Question 1

The level of saving in Japan has historically been high relative to the level of domestic investment. Based on this information, we would expect that

Accepted Answer

A)  Japan's net foreign investment has been relatively low. 
B)  Japan's net exports have been relatively high. 
C)  Japan's capital inflows are positive. 
D)  Japan's private saving is greater than its public saving. 
A)  Japan's net foreign investment has been relatively low. 
B)  Japan's net exports have been relatively high. 
C)  Japan's capital inflows are positive. 
D)  Japan's private saving is greater than its public saving.

Question 2

What is the relationship among the current account, the financial account, and the balance of payments?

Accepted Answer

Leaving aside the statistical

Question 3

An increase in net foreign investment is possible through a decrease in national saving or a decrease in domestic investment.

Accepted Answer

A) True 
 B)False

Question 4

How does an increase in the relative price of a country's goods in terms of foreign goods, or real exchange rate, affect its balance of trade?

Accepted Answer

A)  An increase in the real exchange rate raises imports, reduces exports, and reduces the balance of trade. 
B)  An increase in the real exchange rate reduces imports, raises exports, and reduces the balance of trade. 
C)  An increase in the real exchange rate reduces imports, raises exports, and increases the balance of trade. 
D)  An increase in the real exchange rate raises imports, reduces exports, and increases the balance of trade. 
A)  An increase in the real exchange rate raises imports, reduces exports, and reduces the balance of trade. 
B)  An increase in the real exchange rate reduces imports, raises exports, and reduces the balance of trade. 
C)  An increase in the real exchange rate reduces imports, raises exports, and increases the balance of trade. 
D)  An increase in the real exchange rate raises imports, reduces exports, and increases the balance of trade.

Question 5

A rise in the dollar price of the Chinese yuan signals an appreciation of the yuan and a depreciation of the dollar.

Accepted Answer

A) True 
 B)False

Question 6

A country which incurs a current account deficit will most likely have a financial or capital account surplus.

Accepted Answer

A) True 
 B)False

Question 7

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

Accepted Answer

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

Question 8

An increase in capital outflows from the United States will

Accepted Answer

A)  decrease the balance on the financial account. 
B)  increase the balance on the financial account. 
C)  decrease the balance on the capital account. 
D)  increase the balance on the current account. 
A)  decrease the balance on the financial account. 
B)  increase the balance on the financial account. 
C)  decrease the balance on the capital account. 
D)  increase the balance on the current account.

Question 9

If the government finances an increase in government purchases with an increase in taxes, which of the following would you not expect to see?

Accepted Answer

A)  an increase in the exchange rate 
B)  a decrease in the interest rate 
C)  an increase in aggregate demand 
D)  a decrease in net exports 
A)  an increase in the exchange rate 
B)  a decrease in the interest rate 
C)  an increase in aggregate demand 
D)  a decrease in net exports

Question 10

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. 
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.

Question 11

Although based in the United States, McDonald's is a global company with more than ________ of its sales coming from outside of the United States.

Accepted Answer

A)  one-fourth 
B)  one-third 
C)  one-half 
D)  two-thirds 
A)  one-fourth 
B)  one-third 
C)  one-half 
D)  two-thirds

Question 12

Suppose that domestic investment in Japan is 20.2% of GDP, and Japanese national savings is 24% of GDP. What is Japan's foreign investment as a percentage of GDP?

Accepted Answer

A)  1.19% 
B)  3.8% 
C)  27.8% 
D)  44.2% 
A)  1.19% 
B)  3.8% 
C)  27.8% 
D)  44.2%

Question 13

If a country has a ________ exchange rate, its central bank must buy and sell its holdings of currencies to maintain a given exchange rate.

Accepted Answer

A)  floating 
B)  flexible 
C)  fixed 
D)  all of the above 
A)  floating 
B)  flexible 
C)  fixed 
D)  all of the above

Question 14

An open economy is an economy that has

Accepted Answer

A)  interactions in trade or finance with other economies. 
B)  its own stock market. 
C)  governmental regulations regarding public information that is included in corporate finance reports. 
D)  governmental regulations regarding the number of hours retail establishments must remain open on a daily basis. 
A)  interactions in trade or finance with other economies. 
B)  its own stock market. 
C)  governmental regulations regarding public information that is included in corporate finance reports. 
D)  governmental regulations regarding the number of hours retail establishments must remain open on a daily basis.

Question 15

Which of the following would decrease net exports in the United States?

