Deck 12: Open-Economy Macroeconomics: Basic Concepts

Question 1

Which of the following best describes how the Canadian economy has evolved over the past five decades?

A)It has become more closed.
B)It has become more open.
C)It has become less trade-oriented.
D)It has become more self-sufficient.

Answer 1

It has become more open.

Question 2

A country's exports are $600 billion,and imports are $700 billion.What is the country's trade balance?

A)$100 billion deficit
B)$100 billion surplus
C)$1300 billion deficit
D)$1300 billion surplus

Answer 2

$100 billion deficit

Question 3

Country A buys $150 of wine from country B,and B buys $30 of wool from A.Which of the following correctly indicates the two countries' net exports (in the order A,B)?

A)$180, $0
B)$150, $30
C)-$120, $120
D)$120, -$120

Answer 3

-$120, $120

Question 4

Clear Brook Farms,a Canadian manufacturer of frozen vegetarian entrées,sells cases of its product to stores overseas.Which of the following correctly identifies the effects of these transactions?

A)They decrease Canadian exports but increase Canadian net exports.
B)They decrease both Canadian exports and Canadian net exports.
C)They increase both Canadian exports and Canadian net exports.
D)They increase Canadian exports but decrease Canadian net exports.

Question 5

Ivan,a Russian citizen,sells several hundred cases of Russian caviar to a restaurant chain in Canada.Which of the following correctly identifies the effects of this transaction?

A)It increases Canadian net exports and has no effect on Russian net exports.
B)It increases Canadian net exports and decreases Russian net exports.
C)It decreases Canadian net exports and has no effect on Russian net exports.
D)It decreases Canadian net exports and increases Russian net exports.

Question 6

How does international trade affect the standard of living?

A)It raises the standard of living in all trading countries.
B)It lowers the standard of living in all trading countries.
C)It raises the standard of living in the exporting country and lowers it in the importing country.
D)It raises the standard of living in the importing country and lowers it in the exporting country.

Question 7

Suppose that a country exports $200 million of goods and services and imports $80 million of goods and services.What is the value of that country's net exports?

A)$280 million
B)$200 million
C)$120 million
D)-$200 million

Question 8

Roger lives in Iceland and purchases a snowmobile manufactured in Canada.Which of the following is this purchase?

A)both a Canadian and an Icelandic export
B)both a Canadian and an Icelandic import
C)a Canadian import and an Icelandic export
D)a Canadian export and an Icelandic import

Question 9

In 2005,Canada had positive net exports.Which of the following does this fact imply?

A)Canada sold more abroad than it purchased abroad and had a trade surplus.
B)Canada sold more abroad than it purchased abroad and had a trade deficit.
C)Canada bought more abroad than it sold abroad and had a trade surplus.
D)Canada bought more abroad than it sold abroad and had a trade deficit.

Question 10

How are net exports of a country determined?

A)the value of goods and services imported minus the value of goods and services exported
B)the value of goods and services exported minus the value of goods and services imported
C)the value of goods exported minus the value of goods imported
D)the value of goods imported minus the value of goods exported

Question 11

What is the value of Peru's exports minus the value of Peru's imports called?

A)Peru's net capital inflow
B)Peru's foreign direct investment
C)Peru's net exports
D)Peru's net imports

Question 12

What are foreign-produced goods and services that are sold domestically called?

A)imports
B)exports
C)net imports
D)net exports

Question 13

A German company sells cameras to a retailer in Canada.Which of the following correctly identifies the effects of these transactions?

A)They have no effect on Canadian net exports, and they increase German net exports.
B)They decrease Canadian net exports and increase German net exports.
C)They increase Canadian and German net exports.
D)They increase Canadian net exports and decrease German net exports.

Question 14

In 2012,Denmark had net exports of $10 billion and sold $60 billion of goods and services abroad.What were Denmark's components of net exports?

A)$70 billion of exports and $50 billion of imports
B)$50 billion of exports and $70 billion of imports
C)$60 billion of exports and $50 billion of imports
D)$50 billion of exports and $60 billion of imports

Question 15

When Dee,a Canadian living in Canada purchases a designer dress made in Milan,which of the following is this purchase?

