Question 1

U.S. exports are $300 billion, U.S. imports are $500 billion. Which of the following are consistent with the level of net exports?

Accepted Answer

A)  The U.S has a trade surplus. The U.S. purchases $800 billion worth of foreign assets and foreign countries purchase $600 billion worth of U.S. assets. 
B)  The U.S. has a trade surplus. The U.S. purchases $600 billion worth of foreign assets and foreign countries purchase $800 billion worth of U.S. assets. 
C)  The U.S has a trade deficit. The U.S. purchases $800 billion worth of foreign assets and foreign countries purchase $600 billion worth of U.S. assets. 
D)  The U.S. has a trade deficit. The U.S. purchases $600 billion worth of foreign assets and foreign countries purchase $800 billion worth of U.S. asset. 
A)  The U.S has a trade surplus. The U.S. purchases $800 billion worth of foreign assets and foreign countries purchase $600 billion worth of U.S. assets. 
B)  The U.S. has a trade surplus. The U.S. purchases $600 billion worth of foreign assets and foreign countries purchase $800 billion worth of U.S. assets. 
C)  The U.S has a trade deficit. The U.S. purchases $800 billion worth of foreign assets and foreign countries purchase $600 billion worth of U.S. assets. 
D)  The U.S. has a trade deficit. The U.S. purchases $600 billion worth of foreign assets and foreign countries purchase $800 billion worth of U.S. asset.

Question 2

Domestic saving must equal domestic investment in

Accepted Answer

A)  both closed and open economies. 
B)  closed, but not open economies. 
C)  open, but not closed economies. 
D)  neither closed nor open economies. 
A)  both closed and open economies. 
B)  closed, but not open economies. 
C)  open, but not closed economies. 
D)  neither closed nor open economies.

Question 3

After 1980 in the United States,

Accepted Answer

A)  national saving fell below investment and net capital outflow was a large positive number. 
B)  national saving fell below investment and net capital outflow was a large negative number. 
C)  investment fell below saving and net capital outflow was a large positive number. 
D)  investment fell below saving, so net capital outflow was a large negative number. 
A)  national saving fell below investment and net capital outflow was a large positive number. 
B)  national saving fell below investment and net capital outflow was a large negative number. 
C)  investment fell below saving and net capital outflow was a large positive number. 
D)  investment fell below saving, so net capital outflow was a large negative number.

Question 4

Goods that cost 1/5 of one dollar in the U.S. cost one kroner in Denmark, the real exchange rate would be computed as how many Danish goods per U.S. goods?

Accepted Answer

A)  five 
B)  the amount of kroner that can be bought with twenty U.S. cents 
C)  the amount of kroner that can be bought with 5 dollars 
D)  None of the above is correct. 
A)  five 
B)  the amount of kroner that can be bought with twenty U.S. cents 
C)  the amount of kroner that can be bought with 5 dollars 
D)  None of the above is correct.

Question 5

Which of the following equations is always correct in an open economy?

Accepted Answer

A)  I = Y - C 
B)  I = S 
C)  I = S - NCO 
D)  I = S + NX 
A)  I = Y - C 
B)  I = S 
C)  I = S - NCO 
D)  I = S + NX

Question 6

From 1970 to 1998 the U.S. dollar

Accepted Answer

A)  gained value compared to the Italian lira because inflation was higher in the U.S. 
B)  gained value compared to the Italian lira because inflation was lower in the U.S. 
C)  lost value compared to the Italian lira because inflation was higher in the U.S. 
D)  lost value compared to the Italian lira because inflation was lower in the U.S. 
A)  gained value compared to the Italian lira because inflation was higher in the U.S. 
B)  gained value compared to the Italian lira because inflation was lower in the U.S. 
C)  lost value compared to the Italian lira because inflation was higher in the U.S. 
D)  lost value compared to the Italian lira because inflation was lower in the U.S.

Question 7

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

Accepted Answer

A) True 
 B)False

Question 8

If a lobster in Maine costs $10 and that the same type of lobster in Massachusetts costs $30, then people could make a profit by

Accepted Answer

A)  buying lobsters in Maine and selling them in Massachusetts. This action would increase the price of lobster in Massachusetts. 
B)  buying lobsters in Maine and selling them in Massachusetts. This action would decrease the price of lobster in Massachusetts. 
C)  buying lobsters in Massachusetts and selling them in Maine. This action would increase the price of lobster in Massachusetts. 
D)  buying lobsters in Massachusetts and selling them in Maine. This action would decrease the price of lobster in Massachusetts. 
A)  buying lobsters in Maine and selling them in Massachusetts. This action would increase the price of lobster in Massachusetts. 
B)  buying lobsters in Maine and selling them in Massachusetts. This action would decrease the price of lobster in Massachusetts. 
C)  buying lobsters in Massachusetts and selling them in Maine. This action would increase the price of lobster in Massachusetts. 
D)  buying lobsters in Massachusetts and selling them in Maine. This action would decrease the price of lobster in Massachusetts.

