit. 
B)  Its balance of trade must be in deficit. 
C)  Its net exports must be negative. 
D)  Its balance of payments must run a deficit. 
A)  It must run a financial account deficit. 
B)  Its balance of trade must be in deficit. 
C)  Its net exports must be negative. 
D)  Its balance of payments must run a deficit.

Question 19

If net exports are positive,

Accepted Answer

A)  net foreign investment is also positive. 
B)  capital inflows must be greater than capital outflows. 
C)  net foreign investment is negative. 
D)  Both A and B are correct. 
A)  net foreign investment is also positive. 
B)  capital inflows must be greater than capital outflows. 
C)  net foreign investment is negative. 
D)  Both A and B are correct.

Question 20

Why is the balance of payments always zero?

Accepted Answer

If a country spends more on goods and se

Exam 29: Macroeconomics in an Open Economy

An HMO hires radiology services from India to cut costs. If all else remains equal, this will

Fiscal policy has a greater impact in a closed economy than it does in an open economy.

A real appreciation of the dollar is caused by either a nominal appreciation of the dollar, a rise in the foreign price level, or a fall in the U.S. price level.

How will an interest rate increase in the United States affect equilibrium in the market for dollars against foreign currencies? (Assume the exchange rate is stated in terms of foreign currency per U.S. dollar.)

Expansionary monetary policy lowers interest rates and forces a real appreciation of the dollar in international currency markets.

Which of the following would result in a trade surplus for the United States?

When a U.S. investor buys a bond issued in a foreign country,

Table 29-1 -Refer to Table 29-1. Use the information in the table to prepare a balance of payments account and find the value of the statistical discrepancy. Assume that the balance on the capital account is zero.

An increase in perceived risk of foreign assets increased both the financial account surplus and current account deficit in the United States during the late 1990s.

An increase in capital inflows will

Which of the following is not "crowded out" by higher interest rates as a result of expansionary fiscal policy?

Figure 29-1 -Refer to Figure 29-1. The French fall in love with California wines and triple their purchases of this beverage. Assuming all else remains constant, this would be represented as a movement from

Is fiscal policy more or less effective in manipulating aggregate demand in an open economy?

Ceteris paribus, an increase in the government's budget deficit will increase the current account deficit.

Net foreign investment is equal to

If New Yorkers decrease their purchases of French champagne, assuming all else remains constant, this will ________ of the United States.

Explain the relationship between net exports and net foreign investment.

China runs a current account surplus with the United States. Which of the following must be true about China's balance of payments with the United States?

If net exports are positive,

Why is the balance of payments always zero?

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

Externalities, Environmental Policy, and Public Goods

Elasticity: the Responsiveness of Demand and Supply

The Economics of Health Care

Firms, the Stock Market, and Corporate Governance

Comparative Advantage and the Gains From International Trade

Consumer Choice and Behavioral Economics

Technology, Production, and Costs

Firms in Perfectly Competitive Markets

Monopolistic Competition: the Competitive Model in a More Realistic Setting

Oligopoly: Firms in Less Competitive Markets

Monopoly and Antitrust Policy

Pricing Strategy

The Markets for Labor and Other Factors of Production

Public Choice, Taxes, and the Distribution of Income

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

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