Deck 19: Open-Economy Macroeconomics

Question 1

Economists summarize a country's transactions with other countries with a(n) _____ account.

A)circular flow
B)balance of payments
C)exchange rate
D)purchasing power parity

Answer 1

B

Question 2

If the balance of payments on financial account is $25, the balance of payments on goods and services is -$20, and the statistical discrepancy in the financial account is $2, then the sum of net international transfer payments and net international factor income is:

A)-$7.
B)-$5.
C)$7.
D)$47.

Answer 2

A

Question 3

When the United States gives foreign aid to developing nations in Africa, the _____ account is affected.

A)current
B)financial
C)reserve
D)foreign exchange

Answer 3

A

Question 4

If a country has a current account deficit, it must have a:

A)financial account surplus.
B)balance of payment surplus.
C)financial account deficit.
D)balance of payments deficit.

Question 5

Use the following to answer questions 7-10:
Table: International Transactions
(Table: International Transactions) Look at the table International Transactions. What additional capital inflows are needed to equilibrate the balance of payments?

A)-$29,000
B)$20,000
C)$29,000
D)$80,000

Question 6

Assume that Tom sells a crate of Florida oranges to a retailer in Canada and Susan sells a U.S. bond to a customer in Britain. Which of the following illustrates the difference and/or similarity between these two transactions?

A)Only Tom will actually receive U.S. dollars as a result of this transaction.
B)The sale of the bond generates a liability, while the sale of the oranges does not.
C)Both sales generate an asset for the United States.
D)Both sales generate a liability for the United States.

Question 7

Which of the following would be included in the U.S. current account?

A)public purchases and sales of financial assets
B)trade balance
C)financial account balance
D)private purchases and sales of financial assets

Question 8

Use the following to answer questions 7-10:
Table: International Transactions
(Table: International Transactions) Look at the table International Transactions. The balance of payments on goods and services is:

A)$51,000.
B)$48,000.
C)$3,000.
D)-$29,000.

Question 9

If the United States imports more goods from Japan than it exports to Japan, how will the difference be financed?

A)U)S. consumers will borrow money from domestic banks.
B)The United States will buy more Japanese assets.
C)The United States will sell assets, generating a liability that obligates Americans to pay for those imports in the future.
D)The United States will sell assets to the Japanese, which would reduce its liabilities.

Question 10

When a Japanese investor buys stock in General Motors, the _____ account is affected.

A)current
B)financial
C)reserve
D)foreign exchange

Question 11

Use the following to answer questions 7-10:
Table: International Transactions
(Table: International Transactions) Look at the table International Transactions. The balance on current account is:

A)$29,000.
B)$22,000.
C)-$8,000.
D)-$29,000.

Question 12

Open-economy macroeconomics deals with:

A)reducing regulations on business.
B)the relationships between economies of different nations.
C)reducing employment discrimination.
D)providing financial information to investors.

Question 13

The difference between a country's exports and imports of goods alone-not including services-is the:

A)merchandise trade balance.
B)balance of payments on good and services.
C)balance of payments on current account.
D)current account.

Question 14

If the United States exports $100 billion of goods and services and imports $150 billion of goods and services and there is no other factor income or transfers, the balance on the current account is:

A)$250 billion.
B)-$250 billion.
C)$50 billion.
D)-$50 billion.

Question 15

Which of the following would be included in the U.S. financial account?

A)a computer made in the United States and exported to Britain
B)a computer made in Britain and imported into the United States
C)interest on a U.S. bond sold to someone living overseas
D)the value of a bond from a U.S. company sold to someone living in Britain

Question 16

Which of the following would NOT be included in the U.S. financial account?

A)a Japanese factory purchased by a U.S. company
B)U)S. stock sold to someone in Japan
C)a Japanese bond sold to someone in the United States
D)a Chinese video game imported into the United States

Question 17

Which of the following would be included in the U.S. current account?

A)a factory in Japan purchased by a firm in the United States
B)stock in a U.S. company sold to someone in Japan
C)a dividend on stock in a U.S. company paid to someone in Japan
D)a bond issued by a firm in Japan sold to someone in the United States

Question 18

When the dollar value of the Swiss franc was very high following the financial crisis in 2008:

A)Swiss exports were more expensive in the United States.
B)Swiss exports were less expensive in the United States.
C)the Swiss National Bank sold Swiss francs to increase its value.
D)the Swiss National Bank bought francs to decrease its value.

