Question 1

If the dollar appreciates against the Mexican peso,

Accepted Answer

A)   Mexican imports to the U.S. become more expensive.
B)   U.S. exports to Mexico become less expensive.
C)   U.S. exports to Mexico become more expensive.
D)   The value of Mexican imports to the United States does not change. C

Question 2

Since 1999, the U.S. ________ account has recorded relatively minor transactions, such as migrants' transfers, and sales and purchases of nonproduced, nonfinancial assets.

Accepted Answer

A)   current
B)   capital
C)   financial
D)   balance of trade account B

Question 3

The balance of payments includes which three accounts?

Accepted Answer

A)   the current account, the financial account, and the capital account
B)   the capital flows account, the financial account, and the trade account
C)   the net investment account, the net exports account, and the net transfers account
D)   the balance of trade account, the net foreign investment account, and statistical discrepancy A

Question 4

Contractionary monetary policy should increase foreign financial investment in the United States.

Accepted Answer

A) True 
 B)False

Question 5

The purchase of foreign stocks and bonds by a U.S. brokerage firm is an example of capital inflows to the United States.

Accepted Answer

A) True 
 B)False

Question 6

An increase in capital inflows will

Accepted Answer

A)   increase net foreign investment.
B)   increase capital outflows.
C)   decrease capital outflows.
D)   increase the equilibrium exchange rate.

Question 7

Ceteris paribus, a decrease in the government's budget deficit will increase domestic investment and net foreign investment.

Accepted Answer

A) True 
 B)False

Question 8

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.

Question 9

A Canadian oil company hires geological survey services from the United States. If all else remains equal, this will

Accepted Answer

A)   increase net exports.
B)   increase the balance of trade.
C)   decrease the current account balance.
D)   increase the financial account.

Question 10

Figure 29-1 
-Refer to Figure 29-1. Currency speculators believe that the value of the euro will decrease relative to the dollar. 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)   Supply would decrease, demand would increase and the economy moves from A to D to C.
D)   Supply would increase, demand would increase and the economy moves from D to A to B.

Question 11

When the market value of the dollar falls 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 decreased.
D)   the supply of dollars has decreased.

Question 12

Article Summary
Over the past two years, the Indian rupee has fallen 26 percent in value against the U.S. dollar, reaching a record low of 61.80 rupees per dollar in August 2013. The decline reflects increasing capital outflows and pessimism regarding the government's attempts to reverse this trend. The Indian government was expected to announce potential measures to increase the inflow of capital, including the possibility of raising debt abroad, raising money from Indians who live abroad, easing restrictions on overseas borrowing, and raising interest rates. Critics argue that current and well-entrenched policies deter capital inflow from investors and corporations, and raising interest rates may reduce confidence in the economy, which experienced a decade-low growth rate of 5 percent in 2013.
Source: Rafael Nam, "Rupee over 60: Why Indian currency weakness may be here to stay," Reuters, August 8, 2013.
-Refer to the Article Summary. All else equal, a depreciation of the Indian rupee relative to a currency such as the U.S. dollar should ________ the current account balance in India and therefore ________ the financial account balance in India.

Accepted Answer

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

Question 13

How is the impact of expansionary fiscal policy different in an open economy than in a closed economy?

Accepted Answer

The answer of How is the impact of expansionary fiscal...

Question 14

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 15

An economy that has interactions in trade or finance with other economies is referred to as

Accepted Answer

A)   an open economy.
B)   a closed economy.
C)   a trade-balanced economy.
D)   a net foreign investment economy.

Question 16

An increase in the demand for American-made goods will

Accepted Answer

A)   increase the supply of dollars on the foreign exchange market.
B)   decrease the supply of dollars on the foreign exchange market.
C)   increase the demand for dollars on the foreign exchange market.
D)   decrease the demand for dollars on the foreign exchange market.

Question 17

How might a budget deficit affect the balance of trade?

Accepted Answer

A)   A budget deficit raises interest rates, which raises exchange rates and increases the balance of trade.
B)   A budget deficit raises interest rates, which raises exchange rates and reduces the balance of trade.
C)   A budget deficit reduces interest rates, which raises exchange rates and reduces the balance of trade.
D)   A budget deficit reduces interest rates, which reduces exchange rates and reduces the balance of trade.

Question 18

Assuming no change in the nominal exchange rate, how will a higher rate of inflation in the United States relative to France affect the real exchange rate between the two countries? (Assume the United States is the "domestic" country.)

Accepted Answer

A)   The real exchange rate will rise.
B)   The real exchange rate will fall.
C)   The real exchange rate will be unaffected.
D)   The impact on the real exchange rate cannot be predicted.

Question 19

If the price level in the United States is 110, the price level is 135 in Mexico, and the nominal exchange rate is 12.5 pesos per dollar, what is the real exchange rate from the U.S. perspective?

Accepted Answer

A)   8.8
B)   10.2
C)   10.8
D)   11.4

Question 20

If the balance on the current account is $346 billion and the balance on the financial account is -$204 billion, what is the balance on the capital account, assuming no statistical discrepancy?

Accepted Answer

A)   $550 billion
B)   $142 billion
C)   $0
D)   -$142 billion

Exam 29: Macroeconomics in an Open Economy

If the dollar appreciates against the Mexican peso,

Since 1999, the U.S. ________ account has recorded relatively minor transactions, such as migrants' transfers, and sales and purchases of nonproduced, nonfinancial assets.

The balance of payments includes which three accounts?

Contractionary monetary policy should increase foreign financial investment in the United States.

The purchase of foreign stocks and bonds by a U.S. brokerage firm is an example of capital inflows to the United States.

An increase in capital inflows will

Ceteris paribus, a decrease in the government's budget deficit will increase domestic investment and net foreign investment.

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

A Canadian oil company hires geological survey services from the United States. If all else remains equal, this will

Figure 29-1 -Refer to Figure 29-1. Currency speculators believe that the value of the euro will decrease relative to the dollar. Assuming all else remains constant, how would this be represented?

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

How is the impact of expansionary fiscal policy different in an open economy than in a closed economy?

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

An economy that has interactions in trade or finance with other economies is referred to as

An increase in the demand for American-made goods will

How might a budget deficit affect the balance of trade?

Assuming no change in the nominal exchange rate, how will a higher rate of inflation in the United States relative to France affect the real exchange rate between the two countries? (Assume the United States is the "domestic" country.)

If the price level in the United States is 110, the price level is 135 in Mexico, and the nominal exchange rate is 12.5 pesos per dollar, what is the real exchange rate from the U.S. perspective?

If the balance on the current account is $346 billion and the balance on the financial account is -$204 billion, what is the balance on the capital account, assuming no statistical discrepancy?