Question 1

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 2

Currency traders expect the dollar to appreciate.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 appreciate,and the change in the equilibrium quantity of dollars exchanged cannot be determined.

Question 3

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 4

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 5

Which of the following transactions would be included in Japan's current account?

Accepted Answer

A) A Japanese citizen purchases 50 shares of Google stock. 
B) An American citizen purchases 50 shares of Toshiba stock. 
C) A Japanese citizen purchases a new Toyota made in Japan. 
D) An American citizen purchases a new Toyota made in Japan.

Question 6

Is fiscal policy more or less effective in manipulating aggregate demand in an open economy?

Accepted Answer

The answer of Is fiscal policy more or less effective...

Question 7

Which of the following would cause the dollar to depreciate?

Accepted Answer

A) an increase in the demand for dollars 
B) a decrease in the demand for dollars 
C) a decrease in the supply of dollars 
D) a decrease in the demand for imports from foreign countries

Question 8

Net foreign investment minus net foreign portfolio investment is equal to

Accepted Answer

A) capital outflows. 
B) net foreign financial investment. 
C) the balance of trade. 
D) net foreign direct investment.

Question 9

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 10

Suppose the Fed pursues a policy that leads to higher interest rates in the United States.How will this policy affect real GDP in the short run if the United States is an open economy? This policy

Accepted Answer

A) reduces investment spending,consumption spending and net exports,all of which reduce GDP. 
B) reduces investment spending and consumption spending,both of which reduce GDP.Net exports rise which increases GDP. 
C) reduces investment spending and consumption spending,both of which reduce GDP.Net exports fall which increases GDP. 
D) increases investment spending,consumption spending,and net exports,all of which increase GDP.

Question 11

National saving equals

Accepted Answer

A) income - taxes - consumption. 
B) taxes - government spending. 
C) income - consumption - government spending. 
D) private saving + public saving - net foreign investment.

Question 12

Expansionary fiscal policy crowds out both domestic investment and net exports.

Accepted Answer

A) True 
 B)False

Question 13

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 14

If the nominal exchange rate between the American dollar and the Canadian dollar is 0.89 Canadian dollars per American dollar,how many American dollars are required to buy a product that costs 2.5 Canadian dollars?

Accepted Answer

A) $1.32 
B) $2.23 
C) $2.75 
D) $2.81

Question 15

What is the relationship between the balance of trade and the current account balance?

Accepted Answer

The answer of What is the relationship between the balance...

Question 16

Which of the following would decrease the balance on the current account?

Accepted Answer

A) a decrease in foreign direct investment 
B) a decrease in the amount of aid money the government sends abroad 
C) a decrease in imports 
D) None of the above will decrease the balance on the current account.

Question 17

How will an interest rate increase in the United States affect equilibrium in the market for dollars against foreign currencies? (Assume the exchange rate is stated in terms of foreign currency per U.S.dollar. )

Accepted Answer

A) The equilibrium exchange rate will increase,and the equilibrium quantity of dollars traded cannot be determined. 
B) The equilibrium exchange rate will decrease,and the equilibrium quantity of dollars traded cannot be determined. 
C) The equilibrium exchange rate cannot be determined,and the equilibrium quantity of dollars traded will increase. 
D) The equilibrium exchange rate will increase,and the equilibrium quantity of dollars traded will increase.

Question 18

If American demand for purchases of British goods has decreased,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 British...

Question 19

How does a decrease in the federal budget deficit affect the demand for dollars and the supply of dollars on the foreign exchange market?

Accepted Answer

A) The demand for dollars falls,and the supply of dollars falls. 
B) The demand for dollars rises,and the supply of dollars rises. 
C) The demand for dollars rises,and the supply of dollars falls. 
D) The demand for dollars falls,and the supply of dollars rises.

Question 20

Persistent current account deficits for the United States have

Accepted Answer

A) decreased investment in new plant and equipment. 
B) slowed economic growth. 
C) increased government budget deficits. 
D) None of the above are correct.

Exam 18: Macroeconomics in an Open Economy