Question 19

Use the following to answer questions 7-10:
Table: International Transactions
(Table: International Transactions) Look at the table International Transactions. The merchandise trade balance is:

A)$51,000.
B)$48,000.
C)$46,000.
D)$2,000.

Question 20

If the United States exports $100 billion of goods and services and imports $150 billion of goods and services and there is no other factor income or transfers, the balance on the financial account is:

A)$250 billion.
B)-$250 billion.
C)$50 billion.
D)-$50 billion.

Question 21

A family from New York City eats in a restaurant in Mexico City. In the accounting for U.S. international transactions, this transaction would appear in the _____, and it would be entered as a payment _____ foreigners.

A)current account; to
B)current account; from
C)financial account; to
D)financial account; from

Question 22

A financial investor from Los Angeles purchases bonds issued by the government of Peru. In the accounting for U.S. international transactions, this transaction would appear in the _____, and it would be entered as a payment _____ foreigners.

A)current account; from
B)current account; to
C)financial account; from
D)financial account; to

Question 23

A country has a capital account deficit if the balance on the:

A)financial account is negative.
B)financial account is positive.
C)current account is negative.
D)current account is zero.

Question 24

The balance between spending flowing into a country from other countries and spending flowing out of that country to other countries is the:

A)singular account.
B)euro-dollar account.
C)universal exchange account.
D)balance of payments.

Question 25

A current account surplus occurs when:

A)the balance on the current account is positive.
B)net exports are negative.
C)spending flowing out of the country exceeds spending flowing into the country.
D)imports exceed exports.

Question 26

If a country has a positive balance of payments on the current account, then it must:

A)be exporting too much.
B)be importing too much.
C)have a surplus on the financial account.
D)have a deficit on the financial account.

Question 27

In 2010, the $471 billion deficit on the U.S. current account was offset by a surplus of $255 billion on financial account. This difference is the result of a:

A)budget deficit.
B)statistical discrepancy.
C)trade deficit.
D)national debt.

Question 28

Money flows into the United States from other countries as a result of:

A)U)S. purchases of foreign goods and services.
B)payments to foreign owners of U.S. assets.
C)domestic purchases of U.S. goods and services.
D)transfer payments from foreign sources to U.S. residents.

Question 29

A statement of spending that flows into and out of the country for purchases of assets during a particular period is the nation's:

A)current account.
B)financial account.
C)universal exchange position.
D)statistical discrepancy.

Question 30

A family from Peru eats in a restaurant in Salt Lake City. In the accounting for U.S. international transactions, this transaction would appear in the _____, and it would be entered as a payment _____ foreigners.

A)current account; from
B)current account; to
C)financial account; from
D)financial account; to

Question 31

A country has a financial account surplus if the balance on the:

A)financial account is negative.
B)financial account is positive.
C)current account is zero.
D)current account is positive.

Question 32

A current account surplus is generally a result of:

A)imports exceeding exports.
B)sales of stock in U.S. companies to citizens of foreign countries.
C)a large influx of foreign investment income.
D)exports exceeding imports.

Question 33

When there is a deficit in the U.S. balance of payments on the current account, we pay for the difference by:

A)allowing the price of currency to rise.
B)allowing the price of currency to fall.
C)buying assets from other countries.
D)selling assets to other countries.

Question 34

A surplus in the current account means there will be:

A)a surplus in the financial account.
B)a deficit in the financial account.
C)a balanced financial account.
D)either a surplus or a deficit in the financial account.

Question 35

Money flows into the United States from other countries as a direct result of:

A)foreign purchases of U.S. goods and services.
B)U)S. purchases of foreign goods and services.
C)U)S. investment in foreign companies.
D)U)S. purchases of foreign assets.

Question 36

A deficit in the current account means there will be:

A)a surplus in the financial account.
B)a deficit in the financial account.
C)a balanced financial account.
D)either a surplus or a deficit in the financial account.

Question 37

A Peruvian financial investor purchases a sporting goods store in Colorado Springs. In the accounting for U.S. international transactions, this transaction would appear in the _____, and it would be entered as a payment _____ foreigners.

A)current account; from
B)current account; to
C)financial account; from
D)financial account; to

Question 38

A current account deficit exists when:

A)the balance on current account is negative.
B)spending flowing out of the country is less than spending flowing into the country.
C)net exports are positive.
D)an economy buys less from foreigners than it sells to them.

Question 39

A _____ balance on the financial account means a _____.

A)positive; financial account surplus.
B)negative; financial account surplus.
C)positive; financial account deficit.
D)positive; current account surplus.

Question 40

A current account deficit is generally a result of:

A)imports exceeding exports.
B)U)S. purchases of bonds issued by foreign corporations.
C)a large amount of U.S. purchases of foreign real estate.
D)exports exceeding imports.

Question 41

The difference between GDP and GNP is that:

A)GNP includes international factor income.
B)GDP includes international factor income.
C)GNP includes the money supply.
D)GDP includes the money supply.

Question 42

If a country runs a deficit on its balance of payments for goods and services, to pay for its imports, it must:

A)raise taxes.
B)print new money.
C)sell assets to foreigners.
D)decrease its exports.

Question 43

After a hurricane devastates New Orleans, a Canadian charity sends $1 million to the United States to help the survivors rebuild their homes. In the U.S. balance of payments, this transaction causes the balance on the _____ account to _____.

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

Question 44

The relationship between a country's balance of payments on current account (CA) and its balance of payments on financial account (FA) is described by all of the following EXCEPT:

A)CA + FA = 0.
B)CA = FA.
C)CA = -FA.
D)FA = -CA.

Question 45

Use the following to answer questions 45-47:
(Table: Balance of Payment) Refer to the table Balance of Payments. The country's balance of payments on current account is:

A)$355 billion.
B)-$395 billion.
C)$375 billion.
D)-$355 billion.

Question 46

The difference between a country's exports and its imports of goods and services is known as the:

A)trade balance.
B)balance of payments on goods and services.
C)balance of payments on current account.
D)balance of exchange.

Question 47

U.S. retailers import toys from China. In the U.S. balance of payments account, this transaction is entered as a payment _____ foreigners in the _____ account.

A)to; financial
B)from; financial
C)to; current
D)from; current

Question 48

The United States exports corn to other nations. In the U.S. balance of payments account, this transaction is entered as a payment _____ foreigners in the _____ account.

A)from; current
B)from; financial
C)to; current
D)to; financial

Question 49

Microsoft, a Seattle software company, purchases a new office building in Vancouver. In the U.S. balance of payments account, this transaction is entered as a payment _____ foreigners in the _____ account.

A)from; current
B)to; financial
C)to; current
D)from; financial

Question 50

Suppose the equilibrium interest rate in the U.S. market for loanable funds is 3% prior to any international capital flows in the United States. The equilibrium interest rate in the Japanese market for loanable funds is 7%. If lenders in both nations believe that loans to foreigners are just as good as loans to their own citizens, capital will flow from _____, making interest rates _____ in Japan and _____ in the United States.

A)the United States to Japan; rise; fall
B)Japan to the United States; fall; rise
C)Japan to the United States; rise; fall
D)the United States to Japan; fall; rise

Question 51

A U.S. firm buys a new Volvo, built in Sweden. In the U.S. balance of payments, this transaction causes the balance on the _____ account to _____.

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

Question 52

An U.S. deposits $10,000 in an account in a London bank. In the U.S. balance of payments, this transaction causes the balance on the _____ account to _____.

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

Question 53

Use the following to answer questions 45-47:
(Table: Balance of Payment) Refer to the table Balance of Payments. In this case, the country's balance of payments on goods and services is:

A)$375 billion.
B)-$375 billion.
C)$4,045 billion.
D)$355 billion.

Question 54

Economists usually use GDP rather than GNP because they are tracking:

A)only transactions on the current account.
B)only transactions on the financial account.
C)production rather than income.
D)income rather than production.

Question 55

A Japanese banker buys some newly issued U.S. Treasury bonds. In the U.S. balance of payments account, this transaction is entered as a payment _____ foreigners in the _____ account.

A)from; current
B)to; current
C)to; financial
D)from; financial

Question 56

Use the following to answer questions 45-47:
(Table: Balance of Payment) Refer to the table Balance of Payments. The country's balance of payments on financial account is:

A)zero.
B)$375 billion.
C)$355 billion.
D)-$355 billion.

