Deck 18: Open-Marketmacroeconomics

Question 1

Which of the following countries is a major trading partner with the United States?

A) South Africa
B) China
C) Norway
D) Saudi Arabia

Answer 1

China

Question 2

Foreign direct investment occurs when:

A) a firm runs part of its operation abroad or invests in a foreign company.
B) investors buy foreign financial assets like stocks, bonds, or government securities.
C) foreign sources purchase domestic government debt.
D) a foreign government directly invests in a firm.

Answer 2

a firm runs part of its operation abroad or invests in a foreign company.

Question 3

The investment that occurs when a firm runs part of its operation abroad or invests in a foreign company is called:

A) portfolio investment.
B) import investment.
C) export investment.
D) foreign direct investment.

Answer 3

foreign direct investment.

Question 4

The balance of trade is the value of:

A) exports minus the value of imports.
B) imports minus the value of exports.
C) goods purchased by the United States from foreign countries.
D) goods sold by the United States to foreign parties.

Question 5

The largest category of U.S. imports is:

A) capital goods.
B) consumer goods.
C) industrial supplies.
D) automotive goods.

Question 6

The value of exports minus the value of imports equals the:

A) trade value.
B) net budget balance.
C) balance of trade.
D) net trade value.

Question 7

Apple is an American company, but its iPhones are assembled in China. The sale of each iPhone is counted in U.S. GDP as:

A) consumption.
B) investment.
C) an import.
D) an export.

Question 8

Foreign direct investment can help businesses:

A) cut costs of production.
B) reduce overall risk relative to financial investments available at home.
C) increase profit without having to pay taxes on the earnings.
D) improve a country's trade deficit.

Question 9

China imports ___________ from the United States than the United States imports from China.

A) fewer goods
B) more goods
C) fewer services
D) more goods and services

Question 10

Josh runs a maple syrup business in Vermont and decides to hire two people in India to maintain his company's bookkeeping electronically. Josh's hiring decision is an example of:

A) foreign portfolio investment.
B) foreign direct investment.
C) foreign import investment.
D) foreign export investment.

Question 11

Which of the following countries is a major trading partner with the United States?

A) South Africa
B) Mexico
C) Russia
D) Saudi Arabia

Question 12

A country that has a trade surplus:

A) imports more than it exports.
B) has a negative trade balance.
C) sells more goods abroad than it buys from abroad.
D) buys more goods at home that it buys abroad.

Question 13

A country that has a trade deficit:

A) imports less than it exports.
B) has a negative trade balance.
C) sells more goods at home than it sells abroad.
D) trades less than comparable countries.

Question 14

Which of the following countries is a major trading partner with the United States?

A) Hungary
B) Russia
C) Italy
D) Canada

Question 15

The largest category of U.S. exports is:

A) telecommunications equipment.
B) automotive goods.
C) capital goods.
D) consumer goods.

Question 16

For nearly every year since 1970, the United States has:

A) imported more than it exported.
B) exported more than it imported.
C) imported about the same amount as it has exported.
D) conducted isolationist trade policy.

Question 17

A trade surplus occurs when a country:

A) imports more than it exports.
B) imports less than it exports.
C) has a negative balance of trade.
D) has a zero balance of trade.

Question 18

Suppose Ford Motor Company opens a parts manufacturing plant in Haiti, which ships its parts back to the United States to be assembled in Detroit. The factory in Haiti is an example of:

A) foreign direct investment.
B) foreign portfolio investment.
C) foreign import investment.
D) foreign export investment.

Question 19

When a country imports more than it exports, it has a:

A) trade deficit.
B) trade surplus.
C) zero trade balance.
D) current account deficit.

Question 20

Apple is an American company, but its iPhones are assembled in China. The sale of each iPhone is counted in China's GDP as:

A) consumption.
B) investment.
C) an import.
D) an export.

Question 21

The amount of money that people can invest is equal to:

A) their income.
B) the value of their output.
C) the value of consumption after gains from trade have been made.
D) their savings.

Question 22

The balance of payments is the accounting of trade:

A) in financial assets.
B) in goods and capital.
C) between two countries with similar imports and exports.
D) in services.

Question 23

Foreign portfolio investment:

A) can be withdrawn from a country very quickly.
B) is very difficult to trace.
C) is often invested in the assets that yield the highest returns.
D) earnings often go untaxed by the home government.

