Question 1

Use the saving and investment equation to explain why the United States experienced large current account deficits in the late 1990s.

Accepted Answer

Investment in the United States was grea

Question 2

If the United States has a net export surplus, which of the following must be true?

Accepted Answer

A)  The balance on the financial account must equal the balance on the current account. 
B)  Net foreign investment must be positive as well. 
C)  Domestic private saving must be greater than net foreign investment. 
D)  Domestic public saving must be greater than net foreign investment. 
A)  The balance on the financial account must equal the balance on the current account. 
B)  Net foreign investment must be positive as well. 
C)  Domestic private saving must be greater than net foreign investment. 
D)  Domestic public saving must be greater than net foreign investment.

Question 3

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 
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 4

Which of the following is true about the occurrence of the twin deficits?

Accepted Answer

A)  They always occur together. 
B)  They only occur when exchange rates are fixed. 
C)  They did not occur after 1990 in the United States. 
D)  They occur consistently in all the economies of the world except the United States. 
A)  They always occur together. 
B)  They only occur when exchange rates are fixed. 
C)  They did not occur after 1990 in the United States. 
D)  They occur consistently in all the economies of the world except the United States.

Question 5

The United States has a closed economy.

Accepted Answer

A) True 
 B)False

Question 6

How might a U.S. federal budget surplus affect the balance of trade? (Assume exchange rates are stated in terms of foreign currency per U.S. dollar.)

Accepted Answer

A)  A federal budget surplus raises interest rates, which raises exchange rates, and increases the balance of trade. 
B)  A federal budget surplus raises interest rates, which raises exchange rates, and reduces the balance of trade. 
C)  A federal budget surplus reduces interest rates, which raises exchange rates, and reduces the balance of trade. 
D)  A federal budget surplus reduces interest rates, which reduces exchange rates and increases the balance of trade. 
A)  A federal budget surplus raises interest rates, which raises exchange rates, and increases the balance of trade. 
B)  A federal budget surplus raises interest rates, which raises exchange rates, and reduces the balance of trade. 
C)  A federal budget surplus reduces interest rates, which raises exchange rates, and reduces the balance of trade. 
D)  A federal budget surplus reduces interest rates, which reduces exchange rates and increases the balance of trade.

Question 7

What effect does a depreciation of the dollar have on real GDP in the United States in the short run?

Accepted Answer

A)  Real GDP will fall. 
B)  Real GDP will rise. 
C)  Real GDP will be unaffected by the depreciation of the dollar. 
D)  Real GDP will be unchanged, but nominal GDP will rise. 
A)  Real GDP will fall. 
B)  Real GDP will rise. 
C)  Real GDP will be unaffected by the depreciation of the dollar. 
D)  Real GDP will be unchanged, but nominal GDP will rise.

Question 8

How will contractionary monetary policy in Japan affect the demand and supply of the yen in the foreign exchange market?

Accepted Answer

A)  The demand for the yen will fall, and the supply of the yen will increase. 
B)  The demand for the yen will increase, and the supply of the yen will fall. 
C)  The demand for the yen will fall, and the supply of the yen will fall. 
D)  The demand for the yen will increase, and the supply of the yen will increase. 
A)  The demand for the yen will fall, and the supply of the yen will increase. 
B)  The demand for the yen will increase, and the supply of the yen will fall. 
C)  The demand for the yen will fall, and the supply of the yen will fall. 
D)  The demand for the yen will increase, and the supply of the yen will increase.

Question 9

If the exchange rate changes from $1.45 = 1 euro to $1.37 = 1 euro, then

Accepted Answer

A)  both the euro and dollar have appreciated. 
B)  both the euro and dollar have depreciated. 
C)  the euro has appreciated and the dollar has depreciated. 
D)  the euro has depreciated and the dollar has appreciated. 
A)  both the euro and dollar have appreciated. 
B)  both the euro and dollar have depreciated. 
C)  the euro has appreciated and the dollar has depreciated. 
D)  the euro has depreciated and the dollar has appreciated.

Question 10

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

Question 11

What impact might an increase in the budget deficit have on interest rates and exchange rates?

Accepted Answer

A)  Interest rates and exchange rates increase. 
B)  Interest rates increase and exchange rates decrease. 
C)  Interest rates decrease and exchange rates increase. 
D)  Interest rates and exchange rates decrease. 
A)  Interest rates and exchange rates increase. 
B)  Interest rates increase and exchange rates decrease. 
C)  Interest rates decrease and exchange rates increase. 
D)  Interest rates and exchange rates decrease.

Question 12

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

If Americans are demanding fewer British

Question 13

An increase in United States net foreign direct investment would occur if

Accepted Answer

A)  United States citizens have increased the value of foreign stocks and bonds they own. 
B)  United States citizens have increased their building or purchasing of facilities in foreign countries. 
C)  net foreign investment increases. 
D)  net capital flows decrease. 
A)  United States citizens have increased the value of foreign stocks and bonds they own. 
B)  United States citizens have increased their building or purchasing of facilities in foreign countries. 
C)  net foreign investment increases. 
D)  net capital flows decrease.

Question 14

An appreciating yen makes Japanese products

Accepted Answer

A)  more expensive in foreign markets. 
B)  less expensive in foreign markets. 
C)  more expensive in the Japanese market. 
D)  more expensive in both foreign markets and the Japanese market. 
A)  more expensive in foreign markets. 
B)  less expensive in foreign markets. 
C)  more expensive in the Japanese market. 
D)  more expensive in both foreign markets and the Japanese market.

