Question 1

A trade surplus occurs when a country:

Accepted Answer

A)   imports more than it exports.
B)   imports less than it exports.
C)   has a negative balance of trade.
D)   has a zero balance of trade.E) C) and D)
F) A) and C)

Question 2

Which institution is responsible for maintaining international monetary stability?

Accepted Answer

A)   The International Monetary Fund
B)   The World Bank
C)   The United Nations
D)   The World Trade OrganizationE) All of the above
F) B) and C)

Question 3

Suppose the cost of a typical basket of goods is 100dollarsin the United States and €200 in France. If the nominal exchange rate is 1 euro per dollar, what is the real exchange rate?

Accepted Answer

A)   0.5
B)   1.0
C)   1.5
D)   2.0E) A) and D)
F) A) and C)

Question 4

The balance-of-payments identity shows that the value of:

Accepted Answer

A)   net exports equals the net capital outflow.
B)   the net capital inflow equals the net capital outflow.
C)   imports equals exports.
D)   payments from a country exceeds payments to a country.E) None of the above
F) B) and D)

Question 5

One reason for the huge Chinese investment in the U.S. economy is:

Accepted Answer

A)   China's desire to control the U.S. economy.
B)   the high rates of return on U.S. government securities.
C)   the large savings rate in China, which encourages capital outflow.
D)   the low savings rate in China, which makes the cost of borrowing very low.E) All of the above
F) None of the above

Question 6

The largest category of U.S. exports is:

Accepted Answer

A)   telecommunications equipment.
B)   automotive goods.
C)   capital goods.
D)   consumer goods.E) A) and C)
F) A) and B)

Question 7

Opportunities for arbitrage in foreign exchange markets throughout the world are:

Accepted Answer

A)   available only in the lag period between the opening of different markets around the world.
B)   plentiful, particularly in markets trading in U.S. dollars.
C)   fleeting because technology enables trading that quickly eliminates these opportunities.
D)   non-existent, as government regulations restrict arbitrage.E) None of the above
F) B) and D)

Question 8

Jose, who lives in Texas, buys bonbons made in France for $25. At the same time, the French chocolatier buys stock in IBM for $25. Which of the following statements describes the effect these transactions have on France's balance of trade and payments?

Accepted Answer

A)   Net exports and net capital outflow are both zero.
B)   Net exports and net capital outflow both equal $25.
C)   Net exports are zero and net capital outflow equals $25.
D)   Net exports equal $25 and net capital outflow is zero.E) None of the above
F) A) and D)

Question 9

Investments in a person's home country are called _______, while foreign investments are called _______.

Accepted Answer

A)   investment; net capital outflow
B)   investment; net exports
C)   savings; investment
D)   savings; net capital outflowE) None of the above
F) C) and D)

Question 10

Which of the following would not cause the supply of U.S. dollars in the forex market to increase?

Accepted Answer

A)   U.S. interest rates are low relative to foreign interest rates.
B)   Investors' confidence in foreign economies increases.
C)   U.S. consumers prefer foreign goods to U.S. goods.
D)   Investors' confidence in U.S. investments increases.E) A) and C)
F) None of the above

Question 11

When the Fed practices contractionary monetary policy, the interest rate _______ and the exchange rate _______ as a result.

Accepted Answer

A)   rises; appreciates
B)   rises; depreciates
C)   falls; appreciates
D)   falls; depreciatesE) A) and D)
F) A) and C)

Question 12

The Chinese buy a large amount of U.S. government debt because:

Accepted Answer

A)   they have dollars left over from the sale of their goods to the United States and want to buy something dollar denominated.
B)   the U.S. government subsidizes foreign purchases of debt.
C)   the rate of return for U.S. government bonds is higher than many other investments.
D)   owning U.S. debt is a sign of economic prosperity for the Chinese.E) A) and B)
F) B) and D)

Question 13

The price Americans pay for Mexican pesos is the:

Accepted Answer

A)   exchange rate.
B)   interest rate.
C)   savings rate.
D)   prime rate.E) A) and C)
F) A) and B)

Question 14

When Rani, who lives in New York, buys stock in Hyundai, a Korean company, U.S. net capital outflow:

Accepted Answer

A)   decreases.
B)   is unaffected.
C)   increases.
D)   becomes zero.E) B) and C)
F) A) and B)

