Deck 12: Open-Economy Macroeconomics: Basic Concepts

Question 1

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

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

Answer 1

C

Question 2

In 2015, Denmark had net exports of $100 billion and sold $600 billion of goods and services abroad. What were Denmark's components of net exports?

A) $500 billion of exports and $600 billion of imports
B) $500 billion of exports and $700 billion of imports
C) $600 billion of exports and $500 billion of imports
D) $700 billion of exports and $500 billion of imports

Answer 2

C

Question 3

In 2006, Canada had positive net exports. What 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.

Answer 3

A

Question 4

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 5

Roger lives in Iceland and purchases a snowmobile manufactured in Canada. What 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 6

A country's exports are $500 billion, and imports are $700 billion. What is the country's trade balance?

A) $200 billion deficit
B) $200 billion surplus
C) $1200 billion deficit
D) $1200 billion surplus

Question 7

A German company sells vehicles to a dealership in Canada. Which statement best 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 8

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 9

Which statement 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.

Question 10

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

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

Question 11

Healthy Grain Farms, a Canadian manufacturer of dried peas and lentils, sells cases of its product to stores overseas. Which statement best 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 12

Suppose that a country exports $300 million of goods and services and imports $180 million of goods and services. What is the value of that country's net exports?

A) $-120 million
B) $120 million
C) $300 million
D) $380 million

Question 13

Mogans, a citizen of Denmark, sells Danish cheese and meat in Canada. Which statement best 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 14

A firm in India sells spices to a Canadian chain of culinary stores. Which statement best 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 15

In 2015, Ghana had $4 billion of net exports and bought $1 billion of goods from foreign countries. What were Ghana's components of net exports?

A) $5 billion in exports and $1 billion in imports
B) $4 billion in imports and $1 billion in exports
C) $3 billion in exports and $1 billion in imports
D) $1 billion in imports and $3 billion in exports

Question 16

A country sells more to people overseas than it buys from them. Which statement best 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 17

Michel, a Canadian citizen living in Canada, buys $300 of cheese from France. Which statement best identifies the effects of this transaction?

A) It increases Canadian imports by $300 and increases Canadian net exports by $300.
B) It increases Canadian imports by $300 and decreases Canadian net exports by $300.
C) It increases Canadian exports by $300 and increases Canadian net exports by $300.
D) It increases Canadian exports by $300 and decreases Canadian net exports by $300.

Question 18

Ivan, a Russian citizen, sells several hundred cases of Russian caviar to a Canadian hotel chain. Which statement best 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 19

Country A buys $250 of wine from country B, and B buys $130 of wool from A. Which of the following correctly indicates the two countries' net exports (in the order A, B)?

A) -$120, $120
B) $120, -$120
C) $250, $130
D) $330, $0

Question 20

When Deborah, a Canadian living in Canada, purchases Prada boots made in Florence, what 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 21

Suppose Paul, a Romanian citizen, builds a telescope factory in Israel. What are 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 22

Suppose Judy, a Canadian citizen, opens an ice cream store in Bermuda. What 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 23

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

A) CAE, a Canadian company, builds a new factory near Rome, Italy.
B) A Canadian citizen buys shares of stock in companies located in Latvia.
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 24

Larry, a Canadian citizen, opens and operates a bookstore in England. What is this an example of?

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 25

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) Liam, a citizen of Ireland, opens a fish-and-chips restaurant in Canada.
C) Rachel, a Canadian citizen, buys bonds issued by a Spanish corporation.
D) Dustin, a Canadian citizen, opens a tavern in New Zealand.

Question 26

Sue, a Canadian citizen, buys shares of stock in a French chain of boutiques. What is this an example of?

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 27

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 28

Suppose Connie, a Canadian citizen, buys bonds issued by an automobile manufacturer in Sweden. What 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 29

Suppose Bob, a Greek citizen, opens a restaurant in Vancouver. What are 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 30

What 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 31

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 Tim Hortons franchise in Hong Kong.
C) A Swiss bank buys a Canadian government bond.
D) A German tractor factory opens a plant in Victoria, British Columbia.