A)both a Canadian and an Italian import
B)a Canadian export and an Italian import
C)a Canadian import and an Italian export
D)both a Canadian and an Italian export

Question 16

A firm in India sells jackets to a Canadian department store chain.Which of the following correctly identifies the effects of this transaction?

A)It increases Canadian and Indian net exports.
B)It decreases Canadian and Indian net exports.
C)It increases Canadian net exports and decreases Indian net exports.
D)It decreases Canadian net exports and increases Indian net exports.

Question 17

Mike,a Canadian citizen living in Canada,buys $30 of cheese from France.Which of the following correctly identifies the effects of this transaction?

A)It increases Canadian imports by $30 and increases Canadian net exports by $30.
B)It increases Canadian imports by $30 and decreases Canadian net exports by $30.
C)It increases Canadian exports by $30 and increases Canadian net exports by $30.
D)It increases Canadian exports by $30 and decreases Canadian net exports by $30.

Question 18

Sonya,a citizen of Denmark,sells Danish boots and shoes in Canada.Which of the following correctly identifies the effects of these sales on net exports?

A)They increase Canadian net exports and have no effect on Danish net exports.
B)They decrease Canadian net exports and have no effect on Danish net exports.
C)They increase Canadian net exports and decrease Danish net exports.
D)They decrease Canadian net exports and increase Danish net exports.

Question 19

In 2012,Cote d'Ivore had $3 billion of net exports and bought $1 billion of goods from foreign countries.What were Cote d'Ivore's components of net exports?

A)$4 billion in exports and $1 billion in imports
B)$3 billion in imports and $2 billion in exports
C)$2 billion in exports and $3 billion in imports
D)$1 billion in imports and $3 billion in exports

Question 20

A country sells more to people overseas than it buys from them.Which of the following correctly identifies the effects of these transactions?

A)The country will have a trade surplus and positive net exports.
B)The country will have a trade surplus and negative net exports.
C)The country will have a trade deficit and positive net exports.
D)The country will have a trade deficit and negative net exports.

Question 21

Larry,a Canadian citizen,opens and operates a bookstore in Spain.Which of the following does this counts as?

A)investment for Larry and Canadian foreign direct investment
B)investment for Larry and Canadian foreign portfolio investment
C)Canadian foreign direct investment and Canadian domestic investment
D)Canadian foreign portfolio investment and Canadian domestic investment

Question 22

Suppose Bob,a Greek citizen,opens a restaurant in Vancouver.Which of the following correctly identifies the effects of this action?

A)It increases Canadian net capital outflow and has no effect on Greek net capital outflow.
B)It increases both Canadian and Greek net capital outflows.
C)It increases Canadian net capital outflow, but decreases Greek net capital outflow.
D)It decreases Canadian net capital outflow, but increases Greek net capital outflow.

Question 23

If a Swiss watchmaker opens a factory in Canada,which of the following is this an example of?

A)Swiss exports
B)Swiss imports
C)Swiss foreign portfolio investment
D)Swiss foreign direct investment

Question 24

Over the past 50 years,which of the following has happened to Canadian imports as a percentage of GDP?

A)They have approximately stayed constant.
B)They have approximately doubled.
C)They have approximately tripled.
D)They have approximately quadrupled.

Question 25

John,a Canadian citizen,opens up a 70s-style disco bar in Tokyo.Which of the following does this count as?

A)Canadian exports
B)Canadian imports
C)Canadian foreign portfolio investment
D)Canadian foreign direct investment

Question 26

About what percentage of GDP are Canadian imports?

A)less than 13 percent
B)about 14 percent
C)about 37 percent
D)about 67 percent

Question 27

Which of the following would be Canadian foreign direct investment?

A)A Polish company opens a shipbuilding plant in Canada.
B)A Bolivian bank buys Canadian corporate bonds.
C)A Canadian bank buys Bolivian corporate bonds.
D)A Canadian canning company opens a plant in Ecuador.

Question 28

Which of the following would be Canadian foreign direct investment?

