Exam 18: Open Economy Macroeconomics Basic Concepts: Part B

If a country's imports exceed its exports it has a trade surplus.

Many economists believe that the theory of purchasing-power parity describes the forces that determine exchange rates in the long run.

When U.S.national saving rises,domestic investment also necessarily rises.

If a U.S.firm buys Chinese toys using previously obtained Chinese currency,then both U.S.net exports and U.S.net capital outflow decrease.

If a country's net exports fall,then its net capital outflow falls by the same amount.

To increase domestic investment,a country must increase its saving.

A Turkish firm exchanges lira (Turkish currency)for dollars.It then uses these dollars to purchase computers from the U.S.These actions decrease U.S.net capital outflow and increase U.S.net exports.

Reduced barriers to trade help explain an increase in U.S.exports and imports relative to GDP since 1950.

Jason plans to buy shrimp in Florida and sell them in Manhattan,Kansas where the price is higher.Jason plans to engage in arbitrage.

If over the next year the inflation rate in the euro area is higher than the inflation rate in Japan,then the euro should depreciate relative to the Japanese yen.

If the U.S.real exchange rate with Japan is greater than 1,then U.S.goods are relatively cheap.

The increase in the trade deficit in the 1980's reflected a decrease in national saving that is associated with an increase in the government budget deficit.

If Walmart buys $50 million worth of consumer goods from China and sells them in the U.S. ,and China uses the $50 million to purchase U.S.bonds,U.S.net exports and U.S.net capital outflow both fall.

The large trade deficits in the U.S.during the 1990's were primarily associated with a rise in domestic investment spending rather than a rise in the budget deficit.

According to purchasing-power parity theory,the nominal exchange rate between the U.S.and another country should equal the U.S.price level divided by the price level in the foreign country.

Both foreign direct investment and foreign portfolio investment by U.S.residents increase U.S.net capital outflow.

When net capital outflow is negative,it means that on net the value of domestic assets purchased by foreigners exceeds the value of foreign assets purchased by domestic residents.

From 2008 to 2012 both U.S.saving and U.S.investment fell.

According to purchasing power parity,the nominal exchange rate between the U.S.and another country should equal the price level of foreign goods divided by the price level of U.S.goods.

A country with negative net exports has a trade surplus.