Question 57

A Brazilian bank buys shares of stock in Intel, a U.S. high-tech company. In the U.S. balance of payments, this transaction causes the balance on the _____ account to _____.

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

Question 58

The difference between a country's balance of payments on goods and services and the merchandise trade balance is that:

A)the merchandise trade balance does not include exports and imports of services.
B)the balance of payments does not include exports and imports of services.
C)the merchandise trade balance does not include imports of goods and services.
D)the balance of payments does not include imports of goods and services.

Question 59

A country's balance of payments on financial account is the:

A)difference between the dollar value of a country's exports and its imports of goods and services.
B)difference between the dollar value of a country's exports and its imports of goods only.
C)difference between the country's sale of assets to foreigners and its purchases of assets from foreigners.
D)same value as the country's merchandise trade balance.

Question 60

If the merchandise trade balance is -$15, net international transfer payments and net international factor income are $4, the balance of payments on goods and services is -$25, and the balance of payments on the financial account is $18, then the statistical discrepancy in the financial account is:

A)$15.
B)$3.
C)-$3.
D)-$1.

Question 61

In the absence of international capital flows, the equilibrium interest rate in the U.S. market for loanable funds is 3%, while in Germany it is 7%. International borrowing and lending between the United States and Germany may result in a common interest rate of _____ and _____.

A)5%; capital inflows to the United States matching the capital outflows from Germany
B)3%; massive capital inflows from Germany to the United States
C)4%; capital outflows from the United States matching the capital inflows to Germany
D)7%; massive capital inflows from the United States to Germany

Question 62

Use the following to answer questions 68-75:
Figure: International Capital Flows
(Figure: International Capital Flows) Look at the figure International Capital Flows. At an interest rate of 4%, the shortage of loanable funds available to _____ borrowers will be satisfied by _____ lenders.

A)U)S.; British
B)British; U.S.
C)U)S. or British; British or U.S.
D)British; worldwide

Question 63

Use the following to answer questions 68-75:
Figure: International Capital Flows
(Figure: International Capital Flows) Look at the figure International Capital Flows. At an interest rate of 4%, the excess of loanable funds supplied by _____ lenders will be exported to _____ borrowers.

A)U)S.; British
B)British; U.S.
C)U)S. or British; British or U.S.
D)U)S.; worldwide

Question 64

(Scenario: Japan and the United States) Refer to the scenario Japan and the United States. The implication is that:

A)interest rates in Japan will increase.
B)interest rates in the United States will decrease.
C)the capital flow between Japan and the United States eventually will render the interest rates equal.
D)the interest rates in both countries will remain unchanged.

Question 65

Direct foreign investment means the purchase of:

A)stock in foreign companies.
B)bonds of a foreign country.
C)bank loans in a foreign country.
D)factories in a foreign country.

Question 66

If asset owners in Japan and the United States consider Japanese and U.S. assets as good substitutes for each other and if the U.S. interest rate is 5% and the Japanese interest rate is 2%, then all of the following will occur EXCEPT that:

A)financial inflows will reduce the U.S. interest rate.
B)financial outflows will increase the Japanese interest rate.
C)the interest rate gap between the United States and Japan will diminish.
D)loanable funds will be exported from the United States to Japan.

Question 67

Use the following to answer questions 68-75:
Figure: International Capital Flows
(Figure: International Capital Flows) Look at the figure International Capital Flows. At an interest rate of 4%, the quantity of loanable funds demanded by U.S. borrowers is _____ the quantity of loanable funds supplied by U.S. lenders.

A)greater than
B)less than
C)equal to
D)not related to

Question 68

Use the following to answer questions 68-75:
Figure: International Capital Flows
(Figure: International Capital Flows) Look at the figure International Capital Flows. At an interest rate of 4%, the quantity of loanable funds supplied by British lenders is _____ the quantity of loanable funds demanded by British borrowers.

A)greater than
B)less than
C)equal to
D)not related to

Question 69

Use the following to answer questions 68-75:
Figure: International Capital Flows
(Figure: International Capital Flows) Look at the figure International Capital Flows. Assume that each country's equilibrium interest rate is 4%. To reconcile the apparent disequilibrium in both markets, assuming that assets and liabilities are viewed as homogeneous, capital _____ will _____ interest rates.

