Econ Practice Exam 5
.
.
..
..
Which of the following statements explain(s) why Asian countries trade? 1. they have low wages 2. in some Asian countries the workers are very productive 3. they have an abundant supply of raw materials
1. they have very low wages, & 2. in some Asian countries the workers are very productive
Which of the following statements refer to a vertical FDI?
GM opens a plant in India
Which of the following equations is equivalent to the equation S - NX = I?
S + KI = I
According to Ricardo,
all countries can gain from trade if they export goods in which they have a comparative advantage
Net capital outflows equal
capital outflows minus capital inflows
In an open economy with a given level of real interest rates and risk, an increase in real interest rates abroad will ______ capital inflows and _______ the equilibrium domestic real interest rate
decrease; increase
In an open economy, a decrease in the government's budget will ________ the domestic real interest rate and _________ the level of capital investment in the country, holding other factors constant.
decrease; increase
In an open economy, if domestic citizens decide to save more, then the domestic real interest rate will _______ and the level of capital investment in the country will _______, holding other factors constant.
decrease; increase
At each value of the domestic interest rate, increases in the riskiness of domestic assets _______ capital inflows, _________ capital outflows, and ______ net capital inflows
decrease; increase; decrease
holding constant risk and real returns available abroad, lower domestic real interest rates _______ capital inflows, ________ capital outflows, and ________ net capital inflows
decrease; increase; decrease
For a given domestic and foreign price level, a decrease in the nominal exchange rate _______ the real exchange rate.
decreases
For a given nominal exchange rate and foreign price level, a decrease in the domestic price level ______ the real exchange rate
decreases
In an open economy, an increase in capital inflows ______ the equilibrium domestic real interest rate and _______ the quantity of domestic investment
decreases; increases
Based on the purchasing power parity theory, in the long run, currencies of countries with significant inflation will tend to:
depreciate
The purchasing power parity theory is a reasonably good explanation for nominal exchange rate determination:
in the long run
In an open economy with given level of real interest rates and risk, a decrease in real interest rates abroad will _________ capital inflows and _______ the equilibrium domestic real interest rate
increase; decrease
In an open economy, an increase in the government's budget deficit will ________ the domestic real interest rate and _______ the level of capital investment int eh country, holding other factors constant.
increase; decrease
At each value of the domestic interest rate, deceases in the riskiness of domestic assets _______ capital inflows, and ________ net capital inflows
increase; decrease; increase
Holding constant risk and the real returns available abroad, higher domestic real interest rate _______ capital inflows, _______ capital outflows, and __________ net capital inflows
increase; decrease; increase
For a given domestic and foreign price level, an increase in the nominal exchange rate _________ the real exchange rate
increases
For a given nominal exchange rate and domestic price level, a decrease in the foreign price level ______ the real exchange rate
increases
For a given nominal exchange rate and foreign price level, an increase in the domestic price level ________ the real exchange rate
increases
Net exports will tend to be low when the real exchange rate______.
is high
The PPP theory would be most useful in predicting:
long-run changes in the exchange rate for a country that mainly produces heavily-traded standardized goods
The purchasing power parity theory is not a good explanation of nominal exchange rate determination in the short-run because:
many goods and services are not traded internationally and not all internationally-traded goods are standardized
The bilateral trade balance:
may overstate the gap in imports and exports between the United States and China because some of the manufacturing inputs used do not originate in China
If the United States has a $300 billion trade deficit, then there must be:
net capital inflows of $300 billion
An economy with a trade deficit must also have
positive net capital inflows
An economy with a trade surplus must also have:
positive net capital outflows
The US trade-to-GDP ratio is
smaller than that of Germany
A bilateral trade balance means
the difference between the value of imports and exports between two trading nations
What is the best measure of a country's openness to international trade?
the ratio of its exports plus imports to its GDP
The difference between the total value of a country's exports and the total value of its imports is defined as the nation's
trade balance
If the United States has a $300 billion net capital inflow, then there must be a
trade deficit of $300 billion