Question 1

How will an interest rate increase in the United States affect equilibrium in the market for dollars against foreign currencies? (Assume the exchange rate is stated in terms of foreign currency per U.S. dollar.)

Accepted Answer

A)   The equilibrium exchange rate will increase, and the equilibrium quantity of dollars traded cannot be determined.
B)   The equilibrium exchange rate will decrease, and the equilibrium quantity of dollars traded cannot be determined.
C)   The equilibrium exchange rate cannot be determined, and the equilibrium quantity of dollars traded will increase.
D)   The equilibrium exchange rate will increase, and the equilibrium quantity of dollars traded will increase.E) C) and D)
F) B) and C)

Question 2

Ceteris paribus, an increase in the government's budget deficit will increase the current account deficit.

Accepted Answer

A) True 
 B)False

Question 3

When a U.S. investor buys a bond issued in a foreign country,

Accepted Answer

A)   the balance on the capital account decreases.
B)   the balance on the current account decreases.
C)   the balance on the financial account decreases.
D)   the balance of trade decreases.E) A) and B)
F) B) and D)

Question 4

An HMO hires radiology services from India to cut costs. If all else remains equal, this will

Accepted Answer

A)   decrease net exports.
B)   decrease the balance of trade.
C)   increase the current account balance.
D)   decrease the financial account.E) A) and B)
F) All of the above

Question 5

If New Yorkers decrease their purchases of French champagne, assuming all else remains constant, this will ________ of the United States.

Accepted Answer

A)   increase the balance of trade
B)   decrease net exports
C)   decrease the current account balance
D)   increase the trade deficit
E)   increase the balance of paymentsF) A) and D)
G) C) and D)

Question 6

Net foreign investment is equal to

Accepted Answer

A)   capital inflows minus capital outflows.
B)   foreign direct investment.
C)   the balance of trade.
D)   net foreign portfolio investment plus net foreign direct investment.E) B) and C)
F) B) and D)

Question 7

Which of the following would result in a trade surplus for the United States?

Accepted Answer

A)   Exports of goods = $725 billion Imports of goods = $790 billionExports of services = $350 billionImports of services = $260 billion
B)   Exports of goods = $625 billion Imports of goods = $625 billionExports of services = $300 billionImports of services = $375 billion
C)   Exports of goods = $550 billion Imports of goods = $575 billionExports of services = $275 billionImports of services = $300 billion
D)   All of the above will result in a trade surplus.E) A) and B)
F) A) and C)

Question 8

An increase in perceived risk of foreign assets increased both the financial account surplus and current account deficit in the United States during the late 1990s.

Accepted Answer

A) True 
 B)False

Question 9

Expansionary monetary policy lowers interest rates and forces a real appreciation of the dollar in international currency markets.

Accepted Answer

A) True 
 B)False

Question 10

An increase in capital inflows will

Accepted Answer

A)   increase net foreign investment.
B)   increase capital outflows.
C)   decrease capital outflows.
D)   increase the value of the domestic currency.E) All of the above
F) B) and C)

Question 11

Is fiscal policy more or less effective in manipulating aggregate demand in an open economy?

Accepted Answer

Expansionary fiscal policy (as from tax ...

Question 12

If net exports are positive,

Accepted Answer

A)   net foreign investment is also positive.
B)   capital inflows must be greater than capital outflows.
C)   net foreign investment is negative.
D)   Both A and B are correct.E) A) and B)
F) None of the above

Question 13

Explain the relationship between net exports and net foreign investment.

Accepted Answer

Net exports equal net foreign investment...

Question 14

Which of the following is not "crowded out" by higher interest rates as a result of expansionary fiscal policy?

Accepted Answer

A)   consumption
B)   private investment
C)   net exports
D)   government spendingE) A) and B)
F) A) and C)

Question 15

Fiscal policy has a greater impact in a closed economy than it does in an open economy.