Question 24

The United States is able to maintain a large trade deficit because:

A) it turns into a trade surplus during times of economic expansion.
B) it is balanced by a large capital surplus.
C) it is balanced by a large capital deficit.
D) None of these are true.

Question 25

Portfolio investment can generally travel across borders quickly because it usually involves:

A) transfers between two bank accounts.
B) the shipment of equipment from one place to another.
C) the hiring or firing of foreign workers.
D) two governments agreeing on trade.

Question 26

Champlain College, which is based in Vermont, runs a satellite campus in Dublin, Ireland. This is an example of:

A) foreign portfolio investment.
B) foreign direct investment.
C) foreign import investment.
D) foreign export investment.

Question 27

Net capital outflow is the net flow of:

A) capital goods owned outside a country.
B) funds invested outside of a country.
C) capital goods owned within a country.
D) funds invested within a country.

Question 28

One of the largest foreign portfolio investments in the United States comes from:

A) U.S. purchases of Chinese consumption goods.
B) U.S. purchases of Chinese government debt.
C) Chinese purchases of U.S. government debt.
D) Chinese purchases of U.S. capital goods.

Question 29

What is the equation for total expenditure in an open economy?

A) Im − Ex = C + I
B) Y = C + I + G
C) Y = C + I + G + NX
D) Y + G = C + I − NX

Question 30

A country with a net capital inflow has:

A) a trade surplus.
B) a trade deficit.
C) more exports than imports.
D) more capital goods flowing into the country than out of it.

Question 31

Suppose Anheuser-Busch, an American brewing company, purchases Unibroue, a Canadian brewery, in an effort to expand its market and product offerings. This is an example of:

A) foreign direct investment.
B) foreign portfolio investment.
C) foreign import investment.
D) foreign export investment.

Question 32

What is the equation for total expenditure in a closed economy?

A) Y = C + I + G
B) Im − Ex = C + I
C) Y = C + I + G + NX
D) Y + G = C + I − NX

Question 33

In general, the accounting of trade in goods and capital is known as the:

A) balance of trade.
B) net capital outflow.
C) balance of payments.
D) trade surplus.

Question 34

The balance-of-payments identity shows that the value of:

A) net exports equals the net capital outflow.
B) the net capital inflow equals the net capital outflow.
C) imports equals exports.
D) payments from a country exceeds payments to a country.

Question 35

In an open economy, savings equals:

A) investment minus net exports.
B) investment plus net exports.
C) net exports minus investment.
D) investment plus imports minus exports.

Question 36

Suppose IBM buys treasury bonds from the United Kingdom as part of its investment portfolio. This is an example of:

A) foreign direct investment.
B) foreign portfolio investment.
C) foreign import investment.
D) foreign export investment.

Question 37

Alan buys 20 shares of Unibroue stock because it's his favorite foreign beer company. Alan's purchase is an example of:

A) foreign direct investment.
B) foreign portfolio investment.
C) foreign import investment.
D) foreign export investment.

Question 38

Countries that have a trade surplus have a:

A) positive net capital outflow.
B) positive net capital inflow.
C) negative net capital outflow.
D) positive foreign direct investment.

Question 39

Harold gifts his nephew stock in Samsung for his birthday. The stock is an example of:

A) foreign direct investment.
B) foreign portfolio investment.
C) foreign import investment.
D) foreign export investment.

Question 40

The Chinese buy a large amount of U.S. government debt because:

A) they have dollars left over from the sale of their goods to the United States and want to buy something dollar denominated.
B) the U.S. government subsidizes foreign purchases of debt.
C) the rate of return for U.S. government bonds is higher than many other investments.
D) owning U.S. debt is a sign of economic prosperity for the Chinese.

Question 41

Jose, who lives in Texas, buys bonbons made in France for $25. At the same time, the French chocolatier buys stock in IBM for $25. Which of the following statements describes the effect these transactions have on France's balance of trade and payments?

A) Net exports and net capital outflow are both zero.
B) Net exports and net capital outflow both equal $25.
C) Net exports are zero and net capital outflow equals $25.
D) Net exports equal $25 and net capital outflow is zero.

Question 42

China's high net exports must be balanced by:

A) low net capital outflows.
B) high net capital outflows.
C) low net imports.
D) high net capital inflows.

