Question 1

A country which incurs a current account deficit will most likely have a financial or capital account surplus.

Accepted Answer

A) True 
 B)False  True

Question 2

If net foreign investment is negative, which of the following must be true?

Accepted Answer

A)  Capital outflows are greater than capital inflows.
B)  Domestic investment must be greater than national saving.
C)  Net exports are positive.
D)  Private saving is greater than public saving.
E)  Canada's stock of foreign assets is growing faster than foreigners' stocks of Canadian assets. B

Question 3

A decrease in Canadian federal government budget deficits that lowers Canadian interest rates relative to the rest of the world should

Accepted Answer

A)  lower the trade balance.
B)  decrease net exports.
C)  cause the dollar to appreciate.
D)  lead to a current account surplus.
E)  increase foreign portfolio investment. E

Question 4

An increase in capital inflows will

Accepted Answer

A)  increase net foreign investment.
B)  increase capital outflows.
C)  decrease capital outflows.
D)  increase the value of the domestic currency.
E)  increase the current account balance.

Question 5

If the dollar appreciates against the Mexican peso,

Accepted Answer

A)  Mexican imports to Canada become more expensive.
B)  Canadian exports to Mexico become less expensive.
C)  Canadian exports to Mexico become more expensive.
D)  Canada's current account balance is likely to rise.
E)  The value of Mexican imports to Canada does not change.

Question 6

In an open economy, the current account balance equals ________.(Assume that the capital account is zero and net transfers are zero.)

Accepted Answer

A)  net foreign investment + domestic investment
B)  net capital outflows
C)  the financial account balance + net income on investments
D)  net foreign investment
E)  domestic saving

Question 7

You're traveling in Ireland and are thinking about buying a new digital camera.You've decided you'd be willing to pay $125 for a new camera, but cameras in Ireland are all priced in euros.If the exchange rate is 0.85 euros per dollar, what's the highest price in euros you'd be willing to pay for a camera?

Accepted Answer

A)  105 euros
B)  106.25 euros
C)  110.15 euros
D)  143.75 euros
E)  147 euros

Question 8

If net exports are equal to net foreign investment, which of the following is not true?

Accepted Answer

A)  The balance of payments is zero.
B)  The current account balance is equal to the negative of the financial account balance.
C)  Net capital inflows are equal to imports minus exports.
D)  The balance on the financial account is zero.

Question 9

Persistent current account deficits for the United States have

Accepted Answer

A)  decreased investment in new plants and equipment.
B)  slowed economic growth.
C)  increased government budget deficits.
D)  increased consumer debt.
E)  None of the above is correct.

Question 10

If the exchange rate changes from $1.45 = 1 euro to $1.37 = 1 euro, then

Accepted Answer

A)  both the euro and dollar have appreciated.
B)  both the euro and dollar have depreciated.
C)  the euro has appreciated and the dollar has depreciated.
D)  the euro has depreciated and the dollar has appreciated.

Question 11

Why would the Canadian trade deficit be larger than the Canadian current account deficit?

Accepted Answer

The answer of Why would the Canadian trade deficit be...

Question 12

The balance of payments includes all of the following accounts, except

Accepted Answer

A)  the current account.
B)  the financial account.
C)  the capital account.
D)  the national debt account.

Question 13

Following a tax cut by government, domestic investment will ________, and net exports will ________.

Accepted Answer

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

Question 14

When exchange rates are ________, we say that the country's exchange rate is fixed.

Accepted Answer

A)  determined in the market
B)  set by a country's central bank
C)  determined by supply and demand
D)  relatively stable
E)  set by a countries taxation authority

Question 15

Ceteris paribus, an increase in the government's budget deficit will decrease the financial account surplus.

Accepted Answer

A) True 
 B)False

Question 16

Figure 14.4  Alt text for Figure 14.4: In figure 14.4, a graph illustrates the quantity of dollars traded against the exchange rate.
Long description for Figure 14.4: The x-axis is labelled, quantity of dollars traded, and the y-axis is labelled, exchange rate, euros against dollars.2 supply curves; S1 and S2, and 2 demand curves; D1 and D2 are plotted.Supply curve S1 is a straight line which slopes up from the bottom left corner to the top right corner.It passes through points A and B.Supply curve S2 is a straight line with the same slope as curve S1, but is plotted to the right.Curve S2 passes through points D and C.Demand curve D1 is a straight line which slopes down from the top left corner to the bottom right corner.Curve D1 intersects curve S1 at point A, and curve S2 at point D.Demand curve D2 has the same slope as curve D1, but is plotted to the right Curve D2 intersects curve S1 at point B, and curve S2 at point C.
-Refer to Figure 14.4.The appreciation of the Canadian dollar is represented as a movement from

Accepted Answer

A)  B to A.
B)  D to C.
C)  C to B.
D)  C to A.

Question 17

Monetary policy has a greater impact in an open economy than it does in a closed economy.

Accepted Answer

A) True 
 B)False

Question 18

If the nominal exchange rate between the Canadian dollar and the American 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)  2.5
D)  $2.75
E)  $2.81

Question 19

The large budget deficits of the early 1990s resulted in large current account deficits.

Accepted Answer

A) True 
 B)False

Question 20

When the market value of the dollar rises relative to other currencies around the world, we say that

Accepted Answer

A)  the dollar has appreciated.
B)  the dollar has depreciated.
C)  the demand for dollars has increased.
D)  the supply of dollars has increased.
E)  the dollar has been revalued.

Exam 14: Macroeconomics in an Open Economy

A country which incurs a current account deficit will most likely have a financial or capital account surplus.

If net foreign investment is negative, which of the following must be true?

A decrease in Canadian federal government budget deficits that lowers Canadian interest rates relative to the rest of the world should

An increase in capital inflows will

If the dollar appreciates against the Mexican peso,

In an open economy, the current account balance equals ________.(Assume that the capital account is zero and net transfers are zero.)

If net exports are equal to net foreign investment, which of the following is not true?

Persistent current account deficits for the United States have

If the exchange rate changes from $1.45 = 1 euro to $1.37 = 1 euro, then

Why would the Canadian trade deficit be larger than the Canadian current account deficit?

The balance of payments includes all of the following accounts, except

Following a tax cut by government, domestic investment will , and net exports will .

When exchange rates are ________, we say that the country's exchange rate is fixed.

Ceteris paribus, an increase in the government's budget deficit will decrease the financial account surplus.

Monetary policy has a greater impact in an open economy than it does in a closed economy.

If the nominal exchange rate between the Canadian dollar and the American 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 large budget deficits of the early 1990s resulted in large current account deficits.

When the market value of the dollar rises relative to other currencies around the world, we say that