Question 1

Which of the following could be a consequence of a depreciation of the U.S. real exchange rate?

Accepted Answer

A) John, a French citizen, decides that Iowa pork has become too expensive and cancels his order. 
B) Nick, a U.S. citizen, decides that the trip to Nepal he's been thinking about is now made affordable by the depreciation. 
C) Roberta, a U.S. citizen, decides to import fewer windshield wipers for her auto parts company. 
D) All of the above are correct. 
A) John, a French citizen, decides that Iowa pork has become too expensive and cancels his order. 
B) Nick, a U.S. citizen, decides that the trip to Nepal he's been thinking about is now made affordable by the depreciation. 
C) Roberta, a U.S. citizen, decides to import fewer windshield wipers for her auto parts company. 
D) All of the above are correct.

Question 2

Other things the same, a country could move from having a trade deficit to having a trade surplus if either

Accepted Answer

A) saving rose or domestic investment rose. 
B) saving rose or domestic investment fell. 
C) saving fell or domestic investment rose. 
D) saving fell or domestic investment fell. 
A) saving rose or domestic investment rose. 
B) saving rose or domestic investment fell. 
C) saving fell or domestic investment rose. 
D) saving fell or domestic investment fell.

Question 3

A country has $30 billion of domestic investment and net capital outflows of -$20 billion. What is the country's saving?

Accepted Answer

A) -$50 billion 
B) -$10 billion 
C) $10 billion 
D) $50 billion 
A) -$50 billion 
B) -$10 billion 
C) $10 billion 
D) $50 billion

Question 4

Other things the same, an increase in foreign prices raises the real exchange rate.

Accepted Answer

A) True 
 B)False

Question 5

Other things the same, which of the following could explain a rise in Sweden's net capital outflow?

Accepted Answer

A) interest rates on Swedish bonds rise 
B) the probability of default on Swedish bonds rises 
C) Sweden enacts a law reducing taxes on income earned by foreign-owned businesses operating in Sweden 
D) None of the above are correct. 
A) interest rates on Swedish bonds rise 
B) the probability of default on Swedish bonds rises 
C) Sweden enacts a law reducing taxes on income earned by foreign-owned businesses operating in Sweden 
D) None of the above are correct.

Question 6

The large trade deficits in the United States in the 1990s were primarily associated with a rise in domestic investment rather than a rise in the budget deficit.

Accepted Answer

A) True 
 B)False

Question 7

If a country has a trade deficit

Accepted Answer

A) it has positive net exports and positive net capital outflow. 
B) it has positive net exports and negative net capital outflow. 
C) it has negative net exports and positive net capital outflow. 
D) it has negative net exports and negative net capital outflow. 
A) it has positive net exports and positive net capital outflow. 
B) it has positive net exports and negative net capital outflow. 
C) it has negative net exports and positive net capital outflow. 
D) it has negative net exports and negative net capital outflow.

Question 8

Which of the following statements is incorrect for an open economy?

Accepted Answer

A) A country can have a trade deficit, trade surplus, or balanced trade. 
B) A country that has a trade deficit has positive net capital outflow. 
C) Net exports must equal net capital outflow. 
D) National saving equals domestic investment plus net capital outflow. 
A) A country can have a trade deficit, trade surplus, or balanced trade. 
B) A country that has a trade deficit has positive net capital outflow. 
C) Net exports must equal net capital outflow. 
D) National saving equals domestic investment plus net capital outflow.

Question 9

A country has net capital outflow of -10 billion euros and domestic investment of 20 billion euros. What is its national saving?

Accepted Answer

A) 30 billion euros 
B) 10 billion euros 
C) -10 billion euros 
D) -30 billion euros 
A) 30 billion euros 
B) 10 billion euros 
C) -10 billion euros 
D) -30 billion euros

Question 10

Which of the following is an example of U.S. foreign direct investment?

Accepted Answer

A) A Greek company opens a cheese factory in the U.S. 
B) A German mutual fund buys stock issued by a U.S. corporation. 
C) A U.S. beverage company opens a bottling plant in Russia. 
D) A U.S. bank buys bonds issued by an Argentinean company. 
A) A Greek company opens a cheese factory in the U.S. 
B) A German mutual fund buys stock issued by a U.S. corporation. 
C) A U.S. beverage company opens a bottling plant in Russia. 
D) A U.S. bank buys bonds issued by an Argentinean company.

