Topic 12 Practice Questions

A nation's domestic investment is greater than its savings. Which of the following is correct? A. This nation has a negative net capital outflow. B. This nation has a trade surplus. C. Purchases of foreign assets by domestic residents exceed purchases of domestic assets by foreigners. D. All of the above are correct.

A

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 in terms of milk? A. 2 gallons B. 3/2 gallons C. 2/3 gallons D. 1⁄2 gallon

A

A Japanese bank buys bonds sold by Minnesota Manufacturing. Minnesota Manufacturing then uses these funds to buy machinery from Canada. Which of the following decreases? A. U.S. net exports but not US net capital outflow B. U.S. net capital outflow but not U.S. net exports C. U.S. net exports and U.S. net capital outflow D. neither U.S. net exports nor U.S. net capital outflow

C

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

C

If the exchange rate is .60 British pounds = $1, a bottle of ale that costs 3 pounds costs A. $1.80. B. $4.80. C. $5. D. $6

C

The purchase of U.S. government bonds by Egyptians is an example of A. U.S. imports. B. U.S. exports. C. foreign portfolio investment by Egyptians. D. foreign direct investment by Egyptians.

C

Net capital outflow equals the purchase of A. foreign assets by domestic residents. B. domestic assets by foreign residents. C. domestic assets by foreign residents - the purchase of foreign assets by domestic residents D. foreign assets by domestic residents - the purchase of domestic assets by foreign residents

D

When Ghana sells more chocolate to the United States than previous years, U.S. net exports A. increase, and U.S. net capital outflow increases. B. increase, and U.S. net capital outflow decreases. C. decrease, and U.S. net capital outflow increases. D. decrease, and U.S. net capital outflow decreases.

D

If Y < C + I + G, there is a trade _____, and saving is ____ than investment.

deficit; less than

If there is a trade _____, then... Exports > Imports Net exports > 0 Y > C + I + G Saving > Investment Net Capital Outflow > 0

surplus

If Y > C + I + G, there is a trade _____, and saving is _____ than investment.

surplus; greater than

If a country exports more than it imports, then it has A. positive net exports and positive net capital outflows. B. positive net exports and negative net capital outflows. C. negative net exports and positive net capital outflows. D. negative net exports and negative net capital outflows.

A

If domestic residents of France purchase 1.2 trillion euros of foreign assets and foreigners purchase 1.5 trillion euros of French assets, then France's net capital outflow is A. -.3 trillion euros, so it must have a trade deficit. B. -.3 trillion euros, so it must have a trade surplus. C. .3 trillion euros, so it must have a trade deficit. D. .3 trillion euros, so it must have a trade surplus.

A

Suppose that the real return from operating factories in Canada rises relative to the real rate of return in the United States. Other things the same, A. this will increases U.S. net capital outflow and decrease Canadian net capital outflow. B. this will decreases U.S. net capital outflow and increase Canadian net capital outflow. C. this will only increase U.S. net capital outflow. D. this will only increase Canadian net capital outflow.

A

Domestic saving must equal domestic investment in A. both closed and open economies. B. closed, but not open economies. C. open, but not closed economies. D. neither closed nor open economies.

B

Exchange rates are 100 yen per dollar, 0.8 euro per dollar, and 12 pesos per dollar. A bottle of beer in New York costs 6 dollars, 500 yen in Tokyo, 6 euro in Munich, and 84 pesos in Cancun. Where is the most expensive and the cheapest beer, in that order? A. Cancun, New York B. Munich, Tokyo C. Tokyo, Munich D. New York, Cancun

B

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 increase Brazil's net exports. B. 10 and your purchase will increase Brazil's net exports. C. 40 and your purchase will decrease Brazil's net exports. D. 10 and your purchase will decrease Brazil's net exports.

B

Mary, a U.S. citizen, buys $1,000 worth of olives from Greece. By itself this purchase A. increases U.S. imports by $1,000 and increases U.S. net exports by $1,000. B. increases U.S. imports by $1,000 and decreases U.S. net exports by $1,000. C. increases U.S. exports by $1,000 and increases U.S. net exports by $1,000. D. increases U.S. exports by $1,000 and decreases U.S. net exports by $1,000.

B

Other things the same, which of the following could explain a rise in Sweden's net capital outflow? A. interest rates on Swedish bonds rise B. the probability of default on Swedish bonds rises C. Sweden enacts a law reducing taxes on income earned by foreign-owned businesses operating in Sweden D. None of the above are correct.

B

Over the past five decades, the U.S. economy has become A. more closed. B. more open. C. less trade-oriented. D. more self-sufficient.

B

Which of the following is an example of U.S. foreign direct investment? A. A U.S. based mutual fund buys stock in Eastern European companies. B. A U.S. citizen builds and operates a coffee shop in the Netherlands. C. A Swiss bank buys a U.S. government bond. D. A German tractor factory opens a plant in Waterloo, Iowa.

B

Egypt has exports of $500 million and imports of $750 million. Egypt A. sells more overseas then it buys from overseas; it has a trade deficit. B. sells more overseas then it buys from overseas; it has a trade surplus. C. buys more from overseas then it sells overseas; it has a trade deficit. D. buys more from overseas then it sells overseas; it has a trade surplus.

C

If a dollar currently purchases 12.5 pesos and someone forecasts that in a year it will purchase 14 pesos, then the forecast is given in A. real terms and implies the dollar will appreciate. B. real terms and implies the dollar will depreciate. C. nominal terms and implies the dollar will appreciate. D. nominal terms and implies the dollar will depreciate.

C

You are planning a graduation trip to Mexico. Other things the same, if the dollar appreciates relative to the peso, then A. the dollar buys fewer pesos. Your hotel room in Mexico will require fewer dollars. B. the dollar buys fewer pesos. Your hotel room in Mexico will require more dollars. C. the dollar buys more pesos. Your hotel room in Mexico will require fewer dollars. D. the dollar buys more pesos. Your hotel room in Mexico will require more dollars.

C

The value of the goods and services Australia purchases from the U.S. are less than the value of goods and services the U.S. purchases from Australia. The U.S. has A. positive net exports with Australia and a trade surplus with Australia. B. positive net exports with Australia and a trade deficit with Australia. C. negative net exports with Australia and a trade surplus with Australia. D. negative net exports with Australia and a trade deficit with Australia.

D

If there is a trade _______, then... Exports < imports Net Exports < 0 Y < C + