Question 1

If the balance of the current account in the United States is -$900 billion,which of the following is most likely to be true?

Accepted Answer

A)  The balance on the financial account is positive. 
B)  The trade balance is positive. 
C)  Net foreign investment is positive. 
D)  The balance on the capital account is negative. 
A)  The balance on the financial account is positive. 
B)  The trade balance is positive. 
C)  Net foreign investment is positive. 
D)  The balance on the capital account is negative. A

Question 2

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 between capital inflows and capital outflows.Capital inflows increase when assets flow into the United States from other countries.Capital outflows increase when assets flow from the United States into other countries.Net foreign investment is equal to net foreign direct investment (U.S.investment in facilities in other countries minus foreign investment in U.S.facilities)plus net foreign portfolio investment (U.S.investment in foreign stocks or bonds minus foreign investment in U.S.stocks or bonds).An increase in net foreign direct investment or an increase in foreign portfolio investment will result in an equal decrease in net capital flows.In other words,net capital flows will be equal to the negative of net foreign investment.

Question 3

What's the difference between the nominal exchange rate and the real exchange rate?

Accepted Answer

The nominal exchange rate measures the value of one country's currency in terms of another country's currency.The real exchange rate measures the price of domestic goods in terms of foreign goods.Mathematically,the real exchange rate is equal to the nominal exchange rate times the ratio of the domestic price level to the foreign price level.

Question 4

If you know that a country's net foreign investment is negative,what does that tell you about the relationship between the country's national saving and private investment?

Accepted Answer

For any country,national saving must equ

Question 5

Which of the following would you expect to increase both interest rates and exchange rates?

Accepted Answer

A)  expansionary monetary policy 
B)  contractionary monetary policy 
C)  expansionary fiscal policy 
D)  Both B and C will increase both interest rates and exchange rates. 
A)  expansionary monetary policy 
B)  contractionary monetary policy 
C)  expansionary fiscal policy 
D)  Both B and C will increase both interest rates and exchange rates.

Question 6

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 7

If the balance on the current account is $346 billion and the balance on the financial account is -$204 billion,what is the balance on the capital account,assuming no statistical discrepancy?

Accepted Answer

A)  $550 billion 
B)  $142 billion 
C)  $0 
D)  -$142 billion 
A)  $550 billion 
B)  $142 billion 
C)  $0 
D)  -$142 billion

Question 8

When net capital flows are positive,

Accepted Answer

A)  capital inflows are greater than capital outflows. 
B)  net foreign investment is negative. 
C)  capital outflows are greater than capital inflows. 
D)  A and B are both correct. 
A)  capital inflows are greater than capital outflows. 
B)  net foreign investment is negative. 
C)  capital outflows are greater than capital inflows. 
D)  A and B are both correct.

Question 9

Expansionary fiscal policy should raise the exchange rate of the dollar.

Accepted Answer

A) True 
 B)False

Question 10

Which of the following would cause the dollar to appreciate?

Accepted Answer

A)  an increase in the demand for dollars 
B)  a decrease in the demand for dollars 
C)  an increase in the supply of dollars 
D)  an increase in the demand for imports from foreign countries 
A)  an increase in the demand for dollars 
B)  a decrease in the demand for dollars 
C)  an increase in the supply of dollars 
D)  an increase in the demand for imports from foreign countries

Question 11

When the market value of the dollar rises relative to other currencies around the world,we say that

Accepted Answer

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

Question 12

Assuming no change in the nominal exchange rate,how will a higher rate of inflation in the United States relative to France affect the real exchange rate between the two countries? (Assume the United States is the "domestic" country.)

Accepted Answer

A)  The real exchange rate will rise. 
B)  The real exchange rate will fall. 
C)  The real exchange rate will be unaffected. 
D)  The impact on the real exchange rate cannot be predicted. 
A)  The real exchange rate will rise. 
B)  The real exchange rate will fall. 
C)  The real exchange rate will be unaffected. 
D)  The impact on the real exchange rate cannot be predicted.

Question 13

Which of the following transactions would be included in Japan's current account?

Accepted Answer

A)  A Japanese citizen purchases 50 shares of Google stock. 
B)  An American citizen purchases 50 shares of Toshiba stock. 
C)  A Japanese citizen purchases a new Toyota made in Japan. 
D)  An American citizen purchases a new Toyota made in Japan. 
A)  A Japanese citizen purchases 50 shares of Google stock. 
B)  An American citizen purchases 50 shares of Toshiba stock. 
C)  A Japanese citizen purchases a new Toyota made in Japan. 
D)  An American citizen purchases a new Toyota made in Japan.

Question 14

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 15

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

Accepted Answer

A) True 
 B)False

Question 16

Overall since 2002,the U.S.dollar has ________ relative to other currencies.

Accepted Answer

A)  gained value 
B)  lost value 
C)  maintained its value 
D)  erratically gained and lost value every year 
A)  gained value 
B)  lost value 
C)  maintained its value 
D)  erratically gained and lost value every year

Question 17

Although based in the United States,McDonald's is a global company with about ________ 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 18

An expansionary monetary policy in the United States should

Accepted Answer

A)  decrease the foreign currency price of U.S. exports. 
B)  cause the dollar to appreciate. 
C)  decrease the dollar price of imports. 
D)  decrease net exports. 
A)  decrease the foreign currency price of U.S. exports. 
B)  cause the dollar to appreciate. 
C)  decrease the dollar price of imports. 
D)  decrease net exports.

Question 19

Based on the following information,calculate public saving,net foreign investment,and national income.
Private saving = $83 billion
Exports = $125 billion
Imports = $130 billion
Consumption = $200 billion
Private investment = $56 billion
Government purchases = $38 billion

Accepted Answer

Based on the macroeconomic equation for

Question 20

How would a decrease in the U.S.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 exchange rate will not be affected by a change in the budget deficit. 
D)  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 exchange rate will not be affected by a change in the budget deficit. 
D)  The impact of the decrease in the budget deficit on the exchange rate cannot be predicted.

Exam 29: Macroeconomics in an Open Economy

If the balance of the current account in the United States is -$900 billion,which of the following is most likely to be true?

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

What's the difference between the nominal exchange rate and the real exchange rate?

If you know that a country's net foreign investment is negative,what does that tell you about the relationship between the country's national saving and private investment?

Which of the following would you expect to increase both interest rates and exchange rates?

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 ________.

If the balance on the current account is $346 billion and the balance on the financial account is -$204 billion,what is the balance on the capital account,assuming no statistical discrepancy?

When net capital flows are positive,

Expansionary fiscal policy should raise the exchange rate of the dollar.

Which of the following would cause the dollar to appreciate?

When the market value of the dollar rises relative to other currencies around the world,we say that

Assuming no change in the nominal exchange rate,how will a higher rate of inflation in the United States relative to France affect the real exchange rate between the two countries? (Assume the United States is the "domestic" country.)

Which of the following transactions would be included in Japan's current account?

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

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

Overall since 2002,the U.S.dollar has ________ relative to other currencies.

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

An expansionary monetary policy in the United States should

Based on the following information,calculate public saving,net foreign investment,and national income. Private saving = $83 billion Exports = $125 billion Imports = $130 billion Consumption = $200 billion Private investment = $56 billion Government purchases = $38 billion

How would a decrease in the U.S.budget deficit affect the exchange rate in the market for dollars?

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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