Exam 6: The Open Economy

If the nominal exchange rate falls 10 percent, the domestic price level rises 4 percent, and the foreign price level rises 6 percent, the real exchange rate will fall:

In a large open economy, if an import quota is adopted, then:

If a U.S. corporation purchases a product made in Europe and the European producer uses the proceeds to purchase a U.S. government bond, then U.S. net exports ______ and net capital outflows ______.

Two reasons why capital may not flow to poor countries are that the poorer countries may:

The adoption of an investment tax credit in a small open economy is likely to lead to:

Use the following to answer questions : Exhibit: Policies Influence Real Exchange Rate A) B) C) D) -(Exhibit: Policies Influence Real Exchange Rate) Which of the panels illustrates the impact on the real exchange rate of an increase in investment demand?

Assume that some large foreign countries begin to subsidize investment by instituting an investment tax credit. Then, if world saving does not depend on the interest rate, world investment:

According to purchasing-power parity, if the dollar price of oil is higher in New York than in London, arbitrageurs will ___ oil in New York and _____ oil in London to drive _____ the price of oil in New York.

In a small open economy, if exports equal $15 billion and imports equal $8 billion, then there is a trade ______ and ______ net capital outflow.

In a small, open economy if net exports are negative, then:

In a small open economy, if exports equal $20 billion, imports equal $30 billion, and domestic national saving equals $25 billion, then net capital outflow equals:

In a large open economy, the real interest rate is determined by:

In a small open economy, if consumers shift their preference toward Japanese cars, then net exports:

Protectionist policies in a small open economy do not alter the trade balance because the:

Which of the following would decrease the real exchange rate in a small open economy in the long run?

If the purchasing-power parity theory is true, then:

What is the difference between trade surplus and trade deficit? Explain.

What determines the real exchange rate and what determines the nominal exchange rate in a small open economy with perfect capital mobility, fully employed factors of production, and flexible prices?

The world interest rate:

The idea that the amount of any currency that can buy a particular good in one country should be able to buy (after being exchanged for the local currency) the same quantity of the same good anywhere in the world is called: