Exam 15: Net Exports and International Finance

Consider only the flow of funds spent on acquiring assets. Which of the following is true if the U.S. has a net capital outflow of funds? I. Foreign purchases of U.S. assets are greater than U.S. residents' purchases of foreign assets. II. Foreign purchases of U.S. assets are less than U.S. residents' purchases of foreign assets. III. There is a capital account surplus. IV. There is a capital account deficit.

Suppose economic agents are increasingly concerned about the stability of Thailand's banking system. What is likely to happen in the Thai currency market?

A country has a comparative advantage if it can produce a good or service

Explain how exchange rates are determined in a fixed exchange rate system. Discuss the advantages and disadvantages of a fixed exchange rate system.

Suppose there is an increased demand from foreign countries for Iowa pork. a. What happens to the U.S. dollar exchange rate in a flexible foreign currency market? Illustrate your answer with a graph of the U.S. dollar market. b. Explain how a free-floating exchange rate acts as a buffer to insulate an economy, say, Canada's economy, from the impact of this event.

Fixed exchange rates are determined by the

For fixed exchange rates among nations to work, participating nations must

The terms "balance of payments" and "balance of trade" are synonymous.

A surplus in the current account implies

International trade does not affect the economy's natural level of employment.

Free-floating exchange rates are determined by the

If the U.S. exchange rate increases relative to currencies in other countries, then

A recession in foreign countries will

When foreigners purchase U.S. assets, there is an inflow of funds from abroad and this is recorded as a

Which of the following affects the quantity of U.S. dollars supplied in the currency market?

If Canada has a capital account deficit, it means that

As incomes in foreign nations rise, foreigners will buy less from the United States and more from their own economies.

If income increases in other countries, then U.S.

Suppose that at the fixed exchange rate implied by the gold standard, the quantity demanded of Chahidi's currency exceeded the quantity supplied. This implies that

Use the following to answer questions . Exhibit: Exchange Rates -(Exhibit: Exchange Rates) An increase in purchases of U.S. goods and services by foreigners Would shift the