Question 1

Suppose the majority of the shares of Ford stock were sold to a Japanese firm. Assuming all else remains constant, this will

Accepted Answer

A)  increase the balance of the U.S. financial account. 
B)  increase foreign direct investment in the United States. 
C)  increase the balance of the U.S. current account. 
D)  decrease net portfolio investment in the United States. 
E)  create a capital outflow in the United States.

Question 2

Table 29-3
 
-Refer to Table 29-3. Given the following exchange rates in the above table, what are the exchange rates stated as U.S. dollars per Danish krone and U.S. dollars per EU euro respectively?

Accepted Answer

A)  0.20 dollars per krone and 1.43 dollars per euro 
B)  2.00 dollars per krone and 7.14 dollars per euro 
C)  0.02 dollars per krone and 0.70 dollars per euro 
D)  0.05 dollars per krone and 1.30 dollars per euro

Question 3

Suppose the government cuts taxes. We would expect interest rates to ________ and the dollar to ________ in foreign exchange markets.

Accepted Answer

A)  rise; appreciate 
B)  rise; depreciate 
C)  fall; depreciate 
D)  fall; appreciate

Question 4

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

Accepted Answer

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

Question 5

If the exchange rate changes from $2.00 = 1 euro to $1.98 = 1 euro then

Accepted Answer

A)  the dollar has depreciated. 
B)  the dollar has appreciated. 
C)  the euro has appreciated. 
D)  the euro has stayed constant in value.

Question 6

In international exchange markets, a rise in interest rates in the United States will cause the demand for dollars to ________ and the supply of dollars to ________.

Accepted Answer

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

Question 7

Expansionary fiscal policy should raise the exchange rate of the dollar.

Accepted Answer

A) True 
 B)False

Question 8

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 camera you're looking at costs 115 euros, under which of the following exchange rates would you be willing to purchase the camera? (Assume no taxes or duties are associated with the purchase.)

Accepted Answer

A)  0.56 euros per dollar 
B)  0.89 euros per dollar 
C)  0.92 euros per dollar 
D)  You would purchase the new camera at any of the above exchange rates.

Question 9

An economy that does not have 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 10

Net foreign investment is a measure of net capital outflows, equal to capital outflows minus capital inflows in a given period of accounting.

Accepted Answer

A) True 
 B)False

Question 11

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

Question 12

Why does continued foreign investment in U.S. stocks and bonds and foreign companies continuing to build factories in the United States result in a current account deficit in the United States?

Accepted Answer

The answer of Why does continued foreign investment in U.S....

Question 13

Based on the following information, calculate public saving, net foreign investment, and national income. Assume that the capital account is zero and net transfers are zero.
private saving = $145 billion
exports = $285 billion
imports = $240 billion
consumption = $600 billion
private investment = $125 billion
government purchases = $75 billion

Accepted Answer

The answer of Based on the following information, calculate public...

Question 14

Since 1999, the capital account has recorded

Accepted Answer

A)  transactions that affect net capital flows in the economy. 
B)  relatively minor transactions, such as migrants' transfers, and sales and purchases of nonproduced, nonfinancial assets. 
C)  transactions that affect the balance of trade or the balance of services. 
D)  statistical discrepancy between the current account and the financial account.

Question 15

Figure 29-1 
-Refer to Figure 29-1. The depreciation of the dollar is represented as a movement from

Accepted Answer

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

Question 16

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 17

If the United States has a net export deficit, which of the following must be true? (Assume that the capital account is zero and net transfers are zero.)

Accepted Answer

A)  The balance on the financial account must equal the balance on the current account. 
B)  Net foreign investment must be negative as well. 
C)  Domestic private saving must be less than net foreign investment. 
D)  Domestic public saving must be less than net foreign investment.

Question 18

Why is the U.S. trade deficit almost always larger than the U.S. current account deficit?

Accepted Answer

The answer of Why is the U.S. trade deficit almost...

Question 19

Which of the following would result in a trade surplus for the United States?

Accepted Answer

A)  Exports of goods = $450 billion Imports of goods = $400 billion
Exports of services = $200 billion
Imports of services = $250 billion 
B)  Exports of goods = $450 billion Imports of goods = $450 billion
Exports of services = $200 billion
Imports of services = $250 billion 
C)  Exports of goods = $450 billion Imports of goods = $460 billion
Exports of services = $200 billion
Imports of services = $100 billion 
D)  Exports of goods = $450 billion Imports of goods = $490 billion
Exports of services = $200 billion
Imports of services = $100 billion

Question 20

When the United States sends money to Indonesia to help tsunami survivors, in what account is this transaction recorded?

Accepted Answer

A)  the financial account 
B)  the capital account 
C)  the current account 
D)  the foreign exchange account

Exam 29: Macroeconomics in an Open Economy