Question 1

If net foreign investment in the United States is positive, how must national saving and domestic investment be related? (Assume that the capital account is zero and net transfers are zero.)

Accepted Answer

A)  Domestic investment and national saving must also be positive. 
B)  Domestic investment must be less than national saving. 
C)  Domestic investment must be greater than national saving. 
D)  Domestic investment can be greater than or less than national saving.

Question 2

Suppose the Fed purchases Treasury Securities. Interest rates in the United States will ________ and the U.S. dollar will ________ against foreign currencies.

Accepted Answer

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

Question 3

Public saving equals taxes minus government spending minus transfer payments.

Accepted Answer

A) True 
 B)False

Question 4

Monetary policy has a ________ effect on aggregate demand in a(n) ________ economy, and fiscal policy has a ________ effect on aggregate demand in a(n) ________ economy.

Accepted Answer

A)  weaker; open; weaker; open 
B)  weaker; closed; stronger; closed 
C)  stronger; open; weaker; closed 
D)  stronger; closed; weaker; open

Question 5

Which of the following will shift the demand for the euro to the right?

Accepted Answer

A)  an increase in interest rates in the European Union 
B)  an increase in incomes in countries that buy goods from the European Union 
C)  expectations among speculators that the price of the euro will rise in the future 
D)  All of the above will shift the demand for the euro to the right.

Question 6

The balance of trade is defined as

Accepted Answer

A)  the difference between the balance of the current account and the balance of the capital account. 
B)  the difference between the value of the goods and services a country exports and the value of the goods and services a country imports. 
C)  the difference between the value of the goods a country exports and the value of the goods a country imports. 
D)  the difference between the balance of the current account and the balance of the financial account.

Question 7

How does contractionary monetary policy affect net exports in the short run?

Accepted Answer

A)  Contractionary monetary policy increases exports and reduces imports. 
B)  Contractionary monetary policy reduces exports and increases imports. 
C)  Contractionary monetary policy increases exports and increases imports. 
D)  Contractionary monetary policy reduces exports and reduces imports.

Question 8

If American demand for purchases of Mexican goods has increased, how would you expect the equilibrium exchange rate in the market for dollars to respond? Support your answer graphically.

Accepted Answer

The answer of If American demand for purchases of Mexican...

Question 9

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)  domestic saving is less than domestic investment. 
D)  net foreign investment must be positive.

Question 10

The balance of trade includes trade in

Accepted Answer

A)  goods only. 
B)  services only. 
C)  both goods and services. 
D)  neither goods nor services.

Question 11

Explain and show graphically how an increase in incomes in the United States will affect equilibrium in the foreign exchange market?

Accepted Answer

The answer of Explain and show graphically how an increase...

Question 12

What is the difference between net exports and the current account balance?

Accepted Answer

The answer of What is the difference between net exports...

Question 13

Assuming no change in the nominal exchange rate, how will a decrease in the price level 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 14

How does expansionary monetary policy affect net exports?

Accepted Answer

A)  Expansionary monetary policy increases exports and reduces imports. 
B)  Expansionary monetary policy reduces exports and increases imports. 
C)  Expansionary monetary policy increases exports and increases imports. 
D)  Expansionary monetary policy reduces exports and reduces imports.

Question 15

An expansionary monetary policy in the United States should

Accepted Answer

A)  decrease the foreign currency price of U.S. exports. 
B)  cause the dollar to appreciate. 
C)  decrease the dollar price of imports. 
D)  decrease net exports.

Question 16

Based on the following information, what is the balance on the financial account? Exports of goods and services = $12 billion
Imports of goods and services = $14 billion
Net income on investments = -$4 billion
Net transfers = -$1 billion
Increase in foreign holdings of assets in the United States = $5 billion
Increase in U.S. holdings of assets in foreign countries = -$3 billion

Accepted Answer

A)  $8 billion 
B)  $2 billion 
C)  $1 billion 
D)  -$1 billion

Question 17

If there is currently a surplus of dollars, which of the following would you expect to see in the foreign exchange market?

Accepted Answer

A)  The dollar will appreciate. 
B)  The dollar will depreciate. 
C)  There will be a decrease in the demand for dollars. 
D)  There will be a decrease in the supply of dollars.

Question 18

How is the impact of contractionary monetary policy different in an open economy than in a closed economy?

Accepted Answer

The answer of How is the impact of contractionary monetary...

Question 19

The United States has a trade ________ with all its major trading partners and a trade ________ with every region of the world except for Latin America.

Accepted Answer

A)  deficit; deficit 
B)  deficit; surplus 
C)  surplus; deficit 
D)  surplus; surplus 
E)  deficit; balance

Question 20

If the current account is in surplus and the capital account is zero, then

Accepted Answer

A)  the financial account must be in deficit. 
B)  the balance of trade must be in deficit. 
C)  the balance of payments must be in deficit. 
D)  there is a capital inflow. 
E)  the balance of services must be in deficit.

Exam 29: Macroeconomics in an Open Economy