A)Your Canadian-based mutual fund buys shares of stock in Eastern European companies.
B)A Canadian citizen opens a guitar store in Hong Kong.
C)A Swiss bank buys a Canadian government bond.
D)A German tractor factory opens a plant in Victoria, British Colimbia.

Question 29

Sue,a Canadian citizen,buys shares of stock in a French chain of boutiques.Which of the following does her purchase count as?

A)investment for Sue and Canadian foreign direct investment
B)investment for Sue and Canadian foreign portfolio investment
C)saving for Sue and Canadian foreign direct investment
D)saving for Sue and Canadian foreign portfolio investment

Question 30

Which of the following is an example of Canadian foreign portfolio investment?

A)Crystal, a Canadian citizen, buys bonds issued by a corporation in Turkey.
B)Randall, a Canadian citizen, opens a cheesecake factory in Italy.
C)Abigail, a Canadian citizen, buys software produced by Microsoft Corporation, a U.S. company.
D)Fernando, a Spanish citizen, buys shares of stock in Research In Motion, a Canadian company.

Question 31

Which of the following is an example of Canadian foreign portfolio investment?

A)Albert, a German citizen, buys shares of stock in a Canadian computer company.
B)Larry, a citizen of Ireland, opens a fish-and-chips restaurant in Canada.
C)Ruth, a Canadian citizen, buys bonds issued by a German corporation.
D)Dustin, a Canadian citizen, opens a tavern in New Zealand.

Question 32

Which of the following would be a Canadian foreign portfolio investment?

A)CAE, a Canadian company, builds a new factory near Rome, Italy.
B)Your economics professor, a Canadian citizen, buys shares of stock in companies located in Eastern European countries.
C)A Dutch hotel chain opens a new hotel in Canada.
D)A citizen of Singapore buys a bond issued by a Canadian corporation.

Question 33

Which of the following partly caused the increase in international trade in Canada since 1989?

A)an increase in Canadian GDP
B)an appreciation of the dollar
C)better quality of Canadian products
D)the free trade agreement between Canada and the United States

Question 34

What does net capital outflow measure?

A)foreign assets held by domestic residents minus domestic assets held by foreign residents
B)the imbalance between the amount of domestic assets bought by domestic residents and the amount of foreign assets bought by foreigners
C)the imbalance between the amount of foreign assets bought by domestic residents and the amount of domestic goods and services sold to foreigners
D)domestic assets held by foreigners minus foreign assets held by domestic residents

Question 35

Suppose Paul,a Romanian citizen,builds a telescope factory in Israel.Which of the following correctly identifies the effects of these expenditures?

A)They increase Romanian and Israeli net capital outflow.
B)They increase Romanian net capital outflow, but decrease Israeli net capital outflow.
C)They decrease Romanian net capital outflow, but increase Israeli net capital outflow.
D)They increase Romanian net capital outflow, but Israeli net capital outflow remains unchanged.

Question 36

Which of the following best defines net capital outflow?

A)It is the purchase of foreign assets by domestic residents minus the purchase of domestic assets by foreign residents.
B)It is the purchase of foreign assets by domestic residents minus the purchase of foreign goods and services by domestic residents.
C)It is the purchase of domestic assets by foreign residents minus the purchase of domestic goods and services by foreign residents.
D)It is the purchase of domestic assets by foreign residents minus the purchase of foreign assets by domestic residents.

Question 37

Suppose Connie,a Canadian citizen,buys bonds issued by an automobile manufacturer in Sweden.Which of the following would her expenditure be?

A)Canadian foreign direct investment that would increase Canadian net capital outflow
B)Canadian foreign direct investment that would decrease Canadian net capital outflow
C)Canadian foreign portfolio investment that would increase Canadian net capital outflow
D)Canadian foreign portfolio investment that would decrease Canadian net capital outflow

Question 38

Tony,an Italian citizen,opens and operates a spaghetti factory in Canada.Which of the following does this counts as?

