Question 1

________ typically lead to increases in ________.

Accepted Answer

A) decreases in interest rates;investment 
B) increases in disposable income;consumption 
C) increases in autonomous investment;investment 
D) all of the above 
E) none of the above

Question 2

If there is a decline in world autonomous consumption ________.

Accepted Answer

A) domestic investment would decline 
B) the domestic real interest rate would fall 
C) net exports would go up 
D) all of the above 
E) none of the above

Question 3

Which of the following is a correct statement?

Accepted Answer

A) Wealth can increase even if there is no saving. 
B) An increase in net foreign assets always increases wealth. 
C) Low U.S.national saving is the principal cause of the trade deficits the U.S.has run since the 1980s. 
D) The U.S will be a net debtor nation for the foreseeable future. 
E) all of the above

Question 4

When a U.S.firm sells a good abroad for,say,100 euros (assume $1.5=1euro),U.S.net exports increase by $150.These $150 in exports can be accounted for as $150 increase in capital outflow because ________.

Accepted Answer

A) private consumption in the foreign country increases by $150 
B) if the U.S.firm uses the 100 euros to buy a share of stock in a foreign firm,the firm is supplying U.S.capital to that foreign firm 
C) if the U.S.firm uses the proceeds to buy a U.S.bond,capital investment in the foreign country has increased 
D) all of the above 
E) none of the above

Question 5

In an open economy,Y = C + I + G + NX.From this we may infer that ________.

Accepted Answer

A) output is greater in an open economy than in a closed economy 
B) the condition for goods market equilibrium is that S = I + G + NX 
C) net exports can be zero only if the domestic real interest rate is equal to the world real interest rate 
D) if saving is greater than zero,NX cannot be zero 
E) none of the above

Question 6

A foreign bank receives a deposit of $10,000 from a U.S.citizen.As a result,there is a net capital outflow from the U.S. ,if ________.

Accepted Answer

A) the bank buys a U.S.-made computer 
B) the bank buys a bond issued by a U.S.company 
C) the bank keeps the $10,000 in a vault 
D) all of the above 
E) none of the above

Question 7

China is a large open economy with an extraordinarily high saving rate.If,as seems likely,there is a decrease in desired saving in the coming years,what effects should we expect to see on China's trade balance (net capital flow),domestic real interest rate,and actual levels of saving and investment?

Accepted Answer

The answer of China is a large open economy with...

Question 8

"Crowding out" refers to the decrease in ________ that may result from an increase in government spending.

Accepted Answer

A) private investment 
B) imports 
C) private saving 
D) all of the above 
E) none of the above

Question 9

If desired saving increases in a small open economy,net exports (net capital outflow)rise.What happens to net exports if desired saving rises in most of the world's economies at the same time?

Accepted Answer

The answer of If desired saving increases in a small...

Question 10

Saving-Investment Diagram 
-Based on the Saving-Investment Diagram,if the difference between values G and E measures the net capital outflow,then ________.

Accepted Answer

A) the difference between values H and E measures the trade deficit 
B) the difference between values F and D measures the trade surplus 
C) the domestic real interest rate is indicated by A 
D) the difference between values F and E measures the trade deficit 
E) none of the above

Question 11

An increase in ________ in an open economy of any size leads to ________.

Accepted Answer

A) desired saving;an increase in net capital outflows 
B) desired investment;a decrease in net capital outflows 
C) desired saving;an increase in the trade balance 
D) all of the above 
E) none of the above

Question 12

How can the U.S.federal government induce increases in the national saving rate?

Accepted Answer

A) by lowering the sales tax 
B) by levying taxes on individual retirement (IR
A) accounts 
C) by reducing budget deficits 
D) all of the above 
E) none of the above

Question 13

If there is an increase in world taxes ________.

Accepted Answer

A) domestic investment would fall 
B) net exports would increase 
C) the domestic interest rate would go down 
D) all of the above 
E) none of the above

Question 14

Ceteris paribus,in a closed economy,if consumers become more optimistic ________.

Accepted Answer

A) autonomous consumption would decrease 
B) the equilibrium interest rate should increase 
C) saving should increase 
D) all of the above 
E) none of the above

Question 15

In an economy open to international trade where the interest rate at which saving and investment would be equal is ________ the world real interest rate ________.

Accepted Answer

A) above;a trade surplus ensues 
B) below;a trade deficit ensues 
C) above;there is a net capital outflow 
D) below;there is a net capital inflow 
E) none of the above

Question 16

Private saving refers to ________.

Accepted Answer

A) disposable income minus consumption expenditure 
B) total expenditure minus purchases of capital goods 
C) taxes plus consumption minus income 
D) consumption expenditure divided by disposable income 
E) none of the above

Question 17

If there is a decrease in world investment ________.

Accepted Answer

A) domestic saving would rise 
B) net exports would decrease 
C) domestic output would go up 
D) all of the above 
E) none of the above

Question 18

In an economy open to international trade ________.

Accepted Answer

A) saving is the difference between net exports and consumption 
B) saving equals investment as long as the domestic real interest rate is equal to the world real interest rate 
C) the domestic real interest rate should equal the world real interest rate as long as the economy is relatively small 
D) all of the above 
E) none of the above

Question 19

If there is a decrease in world taxes ________.

Accepted Answer

A) domestic investment would fall 
B) net exports would increase 
C) domestic interest rates would go up 
D) all of the above 
E) none of the above

Question 20

When a U.S.firm sells a good abroad for,say,100 euros (assume $1=1euro),U.S.net exports increase by $100.These $100 in exports can be accounted for as $100 increase in capital outflow because ________.

Accepted Answer

A) if the 100 euros are kept in the foreign bank,the U.S.firm is giving a loan to that bank 
B) if the U.S.firm uses the 100 euros to buy a share of stock in a foreign firm,the firm is supplying U.S.capital to that foreign firm 
C) if the U.S.firm uses the proceeds to build a new factory in that country,it is supplying U.S.capital to that country 
D) all of the above 
E) none of the above

Exam 4: Saving and Investment in Closed and Open Economies

typically lead to increases in .