Accepted Answer

A)  An American party planner purchases 350 piñatas from Mexico. 
B)  The government of Mexico purchases 2,000 Dell laptop computers from the United States. 
C)  A Mexican citizen purchases 100 shares of stock in IBM. 
D)  The U.S. government donates $25 million to Mexico to help victims of a hurricane in Mexico. 
A)  An American party planner purchases 350 piñatas from Mexico. 
B)  The government of Mexico purchases 2,000 Dell laptop computers from the United States. 
C)  A Mexican citizen purchases 100 shares of stock in IBM. 
D)  The U.S. government donates $25 million to Mexico to help victims of a hurricane in Mexico.

Question 16

Which of the following would decrease the current account balance of the United States?

Accepted Answer

A)  a decrease in imports 
B)  a decrease in the amount of money the U.S. government sends in foreign aid to other countries 
C)  a decrease in the balance of trade 
D)  a decrease in the amount of income U.S. companies pay out to foreigners who own investments in the U.S. 
A)  a decrease in imports 
B)  a decrease in the amount of money the U.S. government sends in foreign aid to other countries 
C)  a decrease in the balance of trade 
D)  a decrease in the amount of income U.S. companies pay out to foreigners who own investments in the U.S.

Question 17

If the dollar appreciates, how will aggregate demand in the United States be affected?

Accepted Answer

A)  Aggregate demand will shift to the right as exports increase. 
B)  Aggregate demand will shift to the right as imports increase. 
C)  Aggregate demand will shift to the left as imports increase. 
D)  Aggregate demand will shift to the left as exports increase. 
A)  Aggregate demand will shift to the right as exports increase. 
B)  Aggregate demand will shift to the right as imports increase. 
C)  Aggregate demand will shift to the left as imports increase. 
D)  Aggregate demand will shift to the left as exports increase.

Question 18

Figure 29-1  
-Refer to Figure 29-1. The depreciation of the euro is represented as a movement from

Accepted Answer

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

Question 19

Which of the following is not included in the balance of the financial account of the United States?

Accepted Answer

A)  a purchase of Toyota stock by Ford 
B)  a purchase of GE stock by a firm in China 
C)  a purchase of U.S. car manufacturing plant by Toyota 
D)  a purchase of a German brewery by the U.S. company, Budweiser 
E)  a purchase of German financial services by Chase Manhattan bank 
A)  a purchase of Toyota stock by Ford 
B)  a purchase of GE stock by a firm in China 
C)  a purchase of U.S. car manufacturing plant by Toyota 
D)  a purchase of a German brewery by the U.S. company, Budweiser 
E)  a purchase of German financial services by Chase Manhattan bank

Question 20

If the price level in the United States is 110, the price level is 120 in Mexico, and the nominal exchange rate is 140 pesos per dollar, what is the real exchange rate from the U.S. perspective?

Accepted Answer

A)  94 
B)  115 
C)  128 
D)  153 
A)  94 
B)  115 
C)  128 
D)  153

Exam 29: Macroeconomics in an Open Economy

The level of saving in Japan has historically been high relative to the level of domestic investment. Based on this information, we would expect that

What is the relationship among the current account, the financial account, and the balance of payments?

An increase in net foreign investment is possible through a decrease in national saving or a decrease in domestic investment.

How does an increase in the relative price of a country's goods in terms of foreign goods, or real exchange rate, affect its balance of trade?

A rise in the dollar price of the Chinese yuan signals an appreciation of the yuan and a depreciation of the dollar.

A country which incurs a current account deficit will most likely have a financial or capital account surplus.

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

An increase in capital outflows from the United States will

If the government finances an increase in government purchases with an increase in taxes, which of the following would you not expect to see?

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

Although based in the United States, McDonald's is a global company with more than ________ of its sales coming from outside of the United States.

Suppose that domestic investment in Japan is 20.2% of GDP, and Japanese national savings is 24% of GDP. What is Japan's foreign investment as a percentage of GDP?

If a country has a ________ exchange rate, its central bank must buy and sell its holdings of currencies to maintain a given exchange rate.

An open economy is an economy that has

Which of the following would decrease net exports in the United States?

Which of the following would decrease the current account balance of the United States?

If the dollar appreciates, how will aggregate demand in the United States be affected?

Figure 29-1 -Refer to Figure 29-1. The depreciation of the euro is represented as a movement from

Which of the following is not included in the balance of the financial account of the United States?

If the price level in the United States is 110, the price level is 120 in Mexico, and the nominal exchange rate is 140 pesos per dollar, what is the real exchange rate from the U.S. perspective?

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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