Deck 16: Open Economy Macroeconomic

Question 1

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

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

Answer 1

current;credited

Question 2

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

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

Answer 2

the profits made by a South Korean company operating a plant in the United States.

Question 3

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

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

Answer 3

current;credited

Question 4

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

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

Question 5

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

A) transfer outflow
B) income outflow
C) export
D) income inflow

Question 6

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

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

Question 7

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

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

Question 8

In 2012,the United States ran both a _____ account deficit and a _____ account surplus.

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

Question 9

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

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

Question 10

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

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

Question 11

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

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

Question 12

Which of the following items is NOT a component of the balance of payments accounts?

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

Question 13

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

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

Question 14

The balance of trade is(are):

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

Question 15

Foreign aid transfers are part of the _____ account.

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

Question 16

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

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

Question 17

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

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

Question 18

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

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

Question 19

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

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

Question 20

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

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

Question 21

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

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

Question 22

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

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

Question 23

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

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

Question 24

If the United States has a current account surplus:

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

Question 25

Productovia,which had exports of $50 billion and imports of $40 billion,had a trade:

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

Question 26

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

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

Question 27

"The balance of payments must balance." This means that:

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

Question 28

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

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

Question 29

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

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

Question 30

In 2012,U.S.exports totaled about:

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

Question 31

In 2012,the United States had a trade _____ of about _____.

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

Question 32

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

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

Question 33

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

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

Question 34

In 2012,U.S.imports totaled about:

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

Question 35

The balance of trade is included in the:

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

Question 36

When the United States has a current account deficit:

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

Question 37

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

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

Question 38

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

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

Question 39

If exports exceed imports,then the nation has a:

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

Question 40

The balance on income equals:

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

Question 41

The United States had a _____ account _____ of about $450 billion in 2012.

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

Question 42

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

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

Question 43

In the exchange market between the U.S.dollar and the yen,a person who has a demand for dollars is also:

A) a supplier of yen.
B) a supplier of dollars.
C) a demander of yen.
D) a supplier of gold.

Question 44

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

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

Question 45

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

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

Question 46

The capital account includes:

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

Question 47

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

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

Question 48

A nominal exchange rate:

A) takes the price level of both countries into account.
B) is equal to e_r × [P_d / P_f].
C) is the price of one country's currency for another's.
D) is usually the same as the real exchange rate.

Question 49

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

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

Question 50

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

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

Question 51

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

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

Question 52

Suppose the exchange rate is US$1 = 100 yen.This means that:

A) it takes US$100 to purchase 1 yen.
B) someone with US$1 can purchase 100 yen.
C) the yen will soon fall in value.
D) the exchange rate is out of balance because it should be 1 yen per dollar.

Question 53

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

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

Question 54

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

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

Question 55

An example of an item in the capital account is:

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

Question 56

The buying and selling of foreign currency is:

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

Question 57

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

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

Question 58

What are the two primary reasons for U.S.individuals and business firms to want foreign currency?

A) purchase of foreign goods,services,and investments
B) purchase of foreign goods and services and speculation in currency
C) purchase of foreign investments and speculation in currency
D) speculation in currency and hoarding for economic warfare

Question 59

Most foreign exchange transactions are carried out:

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

Question 60

_____ is the price of one country's currency in terms of another country's currency,with the price levels of both countries taken into account.

A) The nominal exchange rate
B) The real exchange rate
C) Purchasing power parity
D) The fixed exchange rate

Question 61

Suppose the exchange rate for 1 euro is $1.40.Purchasing power parity exists if a fast-food meal in the United States costs $5 and in Paris that same fast-food meal costs:

A) 7 euros.
B) 3.57 euros.
C) 2.59 euros.
D) 3.43 euros.

Question 62

Suppose the current exchange rates between the dollar and the British pound and the dollar and the yen are $2 = 1 and $0.01 = 1 yen.The exchange rate between the pound and the yen is:

A) 200 = 1 yen.
B) 1 = 1 yen.
C) 2 = 1 yen.
D) 1 = 200 yen.

