Question 1

Net foreign investment is equal to

Accepted Answer

A) capital inflows minus capital outflows. 
B) foreign direct investment. 
C) the balance of trade. 
D) net foreign portfolio investment plus net foreign direct investment. 
A) capital inflows minus capital outflows. 
B) foreign direct investment. 
C) the balance of trade. 
D) net foreign portfolio investment plus net foreign direct investment.

Question 2

Which of the following would decrease net exports in the United States?

Accepted Answer

A) An American party planner purchases 350 piñatas from Mexico. 
B) The government of Mexico purchases 2,000 Dell laptop computers from the United States. 
C) A Mexican citizen purchases 100 shares of stock in IBM. 
D) The U.S.government donates $25 million to Mexico to help victims of a hurricane in Mexico. 
A) An American party planner purchases 350 piñatas from Mexico. 
B) The government of Mexico purchases 2,000 Dell laptop computers from the United States. 
C) A Mexican citizen purchases 100 shares of stock in IBM. 
D) The U.S.government donates $25 million to Mexico to help victims of a hurricane in Mexico.

Question 3

Explain and show graphically the effect of a decrease in U.S.budget deficits that decrease U.S.interest rates on the demand and supply of U.S.dollars for euros.

Accepted Answer

A decrease in U.S.interest rates would d

Question 4

Ceteris paribus,an increase in the government budget deficit increases interest rates in the United States and causes a real appreciation of the dollar.

Accepted Answer

A) True 
 B)False

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 the exchange rate changes from $2.00 = 1 euro to $1.98 = 1 euro then

Accepted Answer

A) the dollar has depreciated. 
B) the dollar has appreciated. 
C) the euro has appreciated. 
D) the euro has stayed constant in value. 
A) the dollar has depreciated. 
B) the dollar has appreciated. 
C) the euro has appreciated. 
D) the euro has stayed constant in value.

Question 7

When Americans increase their demand for Japanese goods

Accepted Answer

A) the demand for dollars will rise,and the demand for yen will rise. 
B) the demand for dollars will fall,and the demand for yen will rise. 
C) the supply of dollars will rise,and the demand for yen will rise. 
D) the supply of dollars will fall,and the demand for yen will fall. 
A) the demand for dollars will rise,and the demand for yen will rise. 
B) the demand for dollars will fall,and the demand for yen will rise. 
C) the supply of dollars will rise,and the demand for yen will rise. 
D) the supply of dollars will fall,and the demand for yen will fall.

Question 8

Japan has a fairly high saving rate and the level of saving in Japan is above domestic investment.Use the saving and investment equation to explain what Japan is doing with this excess of saving above domestic investment.

Accepted Answer

In an open economy,the saving and invest

Question 9

Assuming no change in the nominal exchange rate,how will a lower rate of inflation in the United States relative to Canada 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 10

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.

Question 11

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

Accepted Answer

A) the balance on the U.S.financial account will decrease. 
B) the balance on the U.S.current account will decrease. 
C) the balance on the U.S.capital account will decrease. 
D) the U.S.balance of trade will decrease. 
A) the balance on the U.S.financial account will decrease. 
B) the balance on the U.S.current account will decrease. 
C) the balance on the U.S.capital account will decrease. 
D) the U.S.balance of trade will decrease.

Question 12

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 13

An increase in U.S.federal government budget deficits that raises U.S.interest rates relative to the rest of the world should

Accepted Answer

A) raise the trade balance. 
B) increase net exports. 
C) cause the dollar to depreciate. 
D) lead to a current account deficit. 
E) decrease foreign portfolio investment. 
A) raise the trade balance. 
B) increase net exports. 
C) cause the dollar to depreciate. 
D) lead to a current account deficit. 
E) decrease foreign portfolio investment.

Question 14

Figure 29-1  
-Refer to Figure 29-1.Europe suffers a recession.Assuming all else remains constant,this would be represented as a movement from

Accepted Answer

A) D to A. 
B) C to D. 
C) B to C. 
D) A to D. 
E) A to B. 
A) D to A. 
B) C to D. 
C) B to C. 
D) A to D. 
E) A to B.

