Question 1

When exports exceed imports there is a(n):

Accepted Answer

A) output gap. 
B) trade balance. 
C) trade surplus. 
D) trade deficit. 
A) output gap. 
B) trade balance. 
C) trade surplus. 
D) trade deficit.

Question 2

In an open economy, the domestic real interest rate is determined by:

Accepted Answer

A) domestic saving, domestic investment, and net capital inflows. 
B) domestic investment. 
C) domestic saving and domestic investment. 
D) domestic saving and net capital inflows. 
A) domestic saving, domestic investment, and net capital inflows. 
B) domestic investment. 
C) domestic saving and domestic investment. 
D) domestic saving and net capital inflows.

Question 3

The practice of spreading one's wealth over a variety of different financial investments in order to reduce overall risk is called:

Accepted Answer

A) allocation. 
B) following the risk premium. 
C) diversification. 
D) risk reservation. 
A) allocation. 
B) following the risk premium. 
C) diversification. 
D) risk reservation.

Question 4

The current price of a stock increases when:

Accepted Answer

A) expected future dividends decrease. 
B) the expected future price of the stock decreases. 
C) interest rates decrease. 
D) the perceived riskiness of the stock increases. 
A) expected future dividends decrease. 
B) the expected future price of the stock decreases. 
C) interest rates decrease. 
D) the perceived riskiness of the stock increases.

Question 5

Purchases of foreign assets by domestic firms or households is called a:

Accepted Answer

A) trade surplus. 
B) trade deficit. 
C) capital outflow. 
D) capital inflow. 
A) trade surplus. 
B) trade deficit. 
C) capital outflow. 
D) capital inflow.

Question 6

Net exports plus net capital inflows equal:

Accepted Answer

A) net capital outflows. 
B) the international trade gap. 
C) zero. 
D) the trade balance. 
A) net capital outflows. 
B) the international trade gap. 
C) zero. 
D) the trade balance.

Question 7

From the point of view of a particular country, capital inflows are:

Accepted Answer

A) purchases of domestic goods or services by foreigners. 
B) purchases of domestic assets by foreigners. 
C) purchases of foreign goods or services by domestic households or firms. 
D) purchases of foreign assets by domestic households or firms. 
A) purchases of domestic goods or services by foreigners. 
B) purchases of domestic assets by foreigners. 
C) purchases of foreign goods or services by domestic households or firms. 
D) purchases of foreign assets by domestic households or firms.

Question 8

From the point of view of a particular country, capital outflows are:

Accepted Answer

A) purchases of domestic goods or services by foreigners. 
B) purchases of domestic assets by foreigners. 
C) purchases of foreign goods or services by domestic households or firms. 
D) purchases of foreign assets by domestic households or firms. 
A) purchases of domestic goods or services by foreigners. 
B) purchases of domestic assets by foreigners. 
C) purchases of foreign goods or services by domestic households or firms. 
D) purchases of foreign assets by domestic households or firms.

Question 9

Decentralized market-based financial systems improve the allocation of saving by:

Accepted Answer

A) ensuring capital gains exceed dividend payments. 
B) eliminating the need for commercial banks or other financial intermediaries. 
C) matching net capital inflows to net capital outflows. 
D) providing information and risk-sharing services. 
A) ensuring capital gains exceed dividend payments. 
B) eliminating the need for commercial banks or other financial intermediaries. 
C) matching net capital inflows to net capital outflows. 
D) providing information and risk-sharing services.

Question 10

If domestic saving is greater than domestic investment, then a country will have a ________ and positive net capital ________.

Accepted Answer

A) trade deficit; outflows 
B) trade deficit; inflows 
C) trade surplus; inflows 
D) trade surplus; outflows 
A) trade deficit; outflows 
B) trade deficit; inflows 
C) trade surplus; inflows 
D) trade surplus; outflows

Question 11

You expect a share of EconNews.Com to sell for $65 a year from now. If you are willing to pay $61.06 for one share of the stock today, you expect a dividend payment of $4, and the rate of return on safe assets is 5 percent, how much is your risk premium?

Accepted Answer

A) 1.5 percent 
B) 6.5 percent 
C) 8.0 percent 
D) 13.0 percent 
A) 1.5 percent 
B) 6.5 percent 
C) 8.0 percent 
D) 13.0 percent

Question 12

Chris pays $10,000 for a newly issued two-year government bond with a $10,000 face value and a 6 percent coupon rate. One year later, after receiving the first coupon payment, Chris sells the bond. If the current one-year interest rate on government bonds is 7 percent, then the price Chris receives is:

Accepted Answer

A) $10,000. 
B) $700. 
C) greater than $10,000. 
D) less than $10,000. 
A) $10,000. 
B) $700. 
C) greater than $10,000. 
D) less than $10,000.

Question 13

A trade surplus occurs when:

Accepted Answer

A) exports exceed imports. 
B) imports exceed exports. 
C) tariffs exceed quotas. 
D) quotas exceed tariffs. 
A) exports exceed imports. 
B) imports exceed exports. 
C) tariffs exceed quotas. 
D) quotas exceed tariffs.

Question 14

Firms that extend credit to borrowers using funds raised from savers are called:

Accepted Answer

A) bond dealers. 
B) stock brokers. 
C) central banks. 
D) financial intermediaries. 
A) bond dealers. 
B) stock brokers. 
C) central banks. 
D) financial intermediaries.

