Question 1

If net foreign investment in the United States is negative,how must national saving and domestic investment be related?

Accepted Answer

A)  Domestic investment and national saving must also be negative. 
B)  Domestic investment must be greater than national saving. 
C)  Domestic investment must be less than national saving. 
D)  Domestic investment can be greater than or less than national saving. 
A)  Domestic investment and national saving must also be negative. 
B)  Domestic investment must be greater than national saving. 
C)  Domestic investment must be less than national saving. 
D)  Domestic investment can be greater than or less than national saving.

Question 2

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 3

The saving and investment equation holds only when the federal budget is balanced.

Accepted Answer

A) True 
 B)False

Question 4

According to the saving and investment equation,if net foreign investment rises by $60 million,

Accepted Answer

A)  national saving will increase by $60 million. 
B)  national saving will fall by $60 million. 
C)  domestic investment will rise by $60 million. 
D)  private saving will fall by $60 million. 
A)  national saving will increase by $60 million. 
B)  national saving will fall by $60 million. 
C)  domestic investment will rise by $60 million. 
D)  private saving will fall by $60 million.

Question 5

If we take into account transfer payments (TR)when we derive the saving and investment relationship,the saving and investment equation becomes

Accepted Answer

A)  S = I + NFI. 
B)  S + TR = I + NFI. 
C)  S = I + NFI + TR. 
D)  S = I + NX - TR. 
A)  S = I + NFI. 
B)  S + TR = I + NFI. 
C)  S = I + NFI + TR. 
D)  S = I + NX - TR.

Question 6

The balance of trade includes trade in

Accepted Answer

A)  goods only. 
B)  services only. 
C)  both goods and services. 
D)  neither goods not services. 
A)  goods only. 
B)  services only. 
C)  both goods and services. 
D)  neither goods not services.

Question 7

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 8

If net exports are equal to net foreign investment,which of the following is not true?

Accepted Answer

A)  The balance of payments is zero. 
B)  The current account balance is equal to the negative of the financial account balance. 
C)  Net capital inflows are equal to imports minus exports. 
D)  The balance on the financial account is zero. 
A)  The balance of payments is zero. 
B)  The current account balance is equal to the negative of the financial account balance. 
C)  Net capital inflows are equal to imports minus exports. 
D)  The balance on the financial account is zero.

Question 9

Which of the following equations is true in an open economy?

Accepted Answer

A)  Private saving = net foreign investment + domestic investment. 
B)  Domestic saving = net capital flows. 
C)  Net exports = -Financial account balance. 
D)  Net exports = net foreign investment. 
A)  Private saving = net foreign investment + domestic investment. 
B)  Domestic saving = net capital flows. 
C)  Net exports = -Financial account balance. 
D)  Net exports = net foreign investment.

Question 10

If the dollar appreciates against the Mexican peso,

Accepted Answer

A)  Mexican imports to the U.S. become more expensive. 
B)  U.S. exports to Mexico become less expensive. 
C)  U.S. exports to Mexico become more expensive. 
D)  The value of Mexican imports to the United States does not change. 
A)  Mexican imports to the U.S. become more expensive. 
B)  U.S. exports to Mexico become less expensive. 
C)  U.S. exports to Mexico become more expensive. 
D)  The value of Mexican imports to the United States does not change.

Question 11

An increase in capital inflows will

Accepted Answer

A)  increase net foreign investment. 
B)  increase capital outflows. 
C)  decrease capital outflows. 
D)  increase the equilibrium exchange rate. 
A)  increase net foreign investment. 
B)  increase capital outflows. 
C)  decrease capital outflows. 
D)  increase the equilibrium exchange rate.

Question 12

Hugo Chavez,Venezuela's president,proposed that the independence of the Venezuelan central bank be eliminated.Given the research on the relationship between central bank independence and inflation,we should expect this event to cause inflation to ________ and the real exchange rate to ________ between the two counties.(Assume the nominal exchange does not change,and that the United States is the domestic country).

Accepted Answer

A)  rise in Venezuela relative to the United States; fall 
B)  fall in Venezuela relative to the United States; fall 
C)  rise in Venezuela relative to the United States; rise 
D)  fall in Venezuela relative to the United States; rise 
A)  rise in Venezuela relative to the United States; fall 
B)  fall in Venezuela relative to the United States; fall 
C)  rise in Venezuela relative to the United States; rise 
D)  fall in Venezuela relative to the United States; rise

Question 13

An increase in United States net foreign direct investment would occur if

Accepted Answer

A)  United States citizens have increased the value of foreign stocks and bonds they own. 
B)  United States citizens have increased their building or purchasing of facilities in foreign countries. 
C)  net foreign investment increases. 
D)  net capital flows decrease. 
A)  United States citizens have increased the value of foreign stocks and bonds they own. 
B)  United States citizens have increased their building or purchasing of facilities in foreign countries. 
C)  net foreign investment increases. 
D)  net capital flows decrease.

