Deck 16: Open Economy Macroeconomics

Question 1

A depreciation of the U.S. dollar against the Chinese yuan will likely shift the U.S. aggregate demand curve to the _____, leading to _____ output in the short run.

A) left; higher
B) right; lower
C) left; lower
D) right; higher

Answer 1

D

Question 2

Which of these would NOT be included in the capital account?

A) money spent by Chinese investors to buy an American golf course
B) McDonald's building another fast-food restaurant in Mozambique
C) a statistical discrepancy caused by the difficulties of measuring capital flows
D) profits earned by General Motors in China that are brought back to the United States

Answer 2

D

Question 3

The exchange rate system that results in the greatest amount of fluctuation in currency values is:

A) floating exchange rates.
B) the gold standard.
C) pegged exchange rates.
D) dollarization.

Answer 3

A

Question 4

The two main parts of the balance of payments are the:

A) capital and current accounts.
B) consumption and investment accounts.
C) public and private accounts.
D) foreign and domestic accounts.

Question 5

If a government wishes to keep its currency undervalued relative to the U.S. dollar, it would need to:

A) sell dollars on the foreign exchange market.
B) withhold dollars from the foreign exchange market.
C) borrow money from the IMF to keep its currency from collapsing.
D) raise interest rates to attract more purchases of bonds by foreigners.

Question 6

Which of these items is NOT a component of the current account?

A) imports
B) income received
C) net increase in foreign-owned holdings
D) net transfers

Question 7

In a country that fixes its exchange rate to the euro, monetary policy is _____ and fiscal policy is _____.

A) reinforced; reinforced
B) reinforced; hampered
C) hampered; reinforced
D) hampered; hampered

Question 8

Which of these items is NOT a component of the capital account?

A) net increase in foreign-owned assets in the United States
B) net transfers
C) statistical discrepancies
D) net increase in foreign-owned assets abroad

Question 9

If a country has a current account deficit of $200 billion, this means that:

A) it will have a capital account deficit of $200 billion.
B) it will have a capital account surplus of $200 billion.
C) it will have a capital account deficit of more than $200 billion.
D) it will have a capital account surplus of more than $200 billion.

Question 10

If the real exchange rate of the U.S. dollar in terms of the euro increases to 1.2, this means that:

A) fewer chocolate croissants can be purchased for $10 in Paris than in New York.
B) more chocolate croissants can be purchased for $10 in Paris than in New York.
C) exactly 1.2 more chocolate croissants can be purchased in New York than in Paris.
D) the price of a chocolate croissant is $1.20 in Paris and $1.00 in New York.

Question 11

Which of these generates the largest volume of international commercial transactions?

A) goods
B) services
C) financial assets
D) gold

Question 12

The record of all payments received from foreign countries and all payments made to them is called the:

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

Question 13

In which account would remittances (money sent back by foreign workers to their home countries) appear?

A) both the current and capital accounts
B) neither the current nor capital accounts
C) only the current account
D) only the capital account

Question 14

If a Starbucks vanilla latte costs $5 in Seattle and 4 euros in Paris, what must the exchange rate be if purchasing power parity holds?

A) 20 euros per dollar
B) 4 euros per dollar
C) 1.25 euros per dollar
D) 0.80 euros per dollar

Question 15

For much of the past few decades, the United States has had a current account _____ and a capital account _____.

A) deficit; surplus
B) surplus; deficit
C) deficit; deficit
D) surplus; surplus

Question 16

Payments for imports and exports of goods and services are shown in:

A) the capital account.
B) the current account.
C) the current account for imports and capital account for exports.
D) the capital account for imports and current account for exports.

Question 17

After some troubling times in Egypt, American tourists are visiting in record numbers. As a result, demand for Egyptian pounds will _____ which means its value will _____ against the U.S. dollar, all else equal.

A) increase; appreciate
B) increase; depreciate
C) decrease; appreciate
D) decrease; depreciate

Question 18

If rising inflation in an economy with fixed exchange rates puts downward pressure on the value of the currency, what action must the government take to maintain fixed exchange rates?

