Question 1

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 2

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 3

When the United States sends money to Indonesia to help tsunami survivors,in what account is this transaction recorded?

Accepted Answer

A)  the financial account 
B)  the capital account 
C)  the current account 
D)  the foreign exchange account 
A)  the financial account 
B)  the capital account 
C)  the current account 
D)  the foreign exchange account

Question 4

What is the relationship between the balance of trade and the current account balance?

Accepted Answer

The balance of trade measures the differ

Question 5

Currency traders expect the value of the dollar to fall.What effect will this have on the demand for dollars and the supply of dollars in the foreign exchange market?

Accepted Answer

A)  Demand for dollars will increase, and supply of dollars will decrease. 
B)  Demand for dollars will increase, and supply of dollars will increase. 
C)  Demand for dollars will decrease, and supply of dollars will increase. 
D)  Demand for dollars will decrease, and supply of dollars will decrease. 
A)  Demand for dollars will increase, and supply of dollars will decrease. 
B)  Demand for dollars will increase, and supply of dollars will increase. 
C)  Demand for dollars will decrease, and supply of dollars will increase. 
D)  Demand for dollars will decrease, and supply of dollars will decrease.

Question 6

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 7

Currency traders expect the dollar to appreciate.What impact will this have on equilibrium in the foreign exchange market?

Accepted Answer

A)  The dollar will appreciate, and the equilibrium quantity of dollars will decrease. 
B)  The dollar will depreciate, and the equilibrium quantity of dollars exchanged will decrease. 
C)  The dollar will appreciate, and the equilibrium quantity of dollars will increase. 
D)  The dollar will appreciate, and the change in the equilibrium quantity of dollars exchanged cannot be determined. 
A)  The dollar will appreciate, and the equilibrium quantity of dollars will decrease. 
B)  The dollar will depreciate, and the equilibrium quantity of dollars exchanged will decrease. 
C)  The dollar will appreciate, and the equilibrium quantity of dollars will increase. 
D)  The dollar will appreciate, and the change in the equilibrium quantity of dollars exchanged cannot be determined.

Question 8

If currency speculators decide that the value of the dollar should rise in the future relative to the yen,this will increase the demand for dollars and decrease the supply of dollars.

Accepted Answer

A) True 
 B)False

Question 9

While the Federal Reserve has kept interest rates at historic lows,many foreign central banks have begun to tighten monetary policy by raising interest rates.These actions will

Accepted Answer

A)  weaken these foreign currencies relative to each other. 
B)  cause the dollar to appreciate relative to these foreign currencies. 
C)  cause the foreign currencies to depreciate relative to the dollar. 
D)  strengthen these foreign currencies relative to the dollar. 
A)  weaken these foreign currencies relative to each other. 
B)  cause the dollar to appreciate relative to these foreign currencies. 
C)  cause the foreign currencies to depreciate relative to the dollar. 
D)  strengthen these foreign currencies relative to the dollar.

Question 10

Table 29-1
  
-Refer to Table 29-1.Given the following exchange rates in the above table,what are the exchange rates stated as U.S.dollars per Mexican peso and U.S.dollars per British pound respectively?

Accepted Answer

A)  0.10 dollars per peso and 2.00 dollars per pound 
B)  1.00 dollars per peso and 20.00 dollars per pound 
C)  0.01 dollars per peso and 0.20 dollars per pound 
D)  0.10 dollars per peso and 5.00 dollars per pound 
E)  0.01 dollars per peso and 0.50 dollars per pound 
A)  0.10 dollars per peso and 2.00 dollars per pound 
B)  1.00 dollars per peso and 20.00 dollars per pound 
C)  0.01 dollars per peso and 0.20 dollars per pound 
D)  0.10 dollars per peso and 5.00 dollars per pound 
E)  0.01 dollars per peso and 0.50 dollars per pound

Question 11

Contractionary monetary policy should increase foreign financial investment in the United States.

Accepted Answer

A) True 
 B)False

Question 12

How is the impact of contractionary monetary policy different in an open economy than in a closed economy?

Accepted Answer

In an open economy,the higher interest r

Question 13

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 14

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 15

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

Question 16

How is the impact of expansionary fiscal policy different in an open economy than in a closed economy?

Accepted Answer

In a closed economy,expansionary fiscal

Question 17

If American demand for purchases of Mexican goods has increased,how would you expect the equilibrium exchange rate in the market for dollars to respond? Support your answer graphically.

Accepted Answer

If Americans are demanding more Mexican

Question 18

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 19

The deepening of the financial crisis in the fall of 2008 and spring of 2009

Accepted Answer

A)  decreased the value of the dollar relative to most other foreign currencies. 
B)  increased the value of the dollar relative to most other foreign currencies. 
C)  did not significantly change the value of the dollar relative to most other foreign currencies. 
D)  had no impact on the values of any currencies. 
A)  decreased the value of the dollar relative to most other foreign currencies. 
B)  increased the value of the dollar relative to most other foreign currencies. 
C)  did not significantly change the value of the dollar relative to most other foreign currencies. 
D)  had no impact on the values of any currencies.

Question 20

How will an interest rate decrease in the United States affect equilibrium in the foreign exchange market?

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.

Exam 29: Macroeconomics in an Open Economy

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

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

When the United States sends money to Indonesia to help tsunami survivors,in what account is this transaction recorded?

What is the relationship between the balance of trade and the current account balance?

Currency traders expect the value of the dollar to fall.What effect will this have on the demand for dollars and the supply of dollars in the foreign exchange market?

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

Currency traders expect the dollar to appreciate.What impact will this have on equilibrium in the foreign exchange market?

If currency speculators decide that the value of the dollar should rise in the future relative to the yen,this will increase the demand for dollars and decrease the supply of dollars.

While the Federal Reserve has kept interest rates at historic lows,many foreign central banks have begun to tighten monetary policy by raising interest rates.These actions will

Table 29-1 -Refer to Table 29-1.Given the following exchange rates in the above table,what are the exchange rates stated as U.S.dollars per Mexican peso and U.S.dollars per British pound respectively?

Contractionary monetary policy should increase foreign financial investment in the United States.

How is the impact of contractionary monetary policy different in an open economy than in a closed economy?

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

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

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?

How is the impact of expansionary fiscal policy different in an open economy than in a closed economy?

If American demand for purchases of Mexican goods has increased,how would you expect the equilibrium exchange rate in the market for dollars to respond? Support your answer graphically.

If net exports are positive,

The deepening of the financial crisis in the fall of 2008 and spring of 2009

How will an interest rate decrease in the United States affect equilibrium in the foreign exchange market?

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

Filters