Question 15

Net capital outflow equals:

Accepted Answer

A)   capital inflow minus capital outflow.
B)   capital outflow minus capital inflow.
C)   capital outflow plus capital inflow.
D)   capital inflow divided by capital outflow.E) A) and B)
F) A) and D)

Question 16

Harold gifts his nephew stock in Samsung for his birthday. The stock is an example of:

Accepted Answer

A)   foreign direct investment.
B)   foreign portfolio investment.
C)   foreign import investment.
D)   foreign export investment.E) A) and B)
F) B) and C)

Question 17

It is impossible to conduct _______ policy and maintain a _______ exchange rate.

Accepted Answer

A)   monetary; fixed
B)   monetary; floating
C)   fiscal; fixed
D)   fiscal; floatingE) B) and C)
F) C) and D)

Question 18

Josh runs a maple syrup business in Vermont and decides to hire two people in India to maintain his company's bookkeeping electronically. Josh's hiring decision is an example of:

Accepted Answer

A)   foreign portfolio investment.
B)   foreign direct investment.
C)   foreign import investment.
D)   foreign export investment.E) None of the above
F) A) and B)

Question 19

Wes, who lives in Wisconsin, buys $200 worth of stock in Toshiba, a Japanese company. At the same time, Kyohei, who lives in Japan, buys a wheel of cheese from Wisconsin. Which of the following statements describes the effect these transactions have on the U.S. balance of trade and payments?

Accepted Answer

A)   Net exports and net capital outflow are both zero.
B)   Net exports and net capital outflow both equal $200.
C)   Net exports are zero and net capital outflow equals $200.
D)   Net exports equal $200 and net capital outflow is zero.E) A) and D)
F) C) and D)

Question 20

Which of the following is not a reason foreign investment can be economically beneficial?

Accepted Answer

A)   It increases the GDP of the host country by giving it access to additional resources.
B)   It increases the GDP of the investing country by providing it with ways to earn higher returns on its capital.
C)   It makes the world a more efficient place by moving capital from places with low returns to places with high returns.
D)   It always leads to a higher interest rate.E) C) and D)
F) B) and D)

Exam 18: Open-Marketmacroeconomics

The price Americans pay for Mexican pesos is the:

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A trade surplus occurs when a country:

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The Chinese buy a large amount of U.S. government debt because:

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When the Fed practices contractionary monetary policy, the interest rate _______ and the exchange rate _______ as a result.

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Suppose the cost of a typical basket of goods is 100dollarsin the United States and €200 in France. If the nominal exchange rate is 1 euro per dollar, what is the real exchange rate?

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The balance-of-payments identity shows that the value of:

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Which institution is responsible for maintaining international monetary stability?

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When Rani, who lives in New York, buys stock in Hyundai, a Korean company, U.S. net capital outflow:

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Which of the following would not cause the supply of U.S. dollars in the forex market to increase?

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Net capital outflow equals:

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Investments in a person's home country are called _______, while foreign investments are called _______.

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Jose, who lives in Texas, buys bonbons made in France for $25. At the same time, the French chocolatier buys stock in IBM for $25. Which of the following statements describes the effect these transactions have on France's balance of trade and payments?

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Josh runs a maple syrup business in Vermont and decides to hire two people in India to maintain his company's bookkeeping electronically. Josh's hiring decision is an example of:

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Wes, who lives in Wisconsin, buys $200 worth of stock in Toshiba, a Japanese company. At the same time, Kyohei, who lives in Japan, buys a wheel of cheese from Wisconsin. Which of the following statements describes the effect these transactions have on the U.S. balance of trade and payments?

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Opportunities for arbitrage in foreign exchange markets throughout the world are:

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It is impossible to conduct _______ policy and maintain a _______ exchange rate.

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One reason for the huge Chinese investment in the U.S. economy is:

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The largest category of U.S. exports is:

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Which of the following is not a reason foreign investment can be economically beneficial?

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Harold gifts his nephew stock in Samsung for his birthday. The stock is an example of:

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When the Fed practices contractionary monetary policy, the interest rate _ and the exchange rate _ as a result.

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Investments in a person's home country are called _, while foreign investments are called _.

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It is impossible to conduct _ policy and maintain a _ exchange rate.

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