A)Italian foreign direct investment that increases Italian net capital outflow
B)Italian foreign direct investment that decreases Italian net capital outflow
C)Italian foreign portfolio investment that increases Italian net capital outflow
D)Italian foreign portfolio investment that decreases Italian net capital outflow

Question 39

Suppose Judy,a Canadian citizen,opens an ice cream store in Bermuda.Which of the following would her expenditures be?

A)Canadian foreign portfolio investment that would increase Canadian net capital outflow
B)Canadian foreign portfolio investment that would decrease Canadian net capital outflow
C)Canadian foreign direct investment that would increase Canadian net capital outflow
D)Canadian foreign direct investment that would decrease Canadian net capital outflow

Question 40

Which of the following would be Canadian foreign direct investment?

A)A Swedish car manufacturer opens a plant in Sherbrooke, Quebec.
B)A Dutch citizen buys shares of stock in a Canadian company.
C)Tim Hortons, a Canadian company, opens a restaurant in Jamaica.
D)A Canadian citizen buys shares of stock in companies located in Japan.

Question 41

When making investment decisions,which of the following are investors most likely to do?

A)They compare the real interest rates offered on different bonds.
B)They compare the nominal, but not the real, interest rates offered on different bonds.
C)They purchase the highest-priced bond available.
D)They purchase the highest-interest bonds available.

Question 42

A citizen of Saudi Arabia uses previously obtained Canadian dollars to purchase apples from Canada.Which of the following correctly identifies the effects of this transaction?

A)It increases Saudi net capital outflow and increases Canadian net exports.
B)It increases Saudi net capital outflow and decreases Canadian net exports.
C)It decreases Saudi net capital outflow and increases Canadian net exports.
D)It decreases Saudi net capital outflow and decreases Canadian net exports.

Question 43

A British pharmacy buys drugs from a Canadian company and pays for them with British pounds.Which of the following correctly identifies the effects of this transaction?

A)It increases British net exports and increases Canadian capital outflow.
B)It increases British net exports and decreases Canadian capital outflow.
C)It decreases British net exports and increases Canadian capital outflow.
D)It decreases British net exports and decreases Canadian capital outflow.

Question 44

Which of the following shows that any trade transaction must have a financial counterpart?

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

Question 45

A Canadian firm buys apples from New Zealand with Canadian currency.The New Zealand firm then uses this money to buy packaging equipment from a Canadian firm.How do these transactions affect net exports or net capital outflow?

A)They increase New Zealand net capital outflow and New Zealand net exports.
B)They increase New Zealand net exports but not New Zealand net capital outflow.
C)They increase New Zealand net capital outflow but not New Zealand net exports.
D)They increase neither New Zealand net exports nor New Zealand capital outflow.

Question 46

What imbalance does net capital outflow measure?

A)an imbalance between a country's income and expenditure
B)an imbalance between a country's investment and saving
C)an imbalance between a country's sale of goods and services abroad and buying of foreign goods and services
D)an imbalance between a country's sale of domestic assets abroad and domestic purchase of foreign assets

Question 47

A Venezuelan firm purchases earth-moving equipment from a Canadian company and pays for it with domestic currency.Which of the following correctly identifies the effects of this transaction?

A)It increases Canadian net exports and increases Venezuelan net capital outflow.
B)It increases Canadian net exports and decreases Venezuelan net capital outflow.
C)It decreases Canadian net exports and increases Venezuelan net capital outflow.
D)It decreases Canadian net exports and decreases Venezuelan net capital outflow.

Question 48

Catherine,a citizen of Spain,decides to purchase bonds issued by Chile instead of Canadian bonds,even though the Chilean bonds have a higher risk of default.Which of the following might be an economic reason for her decision?

A)Chile has a lower inflation rate.
B)The Chilean bonds pay a higher rate of interest.
C)The Canadian government is more stable than the Chilean government.
D)Chilean bonds have shorter maturity periods than Canadian bonds.

Question 49

Which of the following is an identity that always holds in an open economy?

A)NCO + C = NX
B)NCO = NX
C)NX - NCO = C
D)NX + NCO = C

Question 50

A Russian flour mill buys wheat from Canada and pays for it with rubles.Which of the following correctly identifies the effects of this transaction?