A)outflow from the United States; lower U.S.
B)outflow from Britain; lower British
C)outflow from Britain; raise British
D)inflow to the United States; raise U.S.

Question 70

Use the following to answer questions 65-67:
Figure: The Loanable Funds Model in the U.S. Market
(Figure: The Loanable Funds Model in the U.S. Market) Look at the figure The Loanable Funds Model in the U.S. Market. If the actual interest rate is less than 4% in the U.S. market, then the quantity supplied of loanable funds will be _____ the quantity of loanable funds demanded.

A)greater than
B)less than
C)equal to
D)unrelated to

Question 71

If asset owners in Japan and the United States consider Japanese and U.S. assets as good substitutes for each other and if the U.S. interest rate is 5% while the Japanese interest rate is 2%:

A)financial inflows will reduce the U.S. interest rate.
B)financial outflows will reduce the Japanese interest rate.
C)the interest rate gap between the United States and Japan will grow.
D)financial inflows will increase the U.S. interest rate.

Question 72

Use the following to answer questions 65-67:
Figure: The Loanable Funds Model in the U.S. Market
(Figure: The Loanable Funds Model in the U.S. Market) Look at the figure The Loanable Funds Model in the U.S. Market. If the actual interest rate is higher than 4% in the U.S. market, then the quantity supplied of loanable funds will be _____ the quantity of loanable funds demanded.

A)greater than
B)less than
C)equal to
D)unrelated to

Question 73

Interest rates between two countries tend to converge if:

A)both countries have a financial account surplus.
B)both countries have a current account surplus.
C)the residents of the two countries believe that a foreign asset is as good as a domestic one.
D)the residents of the two countries prefer domestic assets to foreign assets.

Question 74

Use the following to answer questions 68-75:
Figure: International Capital Flows
(Figure: International Capital Flows) Look at the figure International Capital Flows. At an interest rate of 4%, the quantity of loanable funds supplied by U.S. lenders is _____ the quantity of loanable funds demanded by U.S. borrowers.

A)greater than
B)less than
C)equal to
D)not related to

Question 75

When interest rates are higher in country A than in other countries:

A)other countries will borrow more from country A.
B)capital will flow into country A.
C)capital will flow out of country A.
D)country A will lend more to other countries.

Question 76

Use the following to answer questions 65-67:
Figure: The Loanable Funds Model in the U.S. Market
(Figure: The Loanable Funds Model in the U.S. Market) Look at the figure The Loanable Funds Model in the U.S. Market. If the actual interest rate is equal to 4% in the U.S. market, then the quantity supplied of loanable funds will be _____ the quantity of loanable funds demanded.

A)greater than
B)less than
C)equal to
D)unrelated to

Question 77

(Scenario: Japan and the United States) Refer to the scenario Japan and the United States. As a result:

A)capital will flow from Japan to the United States.
B)capital will flow from the United States to Japan.
C)capital will not flow between Japan and the United States.
D)Japan will export more goods to the United States.

Question 78

Use the following to answer questions 61-63:
Scenario: Japan and the United States
Suppose that the interest rate in the United States is 4%, in Japan it is 7%, and financial assets in the two countries are equal in risk.
(Scenario: Japan and the United States) Refer to the scenario Japan and the United States. Assuming that loans in India and the United States carry equal risk, this implies that:

A)U)S. lenders will lend to borrowers in India.
B)Indian lenders will lend to U.S. borrowers.
C)the interest rate in India will increase further as compared to the U.S. interest rate.
D)the central bank of India has adopted a more expansionary monetary policy.

Question 79

Use the following to answer questions 68-75:
Figure: International Capital Flows
(Figure: International Capital Flows) Look at the figure International Capital Flows. At an interest rate of 4%, the total quantity of loanable funds demanded across the two markets is _____ the total quantity of loanable funds supplied by lenders.

A)greater than
B)less than
C)equal to
D)not related to

Question 80

Use the following to answer questions 68-75:
Figure: International Capital Flows
(Figure: International Capital Flows) Look at the figure International Capital Flows. At an interest rate of 4%, the quantity of loanable funds demanded by British borrowers is _____ the quantity of loanable funds supplied by British lenders.

A)greater than
B)less than
C)equal to
D)not related to