Econ Chapter 18 Study Guide

If a country had a trade deficit of $20 billion and then its exports rose by $7 billion and its imports fell by $10 billion, its net exports would now be A. -$3 billion B. $37 billion C. $3 billion D. -$37 billion

A. -$3 billion

If a county has 25 billion euros of imports, 15 billion euros of exports, and sells 20 billion euros of assets to foreigners, how many foreign assets do domestic residents purchase? A. 10 billion euros B. 30 billion euros C. 5 billion euros D. None of the above are correct.

A. 10 billion euros

When a Japanese auto maker opens a factory in the U.S., U.S. net capital outflow A. declines because the foreign company makes a direct investment in capital in the U.S. B. increases because the foreign company makes a direct investment in capital in the U.S. C. increases because the foreign company makes a portfolio investment in the U.S. D. declines because the foreign company makes a portfolio investment in the U.S.

A. declines because the foreign company makes a direct investment in capital in the U.S.

According to purchasing-power parity, when a country's central bank decreases the money supply, a unit of money A. gains value both in terms of the domestic goods and services it can buy and in terms of the foreign currency it can buy. B. loses value both in terms of the domestic goods and services it can buy and in terms of the foreign currency it can buy. C. gains value in terms of the domestic goods and services it can buy, but loses value in terms of the foreign currency it can buy. D. loses value in terms of the domestic goods and services it can buy, but gains value in terms of the foreign currency it can buy.

A. gains value both in terms of the domestic goods and services it can buy and in terms of the foreign currency it can buy.

You are staying in London over the summer and you have a number of dollars with you. If the dollar appreciates relative to the British pound, then other things the same, A. the dollar would buy more pounds. The appreciation would encourage you to buy more British goods and services. B. the dollar would buy fewer pounds. The appreciation would encourage you to buy more British goods and services. C. the dollar would buy fewer pounds. The appreciation would discourage you from buying as many British goods and services. D. the dollar would buy more pounds. The appreciation would discourage you from buying as many British goods and services.

A. the dollar would buy more pounds. The appreciation would encourage you to buy more British goods and services.

A U.S. company uses U.K. pounds it already owned to purchase bonds issued by a company in the U.K. Which of these countries has an increase in net capital outflow? A. The U.S. and the U.K. B. Neither the U.S. nor the U.K. C. The U.S. but not the U.K. D. The U.K. but not the U.S.

B. Neither the U.S. nor the U.K.

A U.S. mutual fund buys stocks issued by a Columbian company. This purchase is an example of A. U.S. foreign direct investment. It decreases Columbia's net capital outflow. B. U.S. foreign portfolio investment. It decreases Columbia's net capital outflow. C. U.S. foreign portfolio investment. It increases Columbia's net capital outflow. D. U.S. foreign direct investment. It increases Columbia's net capital outflow.

B. U.S. foreign portfolio investment. It decreases Columbia's net capital outflow.

Suppose that real interest rates in the U.S. rise relative to real interest rates in other countries. This increase would make foreigners A. less willing to purchase U.S. bonds, so U.S. net capital outflow would rise. B. more willing to purchase U.S. bonds, so U.S. net capital outflow would fall. C. more willing to purchase U.S. bonds, so U.S. net capital outflow would rise. D. less willing to purchase U.S. bonds, so U.S. net capital outflow would fall.

B. more willing to purchase U.S. bonds, so U.S. net capital outflow would fall.

If purchasing-power parity holds, then the value of the A. nominal exchange rate is equal to one. A dollar buys the quantity of foreign currency equal to the U.S. price level divided by the foreign country's price level. B. nominal exchange rate is equal to one. A dollar buys as many goods in the U.S. as it does overseas. C. real exchange rate is equal to one. A dollar buys as many goods in the U.S. as it does overseas. D. real exchange rate is equal to one. A dollar buys the quantity of foreign currency equal to the U.S. price level divided by the foreign country's price level.

C. real exchange rate is equal to one. A dollar buys as many goods in the U.S. as it does overseas.

If the exchange rate is 2 Brazilian reals per dollar and a meal in Rio costs 20 reals, then how many dollars does it take to buy a meal in Rio? A. 40 and your purchase will decrease Brazil's net exports. B. 40 and your purchase will increase Brazil's net exports. C. 10 and your purchase will decrease Brazil's net exports. D. 10 and your purchase will increase Brazil's net exports.

D. 10 and your purchase will increase Brazil's net exports.

An Italian company exchanges euros for dollars from U.S. residents and then uses the dollars to buy U.S. products to sell in its stores in Rome. U.S. residents who exchanged their dollars for euros use the euros to buy bonds issued by French corporations. At this point A. both U.S. net exports and U.S. net capital outflow have fallen. B. U.S. net exports have fallen and U.S. net capital outflow have risen. C. U.S. net exports have risen and U.S. net capital outflow have fallen. D. both U.S. net exports and U.S. net capital outflows have risen.

D. both U.S. net exports and U.S. net capital outflows have risen.

Other things the same, an increase in the foreign price level A. increases the real exchange rate. This increase could be offset by an increase in the domestic price level. B. increases the real exchange rate. This increase could be offset by a decrease in the domestic price level. C. reduces the real exchange rate. This reduction could be offset by a decrease in the domestic price level. D. reduces the real exchange rate. This reduction could be offset by an increase in the domestic price level.

D. reduces the real exchange rate. This reduction could be offset by an increase in the domestic price level.

If a dollar buys more corn in the U.S. than in Mexico, then A. the real exchange rate is greater than 1; a profit might be made by buying corn in the U.S. and selling it in Mexico. B. the real exchange rate is greater than 1; a profit might be made by buying corn in Mexico and selling it in the U.S. C. the real exchange rate is less than 1; a profit might be made by buying corn in Mexico and selling it in the U.S. D. the real exchange rate is less than 1; a profit might be made by buying corn in the U.S. and selling it in Mexico.

D. the real exchange rate is less than 1; a profit might be made by buying corn in the U.S. and selling it in Mexico.

If saving is less than domestic investment, then A. there is a trade deficit and Y > C + I + G. B. there is a trade surplus and Y > C + I + G. C. there is a trade surplus and Y < C + I + G. D. there is a trade deficit and Y < C + I + G.

D. there is a trade deficit and Y < C + I + G.