A) lower interest rates to attract more borrowers to the country
B) buy up more foreign currency, using money that it prints
C) print more domestic currency to maintain an adequate supply of money
D) buy up its own currency using foreign reserves

Question 19

Which of these is NOT a benefit of pegging one's currency to the U.S. dollar or euro?

A) reduced transactions costs
B) reduced risk from excessive exchange rate fluctuations
C) more independent control of the country's monetary policy
D) an ability to attract more foreign direct investment

Question 20

If yesterday one U.S. dollar could be exchanged for 120 Japanese yen, while today a U.S. dollar can be exchanged for 118 yen, this means that the U.S. dollar has _____ against the yen and imports from Japan became _____.

A) appreciated; more expensive
B) appreciated; less expensive
C) depreciated; more expensive
D) depreciated; less expensive

Question 21

The balance of trade is(are):

A) exports of goods and services minus imports of goods and services.
B) exports of money minus imports of money.
C) the total amount of exported capital assets.
D) the total amount of imported capital assets.

Question 22

If Productovia has exports of $50 billion and imports of $40 billion, it has a trade:

A) deficit of $40 billion.
B) deficit of $10 billion.
C) surplus of $10 billion.
D) The trade deficit or surplus cannot be calculated from the information provided.

Question 23

An investment by a Malaysian company in a wine production plant in California is included in the _____ account.

A) current
B) financing
C) trade
D) capital

Question 24

If American colleges sell education to Chinese students studying in the United States, then the U.S. _____ account is _____.

A) current; debited
B) current; credited
C) capital; debited
D) capital; credited

Question 25

Money provided by the United States to disable land mines in Serbia is included in the _____ account.

A) imports
B) exports
C) capital
D) transfers

Question 26

An example of an item included in the current account is:

A) the profits made by a South Korean company operating a plant in the United States.
B) the stock of Google held by a South Korean investor.
C) a South Korean company's deposits in Citibank.
D) a bond sold by Tesla Motors to a South Korean investor.

Question 27

(Table) The current account balance is a: $\begin{array}{c}\begin{array}{lll} \hline \text { Current Account}\\ \hline \text { Balance of trade}\\ \text { Balance on income}\\ \text { Net transfers}\\ \hline \text { Capital Account}\\ \hline\end{array}\begin{array}{lll} \hline\\ \hline (\$100)\\25\\(10)\\ \hline\\ \hline \end{array}\end{array}$

A) deficit of $85.
B) deficit of $100.
C) surplus of $15.
D) surplus of $85.

Question 28

The account that summarizes the flow of money in and out of domestic and foreign assets is called the:

A) capital account.
B) current account.
C) net asset account.
D) money market account.

Question 29

(Table) The capital account balance must be a: $\begin{array}{c}\begin{array}{lll} \hline \text { Current Account}\\ \hline \text { Balance of trade}\\ \text { Balance on income}\\ \text { Net transfers}\\ \hline \text { Capital Account}\\ \hline\end{array}\begin{array}{lll} \hline\\ \hline (\$100)\\25\\(10)\\ \hline\\ \hline \end{array}\end{array}$

A) deficit of $85.
B) deficit of $100.
C) surplus of $15.
D) surplus of $85.

Question 30

The portion of the current account that compares imports with exports is called the:

A) import-export equation.
B) foreign demand component.
C) net trade calculation.
D) balance of trade.

Question 31

If American farmers sell corn to a Russian grain dealer, then the _____ account is _____.

A) current; debited
B) current; credited
C) capital; debited
D) capital; credited

Question 32

Foreign aid transfers are part of the _____ account.

A) capital
B) foreign aid
C) current
D) trade

Question 33

Which monetary movement is NOT a component of the current account?

A) net transfers of money
B) net income flows
C) flow of stocks and bonds
D) payments for imports and exports

Question 34

Last year ABCD Corp., a New York firm, earned $1.5 million from business it conducted in Brazil. Its earnings are recorded in the balance of payments as:

A) income received.
B) an import.
C) a net transfer.
D) capital.

Question 35

In 2015, the United States ran both a _____ account deficit and a _____ account surplus.

A) current; capital
B) capital; trade
C) capital; current
D) trade; current

Question 36

The sum of the balance of trade, the balance of income, and net transfers is:

A) the current account.
B) the capital account.
C) the trade balance.
D) net transfers.