Question 63

Absolute purchasing power parity means:

A) real exchange rates equal the purchasing power in each country.
B) nominal exchange rates equal the purchasing power in each country.
C) real exchange rates are less than the purchasing power.
D) nominal exchange rates are less than the purchasing power.

Question 64

The rate of exchange that allows a specific amount of currency in one country to purchase the same quantity of goods in another country is called:

A) the real rate of exchange.
B) the nominal rate of exchange.
C) purchasing power parity.
D) current account exchange.

Question 65

US$1 is equal to 2.50 euros.If you convert US$2,000 to euros,you will have:

A) 25 euros.
B) 5,000 euros.
C) 800 euros.
D) 2,000 euros.

Question 66

If 1 euro will buy $1.30:

A) $1 will purchase 0.70 euro.
B) $1 will purchase 1.30 euro.
C) $1 will purchase 0.77 euro.
D) The real exchange rate equals one.

Question 67

If 1 euro can buy $1.35:

A) $1 can buy 1.35 euros.
B) 1 euro is worth less than $1.
C) $1 can buy 0.74 euro.
D) $1 can buy 0.26 euro.

Question 68

The real exchange rate equals the:

A) nominal exchange rate divided by the ratio of the price levels of two countries.
B) nominal exchange rate multiplied by the ratio of the price levels of the two countries.
C) sum of the ratio of the price levels of the two countries.
D) nominal exchange rate minus the ratio of the price levels of the two countries.

Question 69

If the exchange rate is US$1.28/euro,it takes _____ to buy 1 euro and it takes _____ to buy $1.

A) $0.78;1.28 euros
B) $1;1.28 euros
C) $1.28;0.78 euro
D) $1.28;1 euro

Question 70

Which factor may adversely affect the ability of purchasing power parity to hold?

A) elimination of trade barriers
B) customs duties
C) availability of close substitutes
D) identical demand across countries

Question 71

The difference between the nominal and real exchange rates is that:

A) nominal rates are temporary,while real rates are permanent.
B) the real exchange rate is the actual rate used by traders.
C) the real rate takes relative purchasing power into account,while the nominal rate doesn't.
D) the nominal rate is approximate,while the real rate is precise.

Question 72

The Big Mac index is an attempt to measure:

A) purchasing power parity.
B) the real exchange rate.
C) the current account.
D) the capital account.

Question 73

_____ occurs when the value of a currency falls relative to other currencies.

A) Purchasing power parity
B) Currency appreciation
C) Currency depreciation
D) A fixed exchange rate

Question 74

If the domestic price level equals the foreign country's price level,the real exchange rate:

A) equals one.
B) equals the nominal exchange rate.
C) exceeds the nominal exchange rate.
D) is less than the nominal exchange rate.

Question 75

If 1 dinar will buy 25 cents,how many dinar will one U.S.dollar buy?

A) 0.25
B) 1
C) 2.5
D) 4

Question 76

A car sells for $20,000 in the United States and for 2.4 million yen in Japan.Which exchange rate is consistent with purchasing power parity?

A) 120 yen for US$1.
B) 1 yen for US$120.
C) 20 yen for US$120.
D) 1 yen for US$20.

Question 77

An MP3 player sells for $75 in the United States and for 50 pounds in Britain.Which exchange rate is consistent with purchasing power parity?

A) 1.50 for US$1
B) 1 for US$1.50
C) 3 for US$1
D) 1 for US$0.67

Question 78

Assume that US$1 will buy 110 yen.If absolute purchasing power parity exists between the United States and Japan,and if the Big Mac meal costs $5 in the United States,it will cost _____ in Japan.

A) 55 yen
B) 22 yen
C) 220 yen
D) 550 yen

Question 79

When the value of one currency falls relative to another currency,the first currency has:

A) depreciated.
B) moved sideways.
C) appreciated.
D) lost parity.

Question 80

The concept of purchasing power parity implies that the:

A) Big Mac should cost about the same in all countries.
B) Big Mac should cost more in countries that are large beef consumers,because the demand for hamburgers is greater.
C) Big Mac is a poor value.
D) cost of a Big Mac cannot be predicted across countries because it is only one product.