Question 1

If the United States had a capital and financial account deficit of $50 billion,we could say the United States had

Accepted Answer

A) net imports of $50 billion. 
B) net foreign borrowing of $50 billion. 
C) acquired net foreign assets of $50 billion. 
D) a current account deficit of $50 billion. 
A) net imports of $50 billion. 
B) net foreign borrowing of $50 billion. 
C) acquired net foreign assets of $50 billion. 
D) a current account deficit of $50 billion.

Question 2

What were the principal causes of the U.S.government budget deficits of the 1980s? How did these budget deficits lead to the twin deficits? According to the Ricardian equivalence proposition,should twin deficits arise as a result of tax cuts?

Accepted Answer

The principal causes of the U.S.federal

Question 3

If a French company sells 1000 gallons of Perrier to a U.S.company at 5 euros per gallon,and uses the money to buy stock in a Spanish cork company,how does this affect the French balance of payments accounts?

Accepted Answer

A) Debit: capital and financial account; credit: merchandise trade 
B) Debit: merchandise trade; credit: capital and financial account 
C) Debit: net investment income from abroad; credit: capital and financial account 
D) Debit: merchandise trade; credit: net investment income from abroad 
A) Debit: capital and financial account; credit: merchandise trade 
B) Debit: merchandise trade; credit: capital and financial account 
C) Debit: net investment income from abroad; credit: capital and financial account 
D) Debit: merchandise trade; credit: net investment income from abroad

Question 4

If the Federal Reserve buys $3 billion worth of Japanese yen and sells $5 billion of euros,how does this affect the official settlements balance?

Accepted Answer

A) Falls by $2 billion 
B) Rises by $2 billion 
C) Rises by $3 billion 
D) Falls by $5 billion 
A) Falls by $2 billion 
B) Rises by $2 billion 
C) Rises by $3 billion 
D) Falls by $5 billion

Question 5

A small open economy increases its investment demand.This causes the world real interest rate to ________ and the country's current account balance to ________.

Accepted Answer

A) rise; fall 
B) remain unchanged; rise 
C) rise; rise 
D) remain unchanged; fall 
A) rise; fall 
B) remain unchanged; rise 
C) rise; rise 
D) remain unchanged; fall

Question 6

Suppose a country has the following balance of payments data.
   
(a)Calculate the current account balance.
(b)Calculate the capital and financial account balance.
(c)Calculate the trade balance.
(d)Calculate net factor payments.

Accepted Answer

(a)-70
(b)

Question 7

An increase in a small open economy's government budget deficit that reduces national saving and the current account balance causes an

Accepted Answer

A) increase in desired saving. 
B) increase in the world real interest rate. 
C) increase in exports. 
D) increase in absorption. 
A) increase in desired saving. 
B) increase in the world real interest rate. 
C) increase in exports. 
D) increase in absorption.

Question 8

In a large open economy like the United States,an increased government budget deficit which reduces national saving

Accepted Answer

A) reduces investment and improves the current account balance. 
B) reduces investment and reduces the current account balance. 
C) has no effect on investment,but reduces the current account balance. 
D) has no effect on either investment or the current account balance. 
A) reduces investment and improves the current account balance. 
B) reduces investment and reduces the current account balance. 
C) has no effect on investment,but reduces the current account balance. 
D) has no effect on either investment or the current account balance.

Question 9

Consider a small open economy with desired national saving of Sd = 200 + 10,000rw and desired investment of Id = 1,000 - 5,000rw.If rw = 0.05,then net exports equal

Accepted Answer

A) 100. 
B) 50. 
C) -50. 
D) -100. 
A) 100. 
B) 50. 
C) -50. 
D) -100.

Question 10

Suppose output is $35 billion,government purchases are $10 billion,desired consumption is $15 billion,and net exports are $4 billion.Then desired investment equals

Accepted Answer

A) $2 billion. 
B) $4 billion. 
C) $6 billion. 
D) $8 billion. 
A) $2 billion. 
B) $4 billion. 
C) $6 billion. 
D) $8 billion.

Question 11

A large open economy's real interest rate will decrease if

Accepted Answer

A) the expected future marginal product of domestic capital rises. 
B) the expected future marginal product of foreign capital rises. 
C) there is a temporary positive domestic supply shock. 
D) there is a temporary negative domestic supply shock. 
A) the expected future marginal product of domestic capital rises. 
B) the expected future marginal product of foreign capital rises. 
C) there is a temporary positive domestic supply shock. 
D) there is a temporary negative domestic supply shock.

Question 12

Consider a large open economy that has a positive current account balance.
(a)Suppose the domestic government increases the tax rate on firm revenues.Draw a diagram to explain the effects on the world real interest rate,saving in each country,investment in each country,and the current account balance in each country in equilibrium.Explain your work.
(b)In addition to the tax increase in part (a),suppose now that the foreign government increases lump-sum taxes on individuals.Draw a new diagram to incorporate the overall effects of both tax changes and explain the effects (from the initial equilibrium with neither tax change)on the world real interest rate,saving in each country,investment in each country,and the current account balance in both countries.Explain your work.