A)Russian net exports increase, and Canadian net capital outflow increases.
B)Russian net exports increase, and Canadian net capital outflow decreases.
C)Russian net exports decrease, and Canadian net capital outflow increases.
D)Russian net exports decrease, and Canadian net capital outflow decreases.

Question 51

A Canadian firm opens a factory that produces camping equipment in Albania.Which of the following correctly identifies the effects of this transaction?

A)Canadian net capital outflow increases, and Albanian net capital outflow decreases.
B)Canadian net capital outflow decreases, and Albanian net capital outflow increases.
C)Only Canadian net capital outflow increases.
D)Only Albanian net capital outflow increases.

Question 52

A Canadian firm buys sardines from Morocco and pays for them with Canadian dollars.Which of the following correctly identifies the effects of this transaction?

A)Canadian net exports increase, and Canadian net capital outflow increases.
B)Canadian net exports increase, and Canadian net capital outflow decreases.
C)Canadian net exports decrease, and Canadian net capital outflow increases.
D)Canadian net exports decrease, and Canadian net capital outflow decreases.

Question 53

Jill,a Canadian citizen,uses some previously obtained euros to purchase a bond issued by a French vineyard.How does this transaction affect Canadian net capital outflow?

A)It increases Canadian net capital outflow by more than the value of the bond.
B)It increases Canadian net capital outflow by the value of the bond.
C)It does not change Canadian net capital outflow.
D)It decreases Canadian net capital outflow.

Question 54

Canada sells machinery to a South African company,which pays Canada with South African currency (the rand).What happens to Canadian net capital outflow from this transaction?

A)It increases because Canada acquires foreign assets.
B)It decreases because Canada acquires foreign assets.
C)It increases because Canada sells capital goods.
D)It decreases because Canada sells capital goods.

Question 55

If a Canadian shirt-maker purchases cotton from Egypt,which of the following correctly identifies the effects of this transaction?

A)Canadian net exports increase, and Canadian net capital outflow increases.
B)Canadian net exports increase, and Canadian net capital outflow decreases.
C)Canadian net exports decrease, and Canadian net capital outflow increases.
D)Canadian net exports decrease, and Canadian net capital outflow decreases.

Question 56

What do net exports measure?

A)income minus expenditure
B)exports minus imports
C)expenditure minus income
D)imports minus exports

Question 57

If a U.S.textbook publishing company sells texts to Canadian students,which of the following correctly identifies the effects of these sales?

A)U.S. net exports increase, and U.S. net capital outflow increases.
B)U.S. net exports increase, and U.S. net capital outflow decreases.
C)U.S. net exports decrease, and U.S. net capital outflow increases.
D)U.S. net exports decrease, and U.S. net capital outflow decreases.

Question 58

A Japanese firm buys lumber from Canada and pays for it with yen.Which of the following correctly identifies the effects of this transaction?

A)Japanese net exports increase, and Canadian net capital outflow increases.
B)Japanese net exports increase, and Canadian net capital outflow decreases.
C)Japanese net exports decrease, and Canadian net capital outflow increases.
D)Japanese net exports decrease, and Canadian net capital outflow decreases.

Question 59

Suppose Canada sells chocolate to the United States.Which of the following correctly identifies the effects of this transaction?

A)U.S. net exports increase, and U.S. net capital outflow increases.
B)U.S. net exports increase, and U.S. net capital outflow decreases.
C)U.S. net exports decrease, and U.S. net capital outflow increases.
D)U.S. net exports decrease, and U.S. net capital outflow decreases.

Question 60

Tony,a Canadian citizen,uses some previously obtained Portuguese currency (escudo)to purchase a bond issued by a Portuguese company.How does this transaction affect Canadian net capital outflow?

A)It increases Canadian net capital outflow by more than the value of the bond.
B)It increases Canadian net capital outflow by the value of the bond.
C)It does not change Canadian net capital outflow.
D)It decreases Canadian net capital outflow.

Question 61

A Canadian computer maker sells computers to a German firm.This company uses all of the revenues from this sale to purchase stock in a German company.What happens to Canadian net exports and net foreign investment due to these transactions?

