economics 18 quiz

Which of the following is an example of U.S. foreign direct investment?

A U.S. based restaurant chain opens new restaurants in India.

Which of the following is an example of U.S. foreign portfolio investment?

Erica, a U.S. resident, buys bonds issued by the Swiss government.

Henry, a German citizen, pays a German architect to design a country house. Which country's exports increase?

Germany´s

One year a country has negative net exports. The next year it still has negative net exports and imports have risen more than exports.

Its trade deficit rose.

Maria and Michael are both U.S. citizens. Maria opens a café in Spain. Michael builds a U.S.-based factory using equipment from Japan. Whose action is an example of U.S. foreign direct investment?

Maria's but not Michael's

An open economy's GDP can be expressed by

Y = C + I + G + NX.

The "law of one price" states that

a good must sell at the same price at all locations

Domestic saving must equal domestic investment in

closed, but not open economies.

An American brewery sells dollars to obtain euros. It then uses the euros to buy brewing equipment from a German company. These transactions

decrease U.S. net capital outflow because Germans obtain U.S. assets

A Chinese company exchanges yuan (Chinese currency) for dollars. It uses these dollars to purchase scrap metal from a U.S. company. As a result of these transactions, Chinese net exports

decrease, and U.S. net capital outflow increase

If a country sells fewer goods and services abroad than it buys from other countries, it is said to have a trade

deficit and negative net exports.

Gabrielle, an Italian citizen, uses some previously obtained dollars to purchase a bond issued by a U.S. company. This transaction

does not change U.S. net capital outflow.

Suppose that the real return from operating factories in France rises relative to the real rate of return in the United States. Other things are the same, this will

increase U.S. net capital outflow and decrease French net capital outflow.

A company in Panama pays a U.S. architect to design a factory building. By itself this transaction

increases Panama's imports and so decreases the Panama's trade balance.

If the value of goods and services that Mexico purchases from the United States is greater than the value of goods and services that the United States purchases from Mexico , then the United States has

positive net exports and a trade surplus with Mexico.

The nominal exchange rate is the

rate at which a person can trade the currency of one country for another.

If purchasing-power parity holds, then the value of the

real exchange rate is equal to one.

A U.S. company uses pound sterlings it already owned to purchase bonds issued by a company in Germany. Which of these countries has an increase in net capital outflow?

Neither Germany nor the U.S.

When Bill, a Mexican citizen, sells dresses he designs to Spain, the sale is

Spain's import and Mexico's export.

When Bill, a Mexican citizen, sells dresses he desings to Spain, the sale is

Spain's import and Mexico's export.

Visitors to a country hosting a world soccer tournament purchase food, souvenirs, and accommodations while attending the tournament. Which of the following should these expenditures raise?

The host country's net exports and its net capital outflow.

Net capital outflow

is always equal to net exports.

A country's trade balance will fall if either

saving falls or investment rises.

If a U.S. dollar purchases 4 Argentinean pesos, and a gallon of milk costs $3 in the U.S. and 6 pesos in Argentina what is the real exchange rate?

2 gallons of Argentinean milk/1 gallon of U.S. milk

If the exchange rate is expressed as euros/dollar, the dollar is said to depreciate against the euro if the exchange rate

falls. Other things the same, it will cost fewer euros to buy U.S. goods.

If you are vacationing in Spain and the dollar depreciates relative to the euro, then the dollar buys

fewer euros. It will take more dollars to buy a good that costs 50 euros.

When Microsoft, a U.S. company, establishes a distribution center in Canada, U.S. net capital outflow

increases because Microsoft makes a foreign direct investment in Canada.

A country's trade balance

is greater than zero only if exports are greater than imports.

A depreciation of the U.S. real exchange rate induces U.S. consumers to buy

more domestic goods and fewer foreign goods.

You are planning a graduation trip to Mexico. Other things the same, if the dollar appreciates relative to the peso, then the dollar buys

more pesos. Your hotel room in Mexico will require fewer dollars.

Suppose that real interest rates in the U.S. rise relative to real interest rates in other countries. This increase would make foreigners

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

The dollar is said to appreciate against the euro if the exchange rate

rises. Other things the same, it will cost more euros to buy U.S. goods.