Question 43

The United States' high trade deficit must be balanced by:

A) net capital inflows.
B) high net capital outflows.
C) low net capital outflows.
D) None of these are true.

Question 44

In the market for loanable funds in an open economy, which of the following is not a form of international investment?

A) Net capital outflow
B) Capital inflow
C) Domestic money invested internationally
D) Domestic money invested domestically

Question 45

Investments in a person's home country are called _______, while foreign investments are called _______.

A) investment; net capital outflow
B) investment; net exports
C) savings; investment
D) savings; net capital outflow

Question 46

When Dwight, who lives in Pennsylvania, buys stock in Ford Motor Company, an American company, he is contributing to _______ for the United States.

A) domestic portfolio investment
B) capital outflow
C) capital inflow
D) foreign direct investment

Question 47

Net capital outflow plus domestic investment equals the _______ loanable funds in a(n) _______ economy.

A) demand for; open
B) demand for; closed
C) supply of; open
D) supply of; closed

Question 48

When Soyeon, who lives in Korea, buys stock in General Electric, an American company, U.S. net capital outflow:

A) decreases.
B) is unaffected.
C) increases.
D) becomes zero.

Question 49

Wes, who lives in Wisconsin, buys $200 worth of stock in Toshiba, a Japanese company. At the same time, Kyohei, who lives in Japan, buys a wheel of cheese from Wisconsin. Which of the following statements describes the effect these transactions have on the U.S. balance of trade and payments?

A) Net exports and net capital outflow are both zero.
B) Net exports and net capital outflow both equal $200.
C) Net exports are zero and net capital outflow equals $200.
D) Net exports equal $200 and net capital outflow is zero.

Question 50

The gap between savings and investment is almost exactly:

A) the government deficit.
B) the balance of payments.
C) direct foreign investment.
D) the trade balance.

Question 51

For any given country, net capital outflows to all other countries equal:

A) net exports to all other countries.
B) net capital inflows from all other countries.
C) national savings.
D) net foreign direct investment to all other countries.

Question 52

When Rani, who lives in New York, buys stock in Hyundai, a Korean company, U.S. net capital outflow:

A) decreases.
B) is unaffected.
C) increases.
D) becomes zero.

Question 53

When Hamad, who lives in France, buys stock in Disney, he is contributing to _______ for the United States.

A) capital outflow
B) capital inflow
C) domestic investment
D) private savings

Question 54

Net capital outflow equals:

A) capital inflow minus capital outflow.
B) capital outflow minus capital inflow.
C) capital outflow plus capital inflow.
D) capital inflow divided by capital outflow.

Question 55

Erika, who lives in Hungary, buys Hershey's chocolate for $20. At the same time, Matt buys Turkish delights from Turkey for $20. Which of the following statements describes the effect these transactions have on the U.S. balance of trade and payments?

A) Net exports and net capital outflow are both zero.
B) Net exports and net capital outflow both equal $20.
C) Net exports are zero and net capital outflow equals $20.
D) Net exports equal $20 and net capital outflow is zero.

Question 56

Amber, who lives in Boston, decides to buy a pair of hockey skates from Canada for $100. At the same time, Jean, a Canadian, buys a baseball hat and jersey from Boston for $100. Which of the following statements describes the effect these transactions have on the U.S. balance of trade and payments?

A) Net exports and net capital outflow are both zero.
B) Net exports and net capital outflow both equal −$100.
C) Net exports are zero and net capital outflow equals −$100.
D) Net exports equal −$100 and net capital outflow is zero.

Question 57

In the market for loanable funds in an open economy, the supply of loanable funds:

A) can come from domestic or foreign savers.
B) is equal to national savings.
C) is equal to private savings.
D) is equal to public savings.

Question 58

When Ashlyn, who lives in Wisconsin, buys stock in BMW, a German company, U.S. net capital outflow:

A) decreases.
B) is unaffected.
C) increases.
D) becomes zero.

Question 59

In the market for loanable funds in an open economy, the demand for loanable funds comes from:

A) domestic investment and international investment.
B) consumption of major assets.
C) domestic savings.
D) export purchases.

Question 60

When Maya, who lives in San Francisco, buys stock in Toyota, a Japanese company, she is contributing to:

A) capital outflow for Japan.
B) capital inflow for the United States.
C) domestic investment for the United States.
D) capital outflow for the United States.