Question 14

Why is the multiplier for contractionary fiscal policy smaller in an open economy?

Accepted Answer

A)  Contractionary fiscal policy reduces the deficit, which raises the interest rate, which raises the foreign exchange value of the dollar, which increases net exports. 
B)  Contractionary fiscal policy increases the deficit, which raises the interest rate, which reduces the foreign exchange value of the dollar, which increases net exports. 
C)  Contractionary fiscal policy reduces the deficit, which reduces the interest rate, which reduces the foreign exchange value of the dollar, which increases net exports. 
D)  Contractionary fiscal policy reduces the deficit, which reduces the interest rate, which reduces the foreign exchange value of the dollar, which decreases net exports. 
A)  Contractionary fiscal policy reduces the deficit, which raises the interest rate, which raises the foreign exchange value of the dollar, which increases net exports. 
B)  Contractionary fiscal policy increases the deficit, which raises the interest rate, which reduces the foreign exchange value of the dollar, which increases net exports. 
C)  Contractionary fiscal policy reduces the deficit, which reduces the interest rate, which reduces the foreign exchange value of the dollar, which increases net exports. 
D)  Contractionary fiscal policy reduces the deficit, which reduces the interest rate, which reduces the foreign exchange value of the dollar, which decreases net exports.

Question 15

Suppose the majority of the shares of Ford stock were sold to a Japanese firm.Assuming all else remains constant,this will

Accepted Answer

A)  increase the balance of the U.S. financial account. 
B)  increase foreign direct investment in the United States. 
C)  increase the balance of the U.S. current account. 
D)  decrease net portfolio investment in the United States. 
E)  create a capital outflow in the United States. 
A)  increase the balance of the U.S. financial account. 
B)  increase foreign direct investment in the United States. 
C)  increase the balance of the U.S. current account. 
D)  decrease net portfolio investment in the United States. 
E)  create a capital outflow in the United States.

Question 16

How does an increase in government purchases financed by an increase in the deficit affect exchange rates? Support your answer with graphs of the loanable funds market and the foreign exchange market.

Accepted Answer

An increase in government purchases fina

Question 17

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 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

Suppose China decides to sell a vast majority of their large holdings of U.S.Treasury bonds.If you are thinking of refinancing your house,how would China's action affect your decision to refinance?

Accepted Answer

A)  You would want to refinance as soon as possible as interest rates should rise. 
B)  You would want to wait to refinance as interest rates should rise. 
C)  You would want to wait to refinance as interest rates should fall. 
D)  China's actions should not affect your decision to refinance in any way. 
A)  You would want to refinance as soon as possible as interest rates should rise. 
B)  You would want to wait to refinance as interest rates should rise. 
C)  You would want to wait to refinance as interest rates should fall. 
D)  China's actions should not affect your decision to refinance in any way.

Question 20

Which of the following is an example of foreign direct investment in China?

Accepted Answer

A)  U.S. auto entrepreneur Carroll Shelby buys stock in the Chinese auto company, Chevy Automobile Company. 
B)  Chinese Shenzen Airlines company buys a small U.S. midwest airline company, Air Chicago. 
C)  The U.S. company Wal-Mart buys a warehouse in Shanghai. 
D)  The bank of China purchases U.S. Treasury bonds. 
E)  A U.S. foreign exchange speculator buys $200,000 worth of the Chinese currency the yuan. 
A)  U.S. auto entrepreneur Carroll Shelby buys stock in the Chinese auto company, Chevy Automobile Company. 
B)  Chinese Shenzen Airlines company buys a small U.S. midwest airline company, Air Chicago. 
C)  The U.S. company Wal-Mart buys a warehouse in Shanghai. 
D)  The bank of China purchases U.S. Treasury bonds. 
E)  A U.S. foreign exchange speculator buys $200,000 worth of the Chinese currency the yuan.

Exam 29: Macroeconomics in an Open Economy

If net foreign investment in the United States is negative,how must national saving and domestic investment be related?

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

The saving and investment equation holds only when the federal budget is balanced.

According to the saving and investment equation,if net foreign investment rises by $60 million,

If we take into account transfer payments (TR)when we derive the saving and investment relationship,the saving and investment equation becomes

The balance of trade includes trade in

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

If net exports are equal to net foreign investment,which of the following is not true?

Which of the following equations is true in an open economy?

If the dollar appreciates against the Mexican peso,

An increase in capital inflows will

An increase in United States net foreign direct investment would occur if

Why is the multiplier for contractionary fiscal policy smaller in an open economy?

Suppose the majority of the shares of Ford stock were sold to a Japanese firm.Assuming all else remains constant,this will

How does an increase in government purchases financed by an increase in the deficit affect exchange rates? Support your answer with graphs of the loanable funds market and the foreign exchange market.

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

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?

Suppose China decides to sell a vast majority of their large holdings of U.S.Treasury bonds.If you are thinking of refinancing your house,how would China's action affect your decision to refinance?

Which of the following is an example of foreign direct investment in China?

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