Question 1

Expansionary monetary policy lowers interest rates and forces a real appreciation of the dollar in international currency markets.

Accepted Answer

A) True 
 B)False

Question 2

If the nominal exchange rate between the American dollar and the Canadian dollar is 0.89 Canadian dollars per American dollar, how many American dollars are required to buy a product that costs 2.5 Canadian dollars?

Accepted Answer

A)  $1.32 
B)  $2.23 
C)  $2.75 
D)  $2.81

Question 3

The relative price of a country's goods and services in terms of foreign goods and services is the real exchange rate.

Accepted Answer

A) True 
 B)False

Question 4

Persistent current account deficits for the United States have

Accepted Answer

A)  decreased investment in new plant and equipment. 
B)  slowed economic growth. 
C)  increased government budget deficits. 
D)  None of the above are correct.

Question 5

When the United States sends money to the Philippines to help typhoon survivors, the transaction is recorded in

Accepted Answer

A)  the capital account. 
B)  the current account. 
C)  the financial account. 
D)  the foreign exchange account.

Question 6

Which of the following is not included in the balance of the financial account of the United States?

Accepted Answer

A)  a purchase of Toyota stock by Ford 
B)  a purchase of GE stock by a firm in China 
C)  a purchase of U.S. car manufacturing plant by Toyota 
D)  a purchase of a German brewery by the U.S. company, Budweiser 
E)  a purchase of German legal services by Chase Manhattan Bank

Question 7

Figure 29-2 
-Refer to Figure 29-2. Which of the events below cause the shifts in the supply and demand curves in the market for dollars against the British pound shown in the graph above?

Accepted Answer

A)  Interest rates rise in England. 
B)  Interest rates rise in the United States. 
C)  Real income rises in the United States. 
D)  Real income falls in England.

Question 8

Currency traders expect the value of the dollar to fall. What effect will this have on the demand for dollars and the supply of dollars in the foreign exchange market?

Accepted Answer

A)  Demand for dollars will increase, and supply of dollars will decrease. 
B)  Demand for dollars will increase, and supply of dollars will increase. 
C)  Demand for dollars will decrease, and supply of dollars will increase. 
D)  Demand for dollars will decrease, and supply of dollars will decrease.

Question 9

Is fiscal policy more or less effective in manipulating aggregate demand in an open economy?

Accepted Answer

The answer of Is fiscal policy more or less effective...

Question 10

If the government finances an increase in government purchases with an increase in taxes, which of the following would you not expect to see?

Accepted Answer

A)  an increase in the exchange rate 
B)  a decrease in the interest rate 
C)  an increase in aggregate demand 
D)  a decrease in net exports

Question 11

The recession of 2007-2009 decreased the demand for imports in Japan, which caused the ________ curve for the yen to shift to the ________, increasing the exchange rate and the value of the yen.

Accepted Answer

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

Question 12

How does an increase in the budget deficit affect the demand for dollars and the supply of dollars on the foreign exchange market?

Accepted Answer

A)  The demand for dollars falls, and the supply of dollars falls. 
B)  The demand for dollars rises, and the supply of dollars rises. 
C)  The demand for dollars rises, and the supply of dollars falls. 
D)  The demand for dollars falls, and the supply of dollars rises.

Question 13

Net exports equals the balance of trade surplus.

Accepted Answer

A) True 
 B)False

Question 14

If the United States is a "net borrower" from abroad

Accepted Answer

A)  the United States must be exporting more than it is importing. 
B)  net capital flows must be negative. 
C)  national saving is less than domestic investment. 
D)  net foreign investment must be positive.

Question 15

When net capital flows are positive

Accepted Answer

A)  capital inflows are greater than capital outflows. 
B)  net foreign investment is negative. 
C)  capital outflows are greater than capital inflows. 
D)  A and B are both correct.

Question 16

A decrease in United States net foreign direct investment would occur if

Accepted Answer

A)  U.S. citizens have decreased the value of foreign stocks and bonds they own. 
B)  U.S. citizens have decreased their building or purchasing of facilities in foreign countries. 
C)  net foreign investment decreases. 
D)  net capital flows increase.

Question 17

The decline in the value of the dollar in the first half of 2017 resulted in ________ dollar prices for goods imported into the United States and ________ prices in foreign currencies for U.S. goods exported to other countries.

Accepted Answer

A)  higher; higher 
B)  higher; lower 
C)  lower; higher 
D)  lower; lower

Question 18

How does a decrease in the federal budget deficit affect the demand for dollars and the supply of dollars on the foreign exchange market?

Accepted Answer

A)  The demand for dollars falls, and the supply of dollars falls. 
B)  The demand for dollars rises, and the supply of dollars rises. 
C)  The demand for dollars rises, and the supply of dollars falls. 
D)  The demand for dollars falls, and the supply of dollars rises.

Question 19

The current account includes records of a country's

Accepted Answer

A)  net exports. 
B)  net investment income. 
C)  net transfers. 
D)  All of the above are included in an economy's current account.

Question 20

Figure 29-1 
-Refer to Figure 29-1. Suppose that the U.S. government deficit causes interest rates in the United States to rise relative to those in the European Union. Assuming all else remains constant, how would this be represented?

Accepted Answer

A)  Supply would decrease, demand would decrease and the economy moves from B to C to D. 
B)  Supply would increase, demand would decrease and the economy moves from C to B to A. 
C)  Demand would increase and the economy moves from A to B. 
D)  Demand would decrease and the economy moves from B to A.

Exam 29: Macroeconomics in an Open Economy

Expansionary monetary policy lowers interest rates and forces a real appreciation of the dollar in international currency markets.

If the nominal exchange rate between the American dollar and the Canadian dollar is 0.89 Canadian dollars per American dollar, how many American dollars are required to buy a product that costs 2.5 Canadian dollars?

The relative price of a country's goods and services in terms of foreign goods and services is the real exchange rate.

Persistent current account deficits for the United States have

When the United States sends money to the Philippines to help typhoon survivors, the transaction is recorded in

Which of the following is not included in the balance of the financial account of the United States?

Figure 29-2 -Refer to Figure 29-2. Which of the events below cause the shifts in the supply and demand curves in the market for dollars against the British pound shown in the graph above?

Currency traders expect the value of the dollar to fall. What effect will this have on the demand for dollars and the supply of dollars in the foreign exchange market?

Is fiscal policy more or less effective in manipulating aggregate demand in an open economy?

If the government finances an increase in government purchases with an increase in taxes, which of the following would you not expect to see?

The recession of 2007-2009 decreased the demand for imports in Japan, which caused the curve for the yen to shift to the , increasing the exchange rate and the value of the yen.

How does an increase in the budget deficit affect the demand for dollars and the supply of dollars on the foreign exchange market?

Net exports equals the balance of trade surplus.

If the United States is a "net borrower" from abroad

When net capital flows are positive

A decrease in United States net foreign direct investment would occur if

The decline in the value of the dollar in the first half of 2017 resulted in dollar prices for goods imported into the United States and prices in foreign currencies for U.S. goods exported to other countries.

How does a decrease in the federal budget deficit affect the demand for dollars and the supply of dollars on the foreign exchange market?

The current account includes records of a country's

Figure 29-1 -Refer to Figure 29-1. Suppose that the U.S. government deficit causes interest rates in the United States to rise relative to those in the European Union. Assuming all else remains constant, how would this be represented?