Question 61

The market for buying and selling foreign currencies is often referred to as the market for:

A) foreign exchange.
B) loanable funds.
C) international trade.
D) direct foreign investment.

Question 62

The price Americans pay for Mexican pesos is the:

A) exchange rate.
B) interest rate.
C) savings rate.
D) prime rate.

Question 63

We might observe a rise in U.S. net capital outflow when interest rates are:

A) declining in the rest of the world relative to the United States.
B) declining in the United States relative to the rest of the world.
C) declining across the globe.
D) rising across the globe.

Question 64

If $1 is worth 0.8 Canadian dollars, then 1 Canadian dollar is worth:

A) $1.25.
B) $1.80.
C) $0.20.
D) $0.80.

Question 65

When interest rates in the United States increase:

A) more foreigners will invest in U.S. assets.
B) fewer foreigners will invest in U.S. assets.
C) more U.S. citizens will invest abroad.
D) fewer U.S. citizens will invest in U.S. assets.

Question 66

When interest rates in the United States decline, we can expect net capital outflow to:

A) increase.
B) decrease.
C) be unaffected.
D) become zero.

Question 67

When interest rates in the United States decline, we can expect capital inflows to _______ and capital outflows to _______.

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

Question 68

The "crowding out" effect refers to the:

A) increase in domestic investment by foreigners, leaving little investment choices for domestic investors.
B) reduction in the interest rate caused by governments running a deficit.
C) reduction in domestic investment caused by governments running a deficit.
D) None of these are true.

Question 69

If $1 is worth 0.7 euros, then 1 euro is worth:

A) $7.43.
B) $1.43.
C) $7.00.
D) $0.70.

Question 70

Opportunities for arbitrage in foreign exchange markets throughout the world are:

A) available only in the lag period between the opening of different markets around the world.
B) plentiful, particularly in markets trading in U.S. dollars.
C) fleeting because technology enables trading that quickly eliminates these opportunities.
D) non-existent, as government regulations restrict arbitrage.

Question 71

The exchange rate is the:

A) value of one currency expressed in terms of another currency.
B) reciprocal of a currency's real value.
C) value of a currency expressed in terms of the goods and services it can buy.
D) value of a currency adjusted for inflation.

Question 72

Which of the following is not a reason foreign investment can be economically beneficial?

A) It increases the GDP of the host country by giving it access to additional resources.
B) It increases the GDP of the investing country by providing it with ways to earn higher returns on its capital.
C) It makes the world a more efficient place by moving capital from places with low returns to places with high returns.
D) It always leads to a higher interest rate.

Question 73

Investment is _______ related to the interest rate and net capital outflow is _______ related to the interest rate.

A) negatively; negatively
B) negatively; positively
C) positively; positively
D) positively; negatively

Question 74

When the U.S. government runs a deficit, the resulting higher interest rate:

A) "crowds out" domestic investment.
B) increases net capital outflow.
C) reduces domestic saving.
D) None of these are true.

Question 75

If confidence in the open economy of the United States suddenly decreases, and fewer people want to invest in U.S. assets, the _______ curve for loanable funds will shift to the _______.

A) demand; right
B) demand; left
C) supply; right
D) supply; left

Question 76

If $1 is worth 10 yen, then 1 yen is worth:

A) $0.01.
B) $0.10.
C) $1.00.
D) $1.10.

Question 77

If confidence in the open economy of the United States suddenly increases, and more people want to invest in U.S. assets, the _______ curve for loanable funds will shift to the _______.

A) demand; left
B) demand; right
C) supply; left
D) supply; right

Question 78

When Diego, who lives in Michigan, buys stock in Ford Motor Company, U.S. net capital outflow:

A) increases.
B) is unaffected.
C) decreases.
D) becomes zero.

Question 79

When the U.S. government runs a deficit, the savings curve in the market for loanable funds shifts to the _______, _______ interest rates and _______ domestic investment and net capital outflow.

A) left; increasing; decreasing
B) left; decreasing; increasing
C) right; decreasing; increasing
D) right; increasing; increasing

Question 80

One reason for the huge Chinese investment in the U.S. economy is:

A) China's desire to control the U.S. economy.
B) the high rates of return on U.S. government securities.
C) the large savings rate in China, which encourages capital outflow.
D) the low savings rate in China, which makes the cost of borrowing very low.