Accepted Answer

(a)The increased tax rate on firm revenu

Question 13

In a small open economy,
Sd = $5 billion + ($100 billion)rw,
Id = $10 billion - ($50 billion)rw,
Y = $50 billion,
G = $3 billion,
rw = .06.
(a)Calculate the current account balance.
(b)Calculate net exports.
(c)Calculate desired consumption.
(d)Calculate absorption.

Accepted Answer

(a)$4 billion
(b)$4

Question 14

In a small open economy,describe what happens when an increase in wealth causes national saving to decline.Explain the impact on the real interest rate,saving,investment,net exports,and absorption in equilibrium.

Accepted Answer

With the saving curve shifting to the le

Question 15

In goods market equilibrium in an open economy,

Accepted Answer

A) the desired amount of exports must equal the desired amount of imports. 
B) the desired amount of exports must equal the desired amount of imports less the amount lent abroad. 
C) the desired amount of national saving must equal the desired amount of domestic investment. 
D) the desired amount of national saving must equal the desired amount of domestic investment plus the current account balance. 
A) the desired amount of exports must equal the desired amount of imports. 
B) the desired amount of exports must equal the desired amount of imports less the amount lent abroad. 
C) the desired amount of national saving must equal the desired amount of domestic investment. 
D) the desired amount of national saving must equal the desired amount of domestic investment plus the current account balance.

Question 16

Consider a small open economy with desired national saving of Sd = 20 + 200rw and desired investment of Id = 30 - 200rw.
Calculate national saving,investment,and the current account balance in equilibrium when the real world interest rate is
(a)rw = 0.025.
(b)rw = 0.05.
(c)rw = 0.0.
(d)Now suppose something causes desired national saving to increase by 10,so that it is now Sd = 30 + 200   .Repeat parts (a),(b),and (c).
(e)Suppose,with desired national saving at its original level of Sd = 20 + 200rw,something causes desired investment to rise by 10,to Id = 40 - 200rw.Repeat parts (a),(b),and (c).

Accepted Answer

(a)S = 25,I = 25,CA = 0.
(b)S = 30,I = 2

Question 17

When future labor income falls in a small open economy,it causes the current account to ________ and investment to ________.

Accepted Answer

A) fall; rise 
B) rise; remain unchanged 
C) fall; remain unchanged 
D) rise; rise 
A) fall; rise 
B) rise; remain unchanged 
C) fall; remain unchanged 
D) rise; rise

Question 18

Suppose a country has the following balance of payments data.
   
(a)Calculate the current account balance.
(b)Calculate the capital and financial account balance.
(c)Calculate the trade balance.
(d)Calculate net factor payments.

Accepted Answer

(a)-60
(b)

Question 19

Consider a large open economy.What are the effects,in equilibrium,on the world real interest rate,domestic national saving,domestic investment,the domestic current account balance,foreign national saving,foreign investment,and the foreign current account balance in each of the following scenarios? Show a diagram to illustrate your results.
(a)current income rises in the foreign country
(b)the future marginal product of capital rises in the domestic country
(c)wealth rises in the foreign country

Accepted Answer

(a)The foreign savings curve shifts righ

Question 20

Suppose output is $440 billion,government purchases are $40 billion,desired consumption is $320 billion,and net exports are $35 billion.Absorption is equal to

Accepted Answer

A) $405 billion. 
B) $420 billion. 
C) $435 billion. 
D) $440 billion. 
A) $405 billion. 
B) $420 billion. 
C) $435 billion. 
D) $440 billion.

If the United States had a capital and financial account deficit of $50 billion,we could say the United States had

What were the principal causes of the U.S.government budget deficits of the 1980s? How did these budget deficits lead to the twin deficits? According to the Ricardian equivalence proposition,should twin deficits arise as a result of tax cuts?

If a French company sells 1000 gallons of Perrier to a U.S.company at 5 euros per gallon,and uses the money to buy stock in a Spanish cork company,how does this affect the French balance of payments accounts?

If the Federal Reserve buys $3 billion worth of Japanese yen and sells $5 billion of euros,how does this affect the official settlements balance?

A small open economy increases its investment demand.This causes the world real interest rate to and the country's current account balance to .

Suppose a country has the following balance of payments data. (a)Calculate the current account balance. (b)Calculate the capital and financial account balance. (c)Calculate the trade balance. (d)Calculate net factor payments.