Question 37

A Chilean engineer comes to the United States to work on a one-year project and he earns $75,000. In the balance of payments, this transaction is a(n) _____ of $75,000.

A) transfer outflow
B) income outflow
C) net capital outflow
D) income inflow

Question 38

If the United States spends $15 million to dig village wells in Malawi, then that $15 million is:

A) subtracted from the current account.
B) added to the current account.
C) subtracted from the capital account.
D) added to the capital account.

Question 39

The components of the current account include imports of goods and services, exports of goods and services, and:

A) net transfers.
B) any increase in U.S.-owned assets abroad.
C) military sales.
D) foreign-held money orders.

Question 40

Which of these items is NOT a component of the balance of payments account?

A) commercial account
B) capital account
C) current account
D) financial account

Question 41

(Table) The balance on income is: $$\begin{array}{l}\text { Balance of Payments (billions of U.S. dollars) }\\\begin{array} { l c } \hline \text { Component } & \text { Amount } \\\text { Exports } & \$ 1,800 \\\text { Imports } & 2,300 \\\text { Income received } & 490 \\\text { Income payments } & 540 \\\text { Net transfers } & - 100 \\\text { Increase in foreign-owned } & \\\text { assets in the United States } & 700 \\\text { Increase in U.S.-owned } & \\\text { assets abroad } &100 \end{array}\end{array}$$

A) $50 billion.
B) $500 billion.
C) -$500 billion.
D) -$50 billion.

Question 42

The _____ summarizes the flow of money into and out of domestic and foreign assets.

A) capital account
B) current account
C) income account
D) income statement

Question 43

If the United States has a current account surplus:

A) it can run a capital account surplus.
B) it must also run a trade surplus.
C) it must run a capital account surplus.
D) it must run a capital account deficit.

Question 44

The meaning behind "the balance of payments must balance" is that:

A) a deficit in either the current or capital account must be offset by an equal surplus in the other account.
B) income inflows must equal income outflows.
C) imports always equal exports.
D) net transfers equal the trade balance.

Question 45

If U.S. exports are $8,300 and its imports are $10,300, what is the trade deficit?

A) $8,300
B) $18,600
C) $2,000
D) $10,300

Question 46

If the United States sends money to Haiti for disaster relief, it will be accounted for as a(n):

A) subtraction from the U.S. current account.
B) addition to the U.S. current account.
C) subtraction from the U.S. capital account.
D) addition to the U.S. capital account.

Question 47

In 2015, the United States had a trade _____ of about _____.

A) deficit; $500 billion
B) deficit; $50 billion
C) surplus; $50 billion
D) surplus; $500 billion

Question 48

(Table) The current account balance is: $$\begin{array}{l}\text { Balance of Payments (billions of U.S. dollars) }\\\begin{array} { l c } \hline \text { Component } & \text { Amount } \\\text { Exports } & \$ 1,800 \\\text { Imports } & 2,300 \\\text { Income received } & 490 \\\text { Income payments } & 540 \\\text { Net transfers } & - 100 \\\text { Increase in foreign-owned } & \\\text { assets in the United States } & 700 \\\text { Increase in U.S.-owned } & \\\text { assets abroad } &100 \end{array}\end{array}$$

A) -$650 billion.
B) $500 billion.
C) -$500 billion.
D) $650 billion.

Question 49

If Eddie travels to New Zealand, his lodging and meals will be accounted for as:

A) a subtraction from the U.S. current account.
B) an addition to the U.S. current account.
C) a subtraction from the U.S. capital account.
D) an addition to the U.S. capital account.

Question 50

The balance on income equals:

A) income payments minus income received.
B) exports minus imports.
C) income received minus income payments.
D) imports minus exports.

Question 51

If a U.S. firm borrows from an American bank and then converts that money to euros to buy French wine, it will be accounted for as a(n):

A) subtraction from the U.S. capital account.
B) addition to the U.S. current account.
C) subtraction from the U.S. current account.
D) addition to the U.S. capital account.

Question 52

Payments to the United States comprise income flows and include all of these EXCEPT:

A) wages that Americans earn abroad.
B) income foreigners earn in the United States.
C) profits Americans earn abroad.
D) rent Americans earn abroad.