Question 15

If national saving increases, ________. (Assume that the capital account is zero and net transfers are zero.)

Accepted Answer

A)  the sum of domestic investment and net exports must decrease 
B)  the sum of domestic investment and foreign investment must increase 
C)  the sum of domestic investment and foreign investment must decrease 
D)  foreign investment must decrease to cover the gain 
A)  the sum of domestic investment and net exports must decrease 
B)  the sum of domestic investment and foreign investment must increase 
C)  the sum of domestic investment and foreign investment must decrease 
D)  foreign investment must decrease to cover the gain

Question 16

The saving and investment equation holds only when the federal budget is balanced.

Accepted Answer

A) True 
 B)False

Question 17

If a country has a fixed exchange rate,

Accepted Answer

A)  the equilibrium exchange rate in that market does not respond to changes in supply and demand for currency. 
B)  central banks have more control over real GDP in the economy. 
C)  central banks must buy and sell their holdings of currencies to maintain a given exchange rate. 
D)  the exchange rate is allowed to fluctuate in response to changes in the supply and demand for currency. 
A)  the equilibrium exchange rate in that market does not respond to changes in supply and demand for currency. 
B)  central banks have more control over real GDP in the economy. 
C)  central banks must buy and sell their holdings of currencies to maintain a given exchange rate. 
D)  the exchange rate is allowed to fluctuate in response to changes in the supply and demand for currency.

Question 18

Following a tax cut by government, domestic investment will ________ and net exports will ________.

Accepted Answer

A)  increase; increase 
B)  increase; decrease 
C)  decrease; increase 
D)  decrease; decrease 
A)  increase; increase 
B)  increase; decrease 
C)  decrease; increase 
D)  decrease; decrease

Question 19

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

Accepted Answer

A)  an increase in foreign direct investment 
B)  an increase in the amount of aid money the government sends abroad 
C)  an increase in imports 
D)  an increase in the balance of trade 
A)  an increase in foreign direct investment 
B)  an increase in the amount of aid money the government sends abroad 
C)  an increase in imports 
D)  an increase in the balance of trade

Question 20

Suppose the U.S. Congress is successful in enacting tariffs large enough to eliminate the current account deficit. What would happen to the level of domestic investment?

Accepted Answer

A)  It would not change. 
B)  It would rise and exceed national saving. 
C)  It would rise to a level equal to net foreign investment. 
D)  It would fall to a level equal to national saving. 
A)  It would not change. 
B)  It would rise and exceed national saving. 
C)  It would rise to a level equal to net foreign investment. 
D)  It would fall to a level equal to national saving.

Exam 29: Macroeconomics in an Open Economy

Use the saving and investment equation to explain why the United States experienced large current account deficits in the late 1990s.

If the United States has a net export surplus, which of the following must be true?

Which of the following would cause the dollar to depreciate?

Which of the following is true about the occurrence of the twin deficits?

The United States has a closed economy.

How might a U.S. federal budget surplus affect the balance of trade? (Assume exchange rates are stated in terms of foreign currency per U.S. dollar.)

What effect does a depreciation of the dollar have on real GDP in the United States in the short run?

How will contractionary monetary policy in Japan affect the demand and supply of the yen in the foreign exchange market?

If the exchange rate changes from $1.45 = 1 euro to $1.37 = 1 euro, then

Net foreign investment minus net foreign portfolio investment is equal to

What impact might an increase in the budget deficit have on interest rates and exchange rates?

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.

An increase in United States net foreign direct investment would occur if

An appreciating yen makes Japanese products

If national saving increases, ________. (Assume that the capital account is zero and net transfers are zero.)

The saving and investment equation holds only when the federal budget is balanced.

If a country has a fixed exchange rate,

Following a tax cut by government, domestic investment will ________ and net exports will ________.

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

Suppose the U.S. Congress is successful in enacting tariffs large enough to eliminate the current account deficit. What would happen to the level of domestic investment?

Economics: Foundations and Models

Trade-Offs, Comparative Advantage, and the Market System

Where Prices Come From: the Interaction of Demand and Supply

Economic Efficiency, Government Price Setting, and Taxes

Externalities, Environmental Policy, and Public Goods

Elasticity: the Responsiveness of Demand and Supply

The Economics of Health Care

Firms, the Stock Market, and Corporate Governance

Comparative Advantage and the Gains From International Trade

Consumer Choice and Behavioral Economics

Technology, Production, and Costs

Firms in Perfectly Competitive Markets

Monopolistic Competition: the Competitive Model in a More Realistic Setting

Oligopoly: Firms in Less Competitive Markets

Monopoly and Antitrust Policy

Pricing Strategy

The Markets for Labor and Other Factors of Production

Public Choice, Taxes, and the Distribution of Income

GDP: Measuring Total Production and Income

Unemployment and Inflation

Economic Growth, the Financial System, and Business Cycles

Long-Run Economic Growth: Sources and Policies

Aggregate Expenditure and Output in the Short Run

Aggregate Demand and Aggregate Supply Analysis

Money, Banks, and the Federal Reserve System

Monetary Policy

Fiscal Policy

Inflation, Unemployment, and Federal Reserve Policy

The International Financial System

Filters

Following a tax cut by government, domestic investment will and net exports will .