An increase in a small open economy's government budget deficit that reduces national saving and the current account balance causes an

In a large open economy like the United States,an increased government budget deficit which reduces national saving

Consider a small open economy with desired national saving of Sd = 200 + 10,000rw and desired investment of Id = 1,000 - 5,000rw.If rw = 0.05,then net exports equal

Suppose output is $35 billion,government purchases are $10 billion,desired consumption is $15 billion,and net exports are $4 billion.Then desired investment equals

A large open economy's real interest rate will decrease if

In a small open economy, Sd = $5 billion + ($100 billion)rw, Id = $10 billion - ($50 billion)rw, Y = $50 billion, G = $3 billion, rw = .06. (a)Calculate the current account balance. (b)Calculate net exports. (c)Calculate desired consumption. (d)Calculate absorption.

In a small open economy,describe what happens when an increase in wealth causes national saving to decline.Explain the impact on the real interest rate,saving,investment,net exports,and absorption in equilibrium.

In goods market equilibrium in an open economy,

When future labor income falls in a small open economy,it causes the current account to and investment to .

Suppose a country has the following balance of payments data. (a)Calculate the current account balance. (b)Calculate the capital and financial account balance. (c)Calculate the trade balance. (d)Calculate net factor payments.

Suppose output is $440 billion,government purchases are $40 billion,desired consumption is $320 billion,and net exports are $35 billion.Absorption is equal to

Introduction to Macroeconomics

The Measurement and Structure of the National Economy

Productivity, Output, and Employment

Consumption, Saving, and Investment

Long-Run Economic Growth

The Asset Market, Money, and Prices

Business Cycles

The IS-LM/AD-AS Model

Classical Business Cycle Analysis

Keynesianism: The Macroeconomics of Wage and Price Rigidity

Unemployment and Inflation

Exchange Rates,Business Cycles,and Macroeconomic Policy in the Open Economy

Monetary Policy and the Federal Reserve System

Government Spending and Its Financing

Filters

Exam 5: Saving and Investment in the Open Economy

If the United States had a capital and financial account deficit of $50 billion,we could say the United States had

What were the principal causes of the U.S.government budget deficits of the 1980s? How did these budget deficits lead to the twin deficits? According to the Ricardian equivalence proposition,should twin deficits arise as a result of tax cuts?

If a French company sells 1000 gallons of Perrier to a U.S.company at 5 euros per gallon,and uses the money to buy stock in a Spanish cork company,how does this affect the French balance of payments accounts?

If the Federal Reserve buys $3 billion worth of Japanese yen and sells $5 billion of euros,how does this affect the official settlements balance?

A small open economy increases its investment demand.This causes the world real interest rate to ________ and the country's current account balance to ________.

Suppose a country has the following balance of payments data. (a)Calculate the current account balance. (b)Calculate the capital and financial account balance. (c)Calculate the trade balance. (d)Calculate net factor payments.

An increase in a small open economy's government budget deficit that reduces national saving and the current account balance causes an

In a large open economy like the United States,an increased government budget deficit which reduces national saving

Consider a small open economy with desired national saving of Sd = 200 + 10,000rw and desired investment of Id = 1,000 - 5,000rw.If rw = 0.05,then net exports equal

Suppose output is $35 billion,government purchases are $10 billion,desired consumption is $15 billion,and net exports are $4 billion.Then desired investment equals

A large open economy's real interest rate will decrease if

In a small open economy, Sd = $5 billion + ($100 billion)rw, Id = $10 billion - ($50 billion)rw, Y = $50 billion, G = $3 billion, rw = .06. (a)Calculate the current account balance. (b)Calculate net exports. (c)Calculate desired consumption. (d)Calculate absorption.

In a small open economy,describe what happens when an increase in wealth causes national saving to decline.Explain the impact on the real interest rate,saving,investment,net exports,and absorption in equilibrium.

In goods market equilibrium in an open economy,

When future labor income falls in a small open economy,it causes the current account to ________ and investment to ________.

Suppose a country has the following balance of payments data. (a)Calculate the current account balance. (b)Calculate the capital and financial account balance. (c)Calculate the trade balance. (d)Calculate net factor payments.

Suppose output is $440 billion,government purchases are $40 billion,desired consumption is $320 billion,and net exports are $35 billion.Absorption is equal to

Introduction to Macroeconomics

The Measurement and Structure of the National Economy

Productivity, Output, and Employment

Consumption, Saving, and Investment

Long-Run Economic Growth

The Asset Market, Money, and Prices

Business Cycles

The IS-LM/AD-AS Model

Classical Business Cycle Analysis

Keynesianism: The Macroeconomics of Wage and Price Rigidity

Unemployment and Inflation

Exchange Rates,Business Cycles,and Macroeconomic Policy in the Open Economy

Monetary Policy and the Federal Reserve System

Government Spending and Its Financing

Filters

A small open economy increases its investment demand.This causes the world real interest rate to and the country's current account balance to .

When future labor income falls in a small open economy,it causes the current account to and investment to .