Question 53

(Table) The balance of trade is: $$\begin{array}{l}\text { Balance of Payments (billions of U.S. dollars) }\\\begin{array} { l c } \hline \text { Component } & \text { Amount } \\\text { Exports } & \$ 1,800 \\\text { Imports } & 2,300 \\\text { Income received } & 490 \\\text { Income payments } & 540 \\\text { Net transfers } & - 100 \\\text { Increase in foreign-owned } & \\\text { assets in the United States } & 700 \\\text { Increase in U.S.-owned } & \\\text { assets abroad } &100 \end{array}\end{array}$$

A) $500 billion.
B) -$650 billion.
C) -$500 billion.
D) $650 billion.

Question 54

The balance of trade is included in the:

A) current account.
B) capital account.
C) surplus account.
D) None of the answers is correct.

Question 55

In 2015, U.S. exports totaled about:

A) $2,200 billion.
B) $2,200 trillion.
C) $2,700 billion.
D) $2,700 trillion.

Question 56

If a Japanese mutual fund buys a share of stock on the New York Stock Exchange, it will be accounted for as a(n):

A) subtraction from the U.S. current account.
B) addition to the U.S. current account.
C) subtraction from the U.S. capital account.
D) addition to the U.S. capital account.

Question 57

(Table) The change in foreign-owned holdings is a net: $$\begin{array}{l}\text { Balance of Payments (billions of U.S. dollars) }\\\begin{array} { l c } \hline \text { Component } & \text { Amount } \\\text { Exports } & \$ 1,800 \\\text { Imports } & 2,300 \\\text { Income received } & 490 \\\text { Income payments } & 540 \\\text { Net transfers } & - 100 \\\text { Increase in foreign-owned } & \\\text { assets in the United States } & 700 \\\text { Increase in U.S.-owned } & \\\text { assets abroad } &100 \end{array}\end{array}$$

A) decrease of $600 billion.
B) increase of $600 billion.
C) decrease of $650 billion.
D) increase of $650 billion.

Question 58

When the United States has a current account deficit, it must:

A) buy bonds from foreign countries to balance the account.
B) sell more exports to balance the account.
C) reduce its net transfers to balance the account.
D) be balanced with capital inflows from foreign countries.

Question 59

In 2015, U.S. imports totaled about:

A) $2,200 billion.
B) $2,200 trillion.
C) $2,700 billion.
D) $2,700 trillion.

Question 60

The formula for calculating the net increase in foreign-owned holdings is:

A) change in foreign-owned assets in the United States minus change in U.S.-owned assets abroad.
B) change in U.S.-owned assets abroad minus change in foreign-owned assets in the United States.
C) change in foreign-owned assets in the United States minus change in U.S.-owned assets abroad plus statistical discrepancy.
D) change in U.S.-owned assets abroad minus change in foreign-owned assets in the United States plus statistical discrepancy.

Question 61

Which country uses the U.S. dollar as its currency?

A) Costa Rica.
B) Nicaragua.
C) Panama.
D) Guatemala.

Question 62

On global markets, oil has long been priced in _____, but recently some countries have converted their prices to _____.

A) gold; U.S. dollars
B) gold; euros
C) U.S. dollars; gold
D) U.S. dollars; euros

Question 63

The buying and selling of foreign currency is:

A) foreign exchange.
B) foreign trade.
C) the balance of payments.
D) the capital account.

Question 64

Why have many oil-producing countries stopped pricing oil in U.S. dollars?

A) The supply of alternative forms of energy has increased elsewhere in the world.
B) The demand for oil has increased in emerging markets that use different currencies.
C) The U.S. dollar is used more as a reserve currency by central banks worldwide.
D) Electronic markets have eliminated much of the need for paper currency.

Question 65

Which of these is(are) true? I. Money sent to the UN in New York by the United States is considered a transfer.
II) The purchase of Apple stock by German investors is considered income received.
III) A U.S. student's purchase of a restaurant meal in Spain while on vacation is considered a U.S. export.

