Question 1

A friend claims that Canada is a net international debtor.The best way of testing this claim is to

Accepted Answer

A) see whether Canadian foreign liabilities exceeded Canadian foreign income. 
B) see whether Canadian receipts from foreign assets exceeded Canadian payments to foreign owners of Canadian assets. 
C) see whether Canadian official reserve assets were positive or negative. 
D) see whether Canada ran a balance of payments surplus or deficit last year.

Question 2

Explain how a temporary increase in oil price affects the national saving,investment,and current account of an oil-importing country.

Accepted Answer

The answer of Explain how a temporary increase in oil...

Question 3

The merchandise trade balance is a country's

Accepted Answer

A) exports of goods. 
B) net exports of goods. 
C) exports of goods and services. 
D) net exports of goods and services.

Question 4

Suppose GDP is $20 billion and the desired absorption is $16 billion.What are the net exports?

Accepted Answer

A) $10 billion 
B) $4 billion 
C) $36 billion 
D) $1 billion

Question 5

The official settlements balance equals

Accepted Answer

A) the sum of the current account and the capital account. 
B) the current account minus net unilateral transfers. 
C) net investment income from abroad. 
D) the net increase in a country's official reserve assets.

Question 6

Which of the following statements about the Canadian balance of payment is true?

Accepted Answer

A) Historically,Canada has for the most part had a current account surplus. 
B) Canada has always had a capital account deficit. 
C) Canadians' ownership of foreign assets has always been greater than foreigners' ownership of Canadian assets. 
D) Canada has always maintained a current account balance.

Question 7

Suppose desired consumption is $10 billion and desired investment is $3 billion.If GDP is $25 billion and government purchases are $2 billion,the desired national saving is

Accepted Answer

A) $12 billion. 
B) $15 billion. 
C) $14 billion. 
D) $13 billion.

Question 8

Which of the following would be part of the nation's capital account?

Accepted Answer

A) a nightclub show seen by a Canadian in Mexico City 
B) a dividend from a British equity owned by a Canadian 
C) a payment to the Philippine government for the use of military bases in their country 
D) one hundred shares of British Petroleum stock purchased by a Canadian

Question 9

When a current account has a surplus of $5 billion,it means that

Accepted Answer

A) the capital account must have a deficit of $5 billion. 
B) next exports must be negative. 
C) net foreign lending is negative. 
D) net acquisition of foreign assets is negative.

Question 10

If a Canadian firm buys stereos from a Japanese firm and the Japanese firm uses the dollars it gets to buy Canadian Treasury bonds,what items are recorded in the Canadian balance of payments accounts?

Accepted Answer

A) credit the trade account;credit the capital account 
B) credit the trade account;debit the capital account 
C) debit the trade account;debit the capital account 
D) debit the trade account;credit the capital account

Question 11

A large open economy increases its desired saving.This causes the world real interest rate to ________ and the country's current account balance to ________.

Accepted Answer

A) fall;fall 
B) remain unchanged;rise 
C) fall;rise 
D) remain unchanged;fall

Question 12

The term "twin deficits" refers to a situation in which there exists

Accepted Answer

A) a budget deficit as well as a current account deficit. 
B) a budget deficit as well as a capital account deficit. 
C) a budget deficit as well as a balance of payment deficit. 
D) a current account deficit as well as a capital account deficit.

Question 13

A small open economy increases its desired saving.This causes the world real interest rate to ________ and the country's current account balance to ________.

Accepted Answer

A) fall;fall 
B) remain unchanged;rise 
C) fall;rise 
D) remain unchanged;fall

Question 14

A small open economy increases its investment demand.This causes the world real interest rate to ________ and the country's current account balance to ________.

Accepted Answer

A) rise;fall 
B) remain unchanged;rise 
C) rise;rise 
D) remain unchanged;fall

Question 15

In a large open economy like the United States,an increased government budget deficit that reduces national saving

Accepted Answer

A) reduces investment and improves the current account balance. 
B) reduces investment and reduces the current account balance. 
C) has no effect on investment,but reduces the current account balance. 
D) has no effect on either investment or the current account balance.

Question 16

In a small open economy
Sᵈ = $20 billion + ($100 billion)r%
Iᵈ = $30 billion - ($100 billion)r%
Y = $70 billion
G = $20 billion
rʷ = .04.
a.Calculate the current account balance.
b.Calculate net exports.
c.Calculate desired consumption.
d.Calculate absorption.

Accepted Answer

The answer of In a small open economy
Sᵈ = $20...

Question 17

If the Bank of Canada buys $3 billion worth of Japanese yen,$4 billion of German marks,and $2 billion of French francs,and sells $5 billion of British pounds,how does this affect the official settlements balance?

Accepted Answer

A) falls by $4 billion 
B) rises by $4 billion 
C) rises by $9 billion 
D) falls by $5 billion

Question 18

If business taxes rise in a large open economy,it causes the current account to ________ and saving to ________.

Accepted Answer

A) fall;fall 
B) rise;remain unchanged 
C) fall;remain unchanged 
D) rise;fall

Question 19

Consider an economy with GDP of $100 billion,desired investment of $20 billion,desired consumption of $50 billion,and government purchases of $2 billion.Calculate the following:
a.Desired absorption
b.Desired national saving
c.Desired foreign lending

Accepted Answer

The answer of Consider an economy with GDP of $100...

Question 20

The main difference between the small open economy and the large open economy is that

Accepted Answer

A) the former faces a fixed international real interest rate,but the latter can influence it. 
B) the former can influence the international real interest rate,but the latter cannot. 
C) the former cannot maintain a large current account deficit,but the latter can. 
D) the former can maintain a large current account deficit,but the latter cannot.

Exam 5: Saving and Investment in the Open Economy