Accepted Answer

A) True 
 B)False

Question 16

Figure 29-1 
-Refer to Figure 29-1. The French fall in love with California wines and triple their purchases of this beverage. Assuming all else remains constant, this would be represented as a movement from

Accepted Answer

A)   B to A.
B)   C to D.
C)   B to C.
D)   A to D.
E)   A to B.F) C) and E)
G) All of the above

Question 17

China runs a current account surplus with the United States. Which of the following must be true about China's balance of payments with the United States?

Accepted Answer

A)   It must run a financial account deficit.
B)   Its balance of trade must be in deficit.
C)   Its net exports must be negative.
D)   Its balance of payments must run a deficit.E) A) and B)
F) A) and C)

Question 18

Table 29-1
 
-Refer to Table 29-1. Use the information in the table to prepare a balance of payments account and find the value of the statistical discrepancy. Assume that the balance on the capital account is zero.

Accepted Answer

The answer of Table 29-1
 
-Refer to Table 29-1. Use...

Question 19

Why is the balance of payments always zero?

Accepted Answer

If a country spends more on goods and se...

Question 20

A real appreciation of the dollar is caused by either a nominal appreciation of the dollar, a rise in the foreign price level, or a fall in the U.S. price level.

Accepted Answer

A) True 
 B)False

Exam 29: Macroeconomics in an Open Economy

China runs a current account surplus with the United States. Which of the following must be true about China's balance of payments with the United States?

Correct AnswerverifiedShow Answer

A real appreciation of the dollar is caused by either a nominal appreciation of the dollar, a rise in the foreign price level, or a fall in the U.S. price level.

Correct AnswerverifiedShow Answer

Is fiscal policy more or less effective in manipulating aggregate demand in an open economy?

Correct AnswerverifiedExpansionary fiscal policy (as from tax ...View AnswerShow Answer

When a U.S. investor buys a bond issued in a foreign country,

Correct AnswerverifiedShow Answer

An increase in capital inflows will

Correct AnswerverifiedShow Answer

An HMO hires radiology services from India to cut costs. If all else remains equal, this will

Correct AnswerverifiedShow Answer

An increase in perceived risk of foreign assets increased both the financial account surplus and current account deficit in the United States during the late 1990s.

Correct AnswerverifiedShow Answer

Figure 29-1 -Refer to Figure 29-1. The French fall in love with California wines and triple their purchases of this beverage. Assuming all else remains constant, this would be represented as a movement from

Correct AnswerverifiedShow Answer

If New Yorkers decrease their purchases of French champagne, assuming all else remains constant, this will ________ of the United States.

Correct AnswerverifiedShow Answer

Fiscal policy has a greater impact in a closed economy than it does in an open economy.

Correct AnswerverifiedShow Answer

Expansionary monetary policy lowers interest rates and forces a real appreciation of the dollar in international currency markets.

Correct AnswerverifiedShow Answer

How will an interest rate increase in the United States affect equilibrium in the market for dollars against foreign currencies? (Assume the exchange rate is stated in terms of foreign currency per U.S. dollar.)

Correct AnswerverifiedShow Answer

If net exports are positive,

Correct AnswerverifiedShow Answer

Explain the relationship between net exports and net foreign investment.

Correct AnswerverifiedNet exports equal net foreign investment...View AnswerShow Answer

Which of the following is not "crowded out" by higher interest rates as a result of expansionary fiscal policy?

Correct AnswerverifiedShow Answer

Table 29-1 -Refer to Table 29-1. Use the information in the table to prepare a balance of payments account and find the value of the statistical discrepancy. Assume that the balance on the capital account is zero.

Correct AnswerverifiedShow Answer

Which of the following would result in a trade surplus for the United States?

Correct AnswerverifiedShow Answer

Ceteris paribus, an increase in the government's budget deficit will increase the current account deficit.

Correct AnswerverifiedShow Answer

Net foreign investment is equal to

Correct AnswerverifiedShow Answer

Why is the balance of payments always zero?

Correct AnswerverifiedIf a country spends more on goods and se...View AnswerShow Answer

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Expansionary fiscal policy (as from tax ...
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Net exports equal net foreign investment...
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If a country spends more on goods and se...
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