A) I only
B) II only
C) I and II only
D) II and III only

Question 66

Most foreign exchange transactions are carried out:

A) by tourists.
B) by importers.
C) for financial or speculative purposes.
D) by coin collectors.

Question 67

An example of an item included in the capital account is:

A) the profits made by a U.S. shoe company operating a plant in Vietnam.
B) Dell computers exported to Brazil.
C) a Pepsi-Cola bottling plant in Greece.
D) a stipend paid to a Bulgarian student studying at Baylor University.

Question 68

In recent years, China has helped make its currency _____ by _____ U.S. dollars.

A) stronger; buying
B) stronger; selling
C) weaker; buying
D) weaker; selling

Question 69

(Table: Balance of Payments) Which of these is(are) true? $$\begin{array}{l}\text { Balance of Payments (billions of U.S. dollars) }\\\begin{array} { l c } \hline \text { Component } & \text { Amount } \\\text { Exports } & \$ 1,900 \\\text { Imports } & 2,500 \\\text { Income received } & 500 \\\text { Income payments } & 500 \\\text { Net transfers } & - 100 \\\text { Increase in foreign-owned } & \\\text { assets in U.S. } & 850 \\\text { Increase in U.S.-owned } & \\\text { assets abroad } & 150\end{array}\end{array}$$ I. The current account balance is equal to -$700 billion. II. The capital account balance is equal to $700 billion.
III) The statistical discrepancy must equal $100 billion.

A) I only
B) II only
C) I and II only
D) II and III only

Question 70

The United States had a _____ account _____ of about $480 billion in 2015.

A) current; deficit
B) current; surplus
C) capital; deficit
D) trade; surplus

Question 71

Which of these is(are) true? I. The balance of trade is included in the capital account.
II) A deficit in either the current or capital account must be offset by an equal surplus in the other account.
III) If the United States sends money to Haiti for disaster relief, it will be accounted for as a subtraction from the U.S. current account.

A) I only
B) II only
C) I and II only
D) II and III only

Question 72

The rate at which one currency is traded for another is called the:

A) transaction rate.
B) exchange rate.
C) trade rate.
D) parity rate.

Question 73

If exports exceed imports, then the nation has a:

A) capital account surplus.
B) trade surplus.
C) trade deficit.
D) current account surplus.

Question 74

In recent years, China has _____ U.S. dollars to increase Chinese _____.

A) bought; exports
B) bought; imports
C) sold; exports
D) sold; imports

Question 75

The value of a country's fixed exchange rate is determined by:

A) the country's currency board.
B) the country's government or central bank.
C) the central bank of the country to which its currency is pegged.
D) supply of and demand for the country's currency.

Question 76

(Table) For the balance of payments to be in balance, the: $$\begin{array}{l}\text { Balance of Payments (billions of U.S. dollars) }\\\begin{array} { l c } \hline \text { Component } & \text { Amount } \\\text { Exports } & \$ 1,800 \\\text { Imports } & 2,300 \\\text { Income received } & 490 \\\text { Income payments } & 540 \\\text { Net transfers } & - 100 \\\text { Increase in foreign-owned } & \\\text { assets in the United States } & 700 \\\text { Increase in U.S.-owned } & \\\text { assets abroad } &100 \end{array}\end{array}$$

A) capital account must be $600 billion.
B) statistical discrepancy must be $100 billion.
C) statistical discrepancy must be $50 billion.
D) capital account must be $650 billion.

Question 77

The capital account includes:

A) investments by foreign companies in U.S. plants.
B) profits repatriated to foreign countries from foreign-owned U.S. plants.
C) profits repatriated to U.S. companies from U.S.-owned plants in foreign countries.
D) investments in U.S. companies by U.S. companies.

Question 78

China's recent policy of currency management has _____ U.S. import prices and _____ U.S. manufacturing employment.

A) decreased; decreased
B) decreased; increased
C) increased; decreased
D) increased; increased

Question 79

If China has a current account surplus, it must have:

A) a capital account surplus.
B) a capital account deficit.
C) a decrease in foreign aid.
D) capital inflows.

Question 80

In which currency has gold long been priced on global markets?

A) the British pound
B) the German mark (now the euro)
C) the Japanese yen
D) the U.S. dollar