Question 1

If net exports are negative,

Accepted Answer

A)  net foreign investment is also negative. 
B)  capital inflows must be less than capital outflows. 
C)  net foreign investment is positive. 
D)  Both A and B are correct.

Question 2

Currency traders expect the value of the dollar to rise. What effect will this have on the demand for dollars and the supply of dollars in the foreign exchange market?

Accepted Answer

A)  Demand for dollars will increase, and supply of dollars will decrease. 
B)  Demand for dollars will increase, and supply of dollars will increase. 
C)  Demand for dollars will decrease, and supply of dollars will increase. 
D)  Demand for dollars will decrease, and supply of dollars will decrease.

Question 3

Which of the following would you expect to decrease both interest rates and exchange rates? (Assume exchange rates are stated in terms of foreign currency per domestic currency.)

Accepted Answer

A)  contractionary monetary policy 
B)  expansionary monetary policy 
C)  contractionary fiscal policy 
D)  Both B and C will decrease both interest rates and exchange rates.

Question 4

Table 29-2
 
-Refer to Table 29-2. Given the following exchange rates in the above table, what are the exchange rates stated as U.S. dollars per Mexican peso and U.S. dollars per British pound respectively?

Accepted Answer

A)  0.10 dollars per peso and 2.00 dollars per pound 
B)  1.00 dollars per peso and 20.00 dollars per pound 
C)  0.01 dollars per peso and 0.20 dollars per pound 
D)  0.10 dollars per peso and 5.00 dollars per pound 
E)  0.01 dollars per peso and 0.50 dollars per pound

Question 5

A decrease in the demand for American-made goods will

Accepted Answer

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

Question 6

An increase in U.S. federal government budget deficits that raises U.S. interest rates relative to the rest of the world should

Accepted Answer

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

Question 7

Figure 29-3 
-Refer to Figure 29-3. Consider the market for U.S. dollars against the Japanese yen shown above. An event which could have caused the changes shown in the graph would be

Accepted Answer

A)  an increase in U.S. real income. 
B)  speculators expect the dollar to depreciate in value in the near future. 
C)  an economic expansion in the United States. 
D)  a decrease in Japanese interest rates.

Question 8

If the Fed does not take into account the additional policy channels available in an open economy, then ________ when conducting contractionary monetary policy,

Accepted Answer

A)  it is likely to decrease GDP too much and cause a recession 
B)  it is likely to decrease GDP too little and inflation will persist 
C)  it is likely to increase GDP too much and inflation will persist 
D)  it is likely to increase GDP too little and cause a recession

Question 9

If the government finances an increase in government purchases with an increase in taxes, which of the following would you expect to see?

Accepted Answer

A)  an increase in the exchange rate 
B)  a decrease in the interest rate 
C)  a decrease in aggregate demand 
D)  an increase in net exports

Question 10

Explain why economies with financial account surpluses usually have current account deficits.

Accepted Answer

The answer of Explain why economies with financial account surpluses...

Question 11

If there is currently a shortage 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 an increase in the demand for dollars. 
D)  There will be an increase in the supply of dollars.

Question 12

When Americans decrease their demand for Japanese goods,

Accepted Answer

A)  the demand for dollars will rise, and the demand for yen will rise. 
B)  the demand for dollars will fall, and the demand for yen will rise. 
C)  the supply of dollars will rise, and the demand for yen will rise. 
D)  the supply of dollars will fall, and the demand for yen will fall.

Question 13

Figure 29-1 
-Refer to Figure 29-1. Italians cut back on smoking and cut their demand for American cigarettes in half. Assuming all else remains constant, this would be represented as a movement from

Accepted Answer

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

Question 14

The price of domestic goods in terms of foreign goods is referred to as

Accepted Answer

A)  the nominal exchange rate. 
B)  the relative inflation rate. 
C)  the current account balance. 
D)  the real exchange rate.

Question 15

Based on the following information, what is the balance on the financial account? Exports of goods and services = $5 billion
Imports of goods and services = $3 billion
Net income on investments = -$2 billion
Net transfers = -$2 billion
Increase in foreign holdings of assets in the United States = $4 billion
Increase in U.S. holdings of assets in foreign countries = -$1 billion

Accepted Answer

A)  $3 billion 
B)  $2 billion 
C)  $1 billion 
D)  -$1 billion

Question 16

The difference between the value of the goods a country exports and the value of the goods a country imports is the country's

Accepted Answer

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

Question 17

When net capital flows are positive,

Accepted Answer

A)  capital inflows are greater than capital outflows. 
B)  net foreign investment is negative. 
C)  capital outflows are greater than capital inflows. 
D)  A and B are both correct.

Question 18

Persistent current account deficits in the United States

Accepted Answer

A)  can be seen as a vote of confidence in the strength of the U.S. economy. 
B)  cause persistent declines in investment in the United States. 
C)  cause U.S. investors to accumulate more foreign assets than foreign investors accumulate U.S. assets. 
D)  will eventually cause the value of the dollar to rise.

Question 19

What's the difference between the nominal exchange rate and the real exchange rate?

Accepted Answer

The answer of What's the difference between the nominal exchange...

Question 20

Currency traders expect the dollar to depreciate. What impact will this have on equilibrium in the foreign exchange market?

Accepted Answer

A)  The dollar will appreciate, and the equilibrium quantity of dollars will decrease. 
B)  The dollar will depreciate, and the equilibrium quantity of dollars exchanged will decrease. 
C)  The dollar will appreciate, and the equilibrium quantity of dollars will increase. 
D)  The dollar will depreciate, and the change in the equilibrium quantity of dollars exchanged cannot be determined.

Exam 29: Macroeconomics in an Open Economy