A)They will increase both Canadian net exports and Canadian net foreign investment.
B)They will decrease both Canadian net exports and Canadian net foreign investment.
C)They will increase Canadian net exports and will decrease Canadian net foreign investment.
D)They will decrease Canadian net exports and will increase Canadian net foreign investment.

Question 62

Bolivia buys railroad engines from a Canadian firm and pays for them with Bolivianos (Bolivian currency).What happens to Canadian net exports and net foreign investment due to this transaction?

A)It increases both Canadian net exports and Canadian net foreign investment.
B)It decreases both Canadian net exports and Canadian net foreign investment.
C)It increases Canadian net exports and decreases Canadian net foreign investment.
D)It decreases Canadian net exports and increases Canadian net foreign investment.

Question 63

In which situation must domestic saving equal investment?

A)when NX is negative
B)when NX is zero
C)when NCO is negative
D)when imports are zero

Question 64

What is the formula for a closed economy's GDP?

A)Y = C + I + G
B)Y = C + I + G + T
C)Y = C + I + G + S
D)Y = C + I + G + NX

Question 65

What is the formula for investment in an open economy?

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

Question 66

A country has $50 million of domestic investment and net capital outflow of -$70 million.What is saving?

A)-$70 million
B)-$20 million
C)$50 million
D)$120 million

Question 67

Which of the following might part of Canadian savings be counted as?

A)foreign direct investment
B)foreign portfolio investment
C)net capital outflow
D)net exports

Question 68

A country has $60 million of domestic investment and net capital outflow of -$20 million.What is saving?

A)-$60 million
B)-$40 million
C)$40 million
D)$60 million

Question 69

What is the formula for an open economy's GDP?

A)Y = C + I + G
B)Y = C + I + G + T
C)Y = C + I + G + S
D)Y = C + I + G + NX

Question 70

The country of Freedonia has a GDP of $4000,consumption of $1800,and government purchases of $500.Which of the following does this situation imply?

A)Investment is equal to -$1700.
B)Investment plus net capital outflow is equal to $1700.
C)Investment plus net exports is equal to $2200.
D)Saving is equal to -$2200.

Question 71

Suppose that the real return from operating factories in Ghana rises relative to the real rate of return in Canada.Which of the following best describes the effects of this transaction?

A)This will increase Canadian net capital outflow and decrease Ghanian net capital outflow.
B)This will decrease Canadian net capital outflow and increase Ghanian net capital outflow.
C)This will only affect Canadian net capital outflow.
D)This will only affect Ghanian net capital outflow.

Question 72

How do you measure the current account balance?

A)net exports
B)net exports - net inflow of dividends and interest payments
C)net exports + net inflow of dividends and interest payments
D)net inflow of dividends and interest payments - net exports

Question 73

What is the formula for national saving?

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

Question 74

A country has $150 million of net exports and $190 million of saving.What is net capital outflow?

A)-$40 million
B)$40 million
C)$150 million
D)$190 million

Question 75

What equation is the GDP identity in an open economy?

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

Question 76

Which of the following best describes the cross-border net flow of dividends and interest payments?

A)part of the current account balance
B)part of net capital outflow
C)part of net exports
D)part of foreign direct investment

Question 77

A country has $80 million of saving and domestic investment of $30 million.What are net exports?

A)-$50 million
B)$50 million
C)$80 million
D)$110 million

Question 78

In which of the following situations must national saving rise?

A)Both domestic investment and net capital outflow increase.
B)Domestic investment increases, and net capital outflow decreases.
C)Domestic investment decreases, and net capital outflow increases.
D)Net exports decrease, and domestic investment is unchanged.

Question 79

What is the formula for saving in an open economy?

A)Saving = Foreign saving + Net capital outflow
B)Saving = Domestic investment - Net capital outflow
C)Saving = Domestic saving + Net capital outflow
D)Saving = Domestic investment + Net capital outflow

Question 80

The country of Sylvania has a GDP of $4000,investment of $500,government purchases of $400,and net capital outflow of negative $300.What is consumption?

A)$600
B)$700
C)$3400
D)$3700