Question 15

According to the saving and investment equation,if net foreign investment falls by $35 million

Accepted Answer

A) national saving in excess of domestic investment will decrease by $35 million. 
B) national savings will rise by $35 million. 
C) domestic investment will fall by $35 million. 
D) national saving in excess of domestic investment will rise by $35 million. 
A) national saving in excess of domestic investment will decrease by $35 million. 
B) national savings will rise by $35 million. 
C) domestic investment will fall by $35 million. 
D) national saving in excess of domestic investment will rise by $35 million.

Question 16

When exchange rates are not determined in the market but are instead set by a country's central bank,we say that the country's exchange rate is

Accepted Answer

A) flexible. 
B) fixed. 
C) a nominal exchange rate. 
D) a real exchange rate. 
A) flexible. 
B) fixed. 
C) a nominal exchange rate. 
D) a real exchange rate.

Question 17

Figure 29-1  
-Refer to Figure 29-1.Suppose that the U.S.government deficit decreases,causing interest rates in the United States to fall relative to those in the European Union.Assuming all else remains constant,how would this be represented?

Accepted Answer

A) Supply would decrease,demand would increase and the economy moves from A to D to C. 
B) Demand would decrease and the economy moves from B to A. 
C) Demand would increase and the economy moves from A to B. 
D) Supply would increase,demand would increase and the economy moves from D to A to B. 
A) Supply would decrease,demand would increase and the economy moves from A to D to C. 
B) Demand would decrease and the economy moves from B to A. 
C) Demand would increase and the economy moves from A to B. 
D) Supply would increase,demand would increase and the economy moves from D to A to B.

Question 18

An appreciating yen makes Japanese products

Accepted Answer

A) more expensive in foreign markets. 
B) less expensive in foreign markets. 
C) more expensive in the Japanese market. 
D) more expensive in both foreign markets and the Japanese market. 
A) more expensive in foreign markets. 
B) less expensive in foreign markets. 
C) more expensive in the Japanese market. 
D) more expensive in both foreign markets and the Japanese market.

Question 19

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

Accepted Answer

A) U.S.auto entrepreneur Elon Musk buys stock in Alibaba Group Holding Limited of Hangzhou,China. 
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 Elon Musk buys stock in Alibaba Group Holding Limited of Hangzhou,China. 
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.

Question 20

The difference between the value of the goods a country exports and the value of the goods a country imports is the country's

Accepted Answer

A) financial account balance. 
B) current account balance. 
C) balance of trade. 
D) capital account balance. 
A) financial account balance. 
B) current account balance. 
C) balance of trade. 
D) capital account balance.

Exam 29: Macroeconomics in an Open Economy

Net foreign investment is equal to

Which of the following would decrease net exports in the United States?

Explain and show graphically the effect of a decrease in U.S.budget deficits that decrease U.S.interest rates on the demand and supply of U.S.dollars for euros.

Ceteris paribus,an increase in the government budget deficit increases interest rates in the United States and causes a real appreciation of the dollar.

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 the exchange rate changes from $2.00 = 1 euro to $1.98 = 1 euro then

When Americans increase their demand for Japanese goods

Japan has a fairly high saving rate and the level of saving in Japan is above domestic investment.Use the saving and investment equation to explain what Japan is doing with this excess of saving above domestic investment.

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

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

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

An expansionary monetary policy in the United States should

An increase in U.S.federal government budget deficits that raises U.S.interest rates relative to the rest of the world should

Figure 29-1 -Refer to Figure 29-1.Europe suffers a recession.Assuming all else remains constant,this would be represented as a movement from

According to the saving and investment equation,if net foreign investment falls by $35 million

When exchange rates are not determined in the market but are instead set by a country's central bank,we say that the country's exchange rate is

Figure 29-1 -Refer to Figure 29-1.Suppose that the U.S.government deficit decreases,causing interest rates in the United States to fall relative to those in the European Union.Assuming all else remains constant,how would this be represented?

An appreciating yen makes Japanese products

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

The difference between the value of the goods a country exports and the value of the goods a country imports is the country's

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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