Question 15

You originally required a risk premium of 6 percent in addition to the rate of return on safe assets before you would purchase shares of Techno Company stock. If you and other investors reduce the risk premium you require to 4 percent, the price of Techno Company stock will:

Accepted Answer

A) increase. 
B) decrease. 
C) equal the old risk premium plus the new risk premium. 
D) equal the new risk premium plus the rate of return on safe assets. 
A) increase. 
B) decrease. 
C) equal the old risk premium plus the new risk premium. 
D) equal the new risk premium plus the rate of return on safe assets.

Question 16

The coupon rate is the:

Accepted Answer

A) amount originally lent. 
B) regular payment of interest to a bondholder. 
C) interest rate promised when a bond is issued. 
D) maximum interest rate that can be paid on a bond. 
A) amount originally lent. 
B) regular payment of interest to a bondholder. 
C) interest rate promised when a bond is issued. 
D) maximum interest rate that can be paid on a bond.

Question 17

The principal amount of a bond is the amount:

Accepted Answer

A) originally lent. 
B) of interest agreed upon when the bond was originally issued. 
C) paid to the bondholders on a regular basis. 
D) of interest the bondholder is entitled to when the bond matures. 
A) originally lent. 
B) of interest agreed upon when the bond was originally issued. 
C) paid to the bondholders on a regular basis. 
D) of interest the bondholder is entitled to when the bond matures.

Question 18

Financial intermediaries, such as commercial banks, provide benefits to:

Accepted Answer

A) savers only. 
B) borrowers only. 
C) the government only. 
D) both savers and borrowers. 
A) savers only. 
B) borrowers only. 
C) the government only. 
D) both savers and borrowers.

Question 19

Savers may prefer to use financial intermediaries rather than lending directly to borrowers because financial intermediaries:

Accepted Answer

A) reduce the cost of gathering information about borrowers. 
B) have a monopoly on lending. 
C) increase the risk of lending. 
D) offer higher rates of return than available elsewhere. 
A) reduce the cost of gathering information about borrowers. 
B) have a monopoly on lending. 
C) increase the risk of lending. 
D) offer higher rates of return than available elsewhere.

Question 20

If the principal amount of a bond is $2,000,000, the coupon rate is 6 percent , and the inflation rate is 4 percent, then the annual coupon payment made to the holder of the bond is:

Accepted Answer

A) $12,000. 
B) $40,000. 
C) $80,000. 
D) $120,000. 
A) $12,000. 
B) $40,000. 
C) $80,000. 
D) $120,000.

Exam 23: Financial Markets and International Capital Flows

When exports exceed imports there is a(n):

In an open economy, the domestic real interest rate is determined by:

The practice of spreading one's wealth over a variety of different financial investments in order to reduce overall risk is called:

The current price of a stock increases when:

Purchases of foreign assets by domestic firms or households is called a:

Net exports plus net capital inflows equal:

From the point of view of a particular country, capital inflows are:

From the point of view of a particular country, capital outflows are:

Decentralized market-based financial systems improve the allocation of saving by:

If domestic saving is greater than domestic investment, then a country will have a ________ and positive net capital ________.

You expect a share of EconNews.Com to sell for $65 a year from now. If you are willing to pay $61.06 for one share of the stock today, you expect a dividend payment of $4, and the rate of return on safe assets is 5 percent, how much is your risk premium?

A trade surplus occurs when:

Firms that extend credit to borrowers using funds raised from savers are called:

You originally required a risk premium of 6 percent in addition to the rate of return on safe assets before you would purchase shares of Techno Company stock. If you and other investors reduce the risk premium you require to 4 percent, the price of Techno Company stock will:

The coupon rate is the:

The principal amount of a bond is the amount:

Financial intermediaries, such as commercial banks, provide benefits to:

Savers may prefer to use financial intermediaries rather than lending directly to borrowers because financial intermediaries:

If the principal amount of a bond is $2,000,000, the coupon rate is 6 percent , and the inflation rate is 4 percent, then the annual coupon payment made to the holder of the bond is:

Thinking Like an Economist

Comparative Advantage

Supply and Demand

Elasticity

Demand

Perfectly Competitive Supply

Efficiency, Exchange, and the Invisible Hand in Action

Monopoly, Oligopoly, and Monopolistic Competition

Games and Strategic Behavior

An Introduction to Behavioral Economics

Externalities, Property Rights, and the Environment

The Economics of Information

Labor Markets, Poverty, and Income Distribution

Public Goods and Tax Policy

International Trade and Trade Policy

Macroeconomics: The Birds Eye View of the Economy

Measuring Economic Activity: GDP and Unemployment

Measuring the Price Level and Inflation

Economic Growth, Productivity, and Living Standards

The Labor Market: Workers, Wages, and Unemployment

Saving and Capital Formation

Money Prices and the Federal Reserve

Short-Term Economic Fluctuations: An Introduction

Spending and Output in the Short Run

Stabilizing the Economy: The Role of the Fed

Aggregate Demand, Aggregate Supply, and Inflation

Exchange Rates and the Open Economy

Filters

If domestic saving is greater than domestic investment, then a country will have a and positive net capital .