Question 9

Suppose that the real return from operating factories in Canada rises relative to the real rate of return in the United States. Other things the same,

Accepted Answer

A)  this will increases U.S. net capital outflow and decrease Canadian net capital outflow. 
B)  this will decreases U.S. net capital outflow and increase Canadian net capital outflow. 
C)  this will only increase U.S. net capital outflow. 
D)  this will only increase Canadian net capital outflow. 
A)  this will increases U.S. net capital outflow and decrease Canadian net capital outflow. 
B)  this will decreases U.S. net capital outflow and increase Canadian net capital outflow. 
C)  this will only increase U.S. net capital outflow. 
D)  this will only increase Canadian net capital outflow.

Question 10

A rational investor will always purchase the bond that pays the highest real interest rate.

Accepted Answer

A) True 
 B)False

Question 11

A Japanese bank buys bonds sold by Minnesota Manufacturing. Minnesota Manufacturing then uses these funds to buy machinery from Canada. Which of the following decreases?

Accepted Answer

A)  U.S. net exports but not US net capital outflow 
B)  U.S. net capital outflow but not U.S. net exports 
C)  U.S. net exports and U.S. net capital outflow 
D)  neither U.S. net exports nor U.S. net capital outflow 
A)  U.S. net exports but not US net capital outflow 
B)  U.S. net capital outflow but not U.S. net exports 
C)  U.S. net exports and U.S. net capital outflow 
D)  neither U.S. net exports nor U.S. net capital outflow

Question 12

Susan, a U.S. citizen, builds and operates a kennel in France. This action is an example of

Accepted Answer

A)  investment for Susan and U.S. foreign direct investment. 
B)  investment for Susan and U.S. foreign portfolio investment. 
C)  U.S. foreign direct investment and U.S. domestic investment. 
D)  U.S. foreign portfolio investment and U.S. domestic investment. 
A)  investment for Susan and U.S. foreign direct investment. 
B)  investment for Susan and U.S. foreign portfolio investment. 
C)  U.S. foreign direct investment and U.S. domestic investment. 
D)  U.S. foreign portfolio investment and U.S. domestic investment.

Question 13

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

Accepted Answer

A) True 
 B)False

Question 14

If a country's purchases of foreign assets exceeds foreign purchases of domestic assets, that country has

Accepted Answer

A)  positive net exports and positive net capital outflows. 
B)  positive net exports and negative net capital outflows. 
C)  negative net exports and positive net capital outflows. 
D)  negative net exports and negative net capital outflows. 
A)  positive net exports and positive net capital outflows. 
B)  positive net exports and negative net capital outflows. 
C)  negative net exports and positive net capital outflows. 
D)  negative net exports and negative net capital outflows.

Question 15

Other things the same, if a country has a trade deficit and saving rises,

Accepted Answer

A)  net capital outflow rises, so the trade deficit increases. 
B)  net capital outflow rises, so the trade deficit decreases. 
C)  net capital outflow falls, so the trade deficit increases. 
D)  net capital outflow falls, so the trade deficit decreases. 
A)  net capital outflow rises, so the trade deficit increases. 
B)  net capital outflow rises, so the trade deficit decreases. 
C)  net capital outflow falls, so the trade deficit increases. 
D)  net capital outflow falls, so the trade deficit decreases.

Question 16

If a country has negative net capital outflows, then its net exports are

Accepted Answer

A)  positive and its saving is larger than its domestic investment. 
B)  positive and its saving is smaller than its domestic investment. 
C)  negative and its saving is larger than its domestic investment. 
D)  negative and its saving is smaller than its domestic investment. 
A)  positive and its saving is larger than its domestic investment. 
B)  positive and its saving is smaller than its domestic investment. 
C)  negative and its saving is larger than its domestic investment. 
D)  negative and its saving is smaller than its domestic investment.

Question 17

A U.S. firm buys bonds issued by a technology center in India. This purchase is an example of U.S.

Accepted Answer

A)  foreign portfolio investment. By itself it is an increase in U.S. holdings of foreign bonds and increases U.S. net capital outflow. 
B)  foreign portfolio investment. By itself it is an increase in U.S. holdings of foreign bonds and decreases U.S. net capital outflow. 
C)  foreign direct investment. By itself it is an increase in U.S. holdings of foreign bonds and increases U.S. net capital outflow. 
D)  foreign direct investment. By itself it is an increase in U.S. holdings of foreign bonds and decreases U.S. net capital outflow. 
A)  foreign portfolio investment. By itself it is an increase in U.S. holdings of foreign bonds and increases U.S. net capital outflow. 
B)  foreign portfolio investment. By itself it is an increase in U.S. holdings of foreign bonds and decreases U.S. net capital outflow. 
C)  foreign direct investment. By itself it is an increase in U.S. holdings of foreign bonds and increases U.S. net capital outflow. 
D)  foreign direct investment. By itself it is an increase in U.S. holdings of foreign bonds and decreases U.S. net capital outflow.