Question 32

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 33

Guido, an Italian citizen, opens and operates a pasta factory in Canada. What is this an example of?

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 34

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 35

If a Swiss chocolate maker opens a factory in Canada. What is this an example of?

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

Question 36

Which of the following would be Canadian foreign direct investment?

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

Question 37

Over the past 50 years, what 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 38

Which statement 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 39

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) Lululemon, a Canadian company, opens an athleticwear store in Jamaica.
D) A Canadian citizen buys shares of stock in companies located in Japan.

Question 40

John, a Canadian citizen, opens up a 70s-style dance club in Tokyo. What is this an example of?

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

Question 41

A Canadian firm buys couscous from Morocco and pays for it with Canadian dollars. What are 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 42

If a Canadian manufacturer of linens purchases cotton from Egypt, what are 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 43

A citizen of Ethiopia uses previously obtained Canadian dollars to purchase lamb from Canada. What are 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 44

A British pharmacy buys drugs from a Canadian company and pays for them with British pounds. What are 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 45

A Canadian firm opens a factory that produces climbing equipment in Austria. What are 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 46

A Russian flour mill buys barley from Canada and pays for it with rubles. What are 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 47

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 48

Martin, a Canadian citizen, uses some previously obtained ? HYPERLINK "http://en.wikipedia.org/wiki/Lithuanian_litas" ?Lithuanian? currency (litas) to purchase a bond issued by a ? HYPERLINK "http://en.wikipedia.org/wiki/Lithuanian_litas" ?Lithuanian? 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 49

A U.S. textbook publishing company sells texts to Canadian students. What are 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 50

What imbalance does net capital outflow measure?

A) an imbalance between a country's production 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 51

A Japanese firm buys lumber from Canada and pays for it with yen. What are 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 52

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 53

What do net exports measure?

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

Question 54

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 = Y

Question 55

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 56

A Norwegian firm purchases earth-moving equipment from a Canadian company and pays for it with domestic currency. What are the effects of this transaction?

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

Question 57

Suppose Canada sells goose down parkas to the United States. What are 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 58

Paula, a citizen of Spain, decides to purchase bonds issued by Columbia instead of Canadian bonds, even though the Columbian bonds have a higher risk of default. What might be an economic reason for her decision?

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

Question 59

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 60

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 61

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 62

A country has $80 million of domestic investment and net capital outflow of -$20 million. What is saving?

A) -$80 million
B) -$60 million
C) $60 million
D) $80 million

Question 63

The country of Sylvania has a GDP of $4000, investment of $1500, government purchases of $400, and net capital outflow of negative $300. What is consumption?

A) $700
B) $800
C) $2400
D) $2700

Question 64

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

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

Question 65

Hungary buys railroad engines from a Canadian firm and pays for them with forints (Hungarian 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 66

A Canadian computer maker sells computers to a Czech Republic firm. This company uses all of the revenues from this sale to purchase stock in a Czech Republic 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 67

The country of Freedonia has a GDP of $4000, consumption of $1500, and government purchases of $900. What does this situation imply?

A) Investment is equal to -$1600.
B) Investment plus net capital outflow is equal to $1600.
C) Investment plus net exports is equal to $2400.
D) Saving is equal to -$2400.

Question 68

A country has $120 million of net exports and $150 million of saving. What is net capital outflow?

A) -$30 million
B) $30 million
C) $120 million
D) $150 million

Question 69

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

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

Question 70

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 71

A country has $100 million of saving and domestic investment of $30 million. What are net exports?

A) -$70 million
B) $70 million
C) $100 million
D) $130 million

Question 72

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 73

What is the formula for national saving?

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

Question 74

Suppose that the real return from operating factories in Australia rises relative to the real rate of return in Canada. What are the effects of this transaction?

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

Question 75

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 76

In which situation 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 77

How do you measure the current account balance?

A) net exports - inflow of interest payments
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 78

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 79

What is the formula for investment in an open economy?

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

Question 80

A country has $50 million of domestic investment and net capital outflow of -$80 million. What is saving?

A) -$80 million
B) -$30 million
C) $50 million
D) $130 million