Question 1

An increase in a small open economy's government budget deficit that reduces national saving and the current account balance causes an

Accepted Answer

A) increase in desired saving. 
B) increase in the world real interest rate. 
C) increase in exports. 
D) increase in absorption.

Question 2

If the Federal Reserve buys $3 billion worth of Japanese yen and sells $5 billion of euros,how does this affect the official settlements balance?

Accepted Answer

A) Falls by $2 billion 
B) Rises by $2 billion 
C) Rises by $3 billion 
D) Falls by $5 billion

Question 3

The government of a small open economy announces a tax cut of $100 this year,combined with a tax increase of $110 next year,when the interest rate is 10%.What are the effects of this change on the world real interest rate,national saving,investment,and the current account balance in equilibrium when
(a)Ricardian equivalence holds?
(b)Ricardian equivalence does not hold?

Accepted Answer

The answer of The government of a small open economy...

Question 4

A capital and financial account surplus necessarily implies

Accepted Answer

A) a balance of payments surplus. 
B) a current account surplus. 
C) a current account deficit. 
D) an increase in the nation's official reserve assets.

Question 5

If a U.S.firm buys tulips from a Dutch firm and the Dutch firm uses the dollars it gets to buy U.S.stocks,the U.S.trade balance ________ and the U.S.capital and financial account ________.

Accepted Answer

A) rises; rises 
B) rises; falls 
C) falls; falls 
D) falls; rises

Question 6

A large open economy has desired national saving of Sd = 1200 + 1000rw,and desired national investment of Id = 1000 - 500rw.The foreign economy has desired national saving of  = 1300 + 1000rw,and desired national investment of  = 1800 - 500rw.Suppose the foreign country's government increases its spending by 300 and private saving does not change.Then in equilibrium,the foreign country has net exports equal to

Accepted Answer

A) 500. 
B) 350. 
C) -350. 
D) -500.

Question 7

Suppose a country has the following balance of payments data.  (a)Calculate the current account balance.
(b)Calculate the capital and financial account balance.
(c)Calculate the trade balance.
(d)Calculate net factor payments.

Accepted Answer

The answer of Suppose a country has the following balance...

Question 8

If the United States sells computers to Russia,and uses the proceeds to buy shares of stock in Russian companies,the U.S.trade balance ________ and the U.S.capital and financial account balance ________.

Accepted Answer

A) rises; rises 
B) rises; falls 
C) falls; falls 
D) falls; rises

Question 9

The current account balance consists of

Accepted Answer

A) the trade balance plus the services balance. 
B) net exports of goods and services,minus net unilateral transfers. 
C) net exports of goods and services,plus investment income from abroad,plus net unilateral transfers. 
D) net exports of goods and services,plus investment income from abroad,plus net unilateral transfers,minus the capital and financial account balance.

Question 10

Consider a large open economy that has a positive current account balance.
(a)Suppose the domestic government increases the tax rate on firm revenues.Draw a diagram to explain the effects on the world real interest rate,saving in each country,investment in each country,and the current account balance in each country in equilibrium.Explain your work.
(b)In addition to the tax increase in part (a),suppose now that the foreign government increases lump-sum taxes on individuals.Draw a new diagram to incorporate the overall effects of both tax changes and explain the effects (from the initial equilibrium with neither tax change)on the world real interest rate,saving in each country,investment in each country,and the current account balance in both country.Explain your work.

Accepted Answer

The answer of Consider a large open economy that has...

Question 11

In goods market equilibrium in an open economy,

Accepted Answer

A) the desired amount of exports must equal the desired amount of imports. 
B) the desired amount of exports must equal the desired amount of imports less the amount lent abroad. 
C) the desired amount of national saving must equal the desired amount of domestic investment. 
D) the desired amount of national saving must equal the desired amount of domestic investment plus the current account balance.

Question 12

A small open economy reduces 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 13

The United States became a net debtor because

Accepted Answer

A) it ran consistently large current account deficits. 
B) it ran consistently large current account surpluses. 
C) it lent a lot to people in foreign countries. 
D) it provided much foreign aid to other countries.

Question 14

An increase in a small open economy's government budget deficit that reduces national saving and the current account balance causes an

Accepted Answer

A) increase in desired saving. 
B) increase in the world real interest rate. 
C) increase in exports. 
D) increase in absorption.

Question 15

A friend claims that the United States is a net international debtor.The best way of testing this claim is to see whether

Accepted Answer

A) U.S.foreign liabilities exceeded U.S.foreign income. 
B) U.S.receipts from foreign assets exceeded U.S.payments to foreign owners of U.S.assets. 
C) U.S.official reserve assets were positive or negative. 
D) the United States ran a balance of payments surplus or deficit last year.

Question 16

If the United States had a capital and financial account deficit of $50 billion,we could say the United States had

Accepted Answer

A) net imports of $50 billion. 
B) net foreign borrowing of $50 billion. 
C) acquired net foreign assets of $50 billion. 
D) a current account deficit of $50 billion.

Question 17

If a country's merchandise exports exceed its merchandise imports it has a

Accepted Answer

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

Question 18

If a freeze destroys much of the crop of an agricultural nation,then

Accepted Answer

A) the desired investment curve would shift to the left. 
B) the desired investment curve would shift to the right. 
C) net foreign lending would increase. 
D) net foreign lending would decrease.

Question 19

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 20

Suppose output is $35 billion,government purchases are $10 billion,desired consumption is $15 billion,and desired investment is $6 billion.Absorption is equal to

Accepted Answer

A) $25 billion. 
B) $31 billion. 
C) $35 billion. 
D) $39 billion.

Exam 5: Saving and Investment in the Open Economy

An increase in a small open economy's government budget deficit that reduces national saving and the current account balance causes an

If the Federal Reserve buys $3 billion worth of Japanese yen and sells $5 billion of euros,how does this affect the official settlements balance?

A capital and financial account surplus necessarily implies

If a U.S.firm buys tulips from a Dutch firm and the Dutch firm uses the dollars it gets to buy U.S.stocks,the U.S.trade balance and the U.S.capital and financial account .

Suppose a country has the following balance of payments data. (a)Calculate the current account balance. (b)Calculate the capital and financial account balance. (c)Calculate the trade balance. (d)Calculate net factor payments.

If the United States sells computers to Russia,and uses the proceeds to buy shares of stock in Russian companies,the U.S.trade balance and the U.S.capital and financial account balance .

The current account balance consists of

In goods market equilibrium in an open economy,

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

The United States became a net debtor because

An increase in a small open economy's government budget deficit that reduces national saving and the current account balance causes an

A friend claims that the United States is a net international debtor.The best way of testing this claim is to see whether

If the United States had a capital and financial account deficit of $50 billion,we could say the United States had

If a country's merchandise exports exceed its merchandise imports it has a

If a freeze destroys much of the crop of an agricultural nation,then

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

Suppose output is $35 billion,government purchases are $10 billion,desired consumption is $15 billion,and desired investment is $6 billion.Absorption is equal to