Question 18

The ability to profit by purchasing wheat in the U.S. and selling it in China implies that the

Accepted Answer

A)  nominal exchange rate is less than 1. 
B)  nominal exchange rate is greater than 1. 
C)  real exchange rate is less than 1. 
D)  real exchange rate is greater than 1. 
A)  nominal exchange rate is less than 1. 
B)  nominal exchange rate is greater than 1. 
C)  real exchange rate is less than 1. 
D)  real exchange rate is greater than 1.

Question 19

Other things the same, the real exchange rate between U.S. and Belgian goods would be higher if

Accepted Answer

A)  prices in the U.S. were higher, or the number of euro the dollar purchased were higher. 
B)  prices in the U.S. were higher, or the number of euro the dollar purchased were lower. 
C)  prices in the U.S. were lower, or the number of euro the dollar purchased were higher. 
D)  prices in the U.S. were lower, or the number of euro the dollar purchased were lower. 
A)  prices in the U.S. were higher, or the number of euro the dollar purchased were higher. 
B)  prices in the U.S. were higher, or the number of euro the dollar purchased were lower. 
C)  prices in the U.S. were lower, or the number of euro the dollar purchased were higher. 
D)  prices in the U.S. were lower, or the number of euro the dollar purchased were lower.

Question 20

A country recently had $800 billion worth of domestic investment and its residents purchased $400 billion worth of foreign assets. If foreigners purchased $100 billion of this country's assets, what was this country's saving? Explain how your found your answer.

Accepted Answer

This country had saving of $1,100 billio

Exam 31: Open-Economy Macroeconomics: Basic Concepts

U.S. exports are $300 billion, U.S. imports are $500 billion. Which of the following are consistent with the level of net exports?

Domestic saving must equal domestic investment in

After 1980 in the United States,

Goods that cost 1/5 of one dollar in the U.S. cost one kroner in Denmark, the real exchange rate would be computed as how many Danish goods per U.S. goods?

Which of the following equations is always correct in an open economy?

From 1970 to 1998 the U.S. dollar

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

If a lobster in Maine costs $10 and that the same type of lobster in Massachusetts costs $30, then people could make a profit by

Suppose that the real return from operating factories in Canada rises relative to the real rate of return in the United States. Other things the same,

A rational investor will always purchase the bond that pays the highest real interest rate.

A Japanese bank buys bonds sold by Minnesota Manufacturing. Minnesota Manufacturing then uses these funds to buy machinery from Canada. Which of the following decreases?

Susan, a U.S. citizen, builds and operates a kennel in France. This action is an example of

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

If a country's purchases of foreign assets exceeds foreign purchases of domestic assets, that country has

Other things the same, if a country has a trade deficit and saving rises,

If a country has negative net capital outflows, then its net exports are

A U.S. firm buys bonds issued by a technology center in India. This purchase is an example of U.S.

The ability to profit by purchasing wheat in the U.S. and selling it in China implies that the

Other things the same, the real exchange rate between U.S. and Belgian goods would be higher if

A country recently had $800 billion worth of domestic investment and its residents purchased $400 billion worth of foreign assets. If foreigners purchased $100 billion of this country's assets, what was this country's saving? Explain how your found your answer.

Ten Principles of Economics

Thinking Like an Economist

Interdependence and the Gains From Trade

The Market Forces of Supply and Demand

Elasticity and Its Application

Supply, Demand, and Government Policies

Consumers, Producers, and the Efficiency of Markets

Application: the Costs of Taxation

Application: International Trade

Externalities

Public Goods and Common Resources

The Design of the Tax System

The Costs of Production

Firms in Competitive Markets

Monopoly

Monopolistic Competition

Oligopoly

The Markets for the Factors of Production

Earnings and Discrimination

Income Inequality and Poverty

The Theory of Consumer Choice

Frontiers of Microeconomics

Measuring a Nations Income

Measuring the Cost of Living

Production and Growth

Saving, Investment, and the Financial System

The Basic Tools of Finance

Unemployment

The Monetary System

Money Growth and Inflation

A Macroeconomic Theory of the Open Economy

Aggregate Demand and Aggregate Supply

The Influence of Monetary and Fiscal Policy on Aggregate Demand

The Short-Run Trade-Off Between Inflation and Unemployment

Six Debates Over Macroeconomic Policy

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