Question 11

Use the (hypothetical) information in the following table to answer the following questions.Table 18-2
 $\begin{array}{|l|l|c|l|c}
\hline \text { Country } & \text { Currency } & \begin{array}{l}
\text { Currency per } \
\text { U.S. Dollar }
\end{array} & \begin{array}{l}
\text { U.S. Price } \
\text { Index }
\end{array} & \begin{array}{l}
\text { Country Price } \
\text { Index }
\end{array} \
\hline \text { Bolivia } & \text { boloviano } & 8.00 & 200 & 1600 \
\hline \text { Japan } & \text { yen } & 80.00 & 200 & 20,000 \
\hline \text { Morocco } & \text { dinar } & 10.00 & 200 & 2,000 \
\hline \text { Norwegian } & \text { kroner } & 6.5 & 200 & 1,500 \
\hline \text { Thailand } & \text { baht } & 40.00 & 200 & 7,000 \
\hline
\end{array}$

-Refer to Table 18-2. In real terms, U.S. goods are less expensive than goods in which country(ies)?

Accepted Answer

A) Bolivia and Morocco 
B) Japan, Norway, and Thailand 
C) Japan and Norway 
D) Thailand 
A) Bolivia and Morocco 
B) Japan, Norway, and Thailand 
C) Japan and Norway 
D) Thailand

Question 12

The country of Sylvania has a GDP of $900, investment of $200, government purchases of $200, and net capital outflow of -$100. What is consumption?

Accepted Answer

A) $700 
B) $600 
C) $500 
D) $300 
A) $700 
B) $600 
C) $500 
D) $300

Question 13

Sonya, a citizen of Denmark, produces boots and shoes that she sells to department stores in the United States. Other things the same, these sales

Accepted Answer

A) increase U.S. net exports and have no effect on Danish net exports. 
B) decrease U.S. net exports and have no effect on Danish net exports. 
C) increase U.S. net exports and decrease Danish net exports. 
D) decrease U.S. net exports and increase Danish net exports. 
A) increase U.S. net exports and have no effect on Danish net exports. 
B) decrease U.S. net exports and have no effect on Danish net exports. 
C) increase U.S. net exports and decrease Danish net exports. 
D) decrease U.S. net exports and increase Danish net exports.

Question 14

A country's saving is greater than its domestic investment. This difference means that its

Accepted Answer

A) net capital outflow and net exports are positive. 
B) net capital outflow and net exports are negative. 
C) net capital outflow is positive and net exports are negative. 
D) net capital outflow is negative and net exports are positive. 
A) net capital outflow and net exports are positive. 
B) net capital outflow and net exports are negative. 
C) net capital outflow is positive and net exports are negative. 
D) net capital outflow is negative and net exports are positive.

Question 15

A country has $45 million of domestic investment and net capital outflow of -$60 million. What is its saving?

Accepted Answer

A) $15 million. 
B) -$15 million. 
C) $105 million. 
D) -$105 million. 
A) $15 million. 
B) -$15 million. 
C) $105 million. 
D) -$105 million.

Question 16

From 1980 to 1987

Accepted Answer

A) foreigners were buying more capital assets from the United States than Americans were buying abroad. The United States was going into debt. 
B) Americans were buying more capital assets abroad than foreigners were buying from the United States. The United States was going into debt. 
C) foreigners were buying more capital assets from the United States than Americans were buying abroad. The United States was moving into surplus. 
D) Americans were buying more capital assets abroad than foreigners were buying from the United States. The United States was moving into surplus. 
A) foreigners were buying more capital assets from the United States than Americans were buying abroad. The United States was going into debt. 
B) Americans were buying more capital assets abroad than foreigners were buying from the United States. The United States was going into debt. 
C) foreigners were buying more capital assets from the United States than Americans were buying abroad. The United States was moving into surplus. 
D) Americans were buying more capital assets abroad than foreigners were buying from the United States. The United States was moving into surplus.

Question 17

A firm in India hires a U.S. firm to provide economic forecasts. By itself this transaction

Accepted Answer

A) increases U.S. exports and so increases the U.S. trade balance. 
B) increases U.S. exports and so decreases the U.S. trade balance. 
C) increases U.S. imports and so increases the U.S. trade balance. 
D) increases U.S. imports and so decreases the U.S. trade balance. 
A) increases U.S. exports and so increases the U.S. trade balance. 
B) increases U.S. exports and so decreases the U.S. trade balance. 
C) increases U.S. imports and so increases the U.S. trade balance. 
D) increases U.S. imports and so decreases the U.S. trade balance.

Question 18

The value of Peru's exports minus the value of Peru's imports is called

Accepted Answer

A) Peru's foreign portfolio investment. 
B) Peru's foreign direct investment. 
C) Peru's net exports. 
D) Peru's net imports. 
A) Peru's foreign portfolio investment. 
B) Peru's foreign direct investment. 
C) Peru's net exports. 
D) Peru's net imports.

Question 19

A country purchases $3 billion of foreign-produced goods and services and sells $2 billion dollars of domestically produced goods and services to foreign countries. It has

Accepted Answer

A) exports of $3 billion and a trade surplus of $1 billion. 
B) exports of $3 billion and a trade deficit of $1 billion. 
C) exports of $2 billion and a trade surplus of $1 billion. 
D) exports of $2 billion and a trade deficit of $1 billion. 
A) exports of $3 billion and a trade surplus of $1 billion. 
B) exports of $3 billion and a trade deficit of $1 billion. 
C) exports of $2 billion and a trade surplus of $1 billion. 
D) exports of $2 billion and a trade deficit of $1 billion.

Question 20

Ivan, a Russian citizen, sells several hundred cases of caviar to a restaurant chain in the United States. By itself, this sale

Accepted Answer

A) increases U.S. net exports and decreases Russian net exports. 
B) increases U.S. net exports and has no effect on Russian net exports. 
C) decreases U.S. net exports and increases Russian net exports. 
D) decreases U.S. net exports and has no effect on Russian net exports. 
A) increases U.S. net exports and decreases Russian net exports. 
B) increases U.S. net exports and has no effect on Russian net exports. 
C) decreases U.S. net exports and increases Russian net exports. 
D) decreases U.S. net exports and has no effect on Russian net exports.

Exam 18: Open-Economy Macroeconomic Models

Which of the following could be a consequence of a depreciation of the U.S. real exchange rate?

Other things the same, a country could move from having a trade deficit to having a trade surplus if either

A country has $30 billion of domestic investment and net capital outflows of -$20 billion. What is the country's saving?

Other things the same, an increase in foreign prices raises the real exchange rate.

Other things the same, which of the following could explain a rise in Sweden's net capital outflow?

The large trade deficits in the United States in the 1990s were primarily associated with a rise in domestic investment rather than a rise in the budget deficit.

If a country has a trade deficit

Which of the following statements is incorrect for an open economy?

A country has net capital outflow of -10 billion euros and domestic investment of 20 billion euros. What is its national saving?

Which of the following is an example of U.S. foreign direct investment?

The country of Sylvania has a GDP of $900, investment of $200, government purchases of $200, and net capital outflow of -$100. What is consumption?

Sonya, a citizen of Denmark, produces boots and shoes that she sells to department stores in the United States. Other things the same, these sales

A country's saving is greater than its domestic investment. This difference means that its

A country has $45 million of domestic investment and net capital outflow of -$60 million. What is its saving?

From 1980 to 1987

A firm in India hires a U.S. firm to provide economic forecasts. By itself this transaction

The value of Peru's exports minus the value of Peru's imports is called

A country purchases $3 billion of foreign-produced goods and services and sells $2 billion dollars of domestically produced goods and services to foreign countries. It has

Ivan, a Russian citizen, sells several hundred cases of caviar to a restaurant chain in the United States. By itself, this sale

Ten Principles of Economics

Thinking Like an Economist

Interdependence and the Gains From Trade

The Market Forces of Supply and Demand

Elasticity and Its Application

Supply, Demand, and Government Policies

Consumers, Producers, and the Efficiency of Markets

Application: The Costs of Taxation

Application: International Trade

Measuring a Nations Income

Measuring the Cost of Living

Production and Growth

Saving, Investment, and the Financial System

The Basic Tools of Finance

Unemployment

The Monetary System

Money Growth and Inflation

A Macroeconomic Theory of the Open Economy

Aggregate Demand and Aggregate Supply

The Influence of Monetary and Fiscal Policy on Aggregate Demand

The Short-Run Trade-Off Between Inflation and Unemployment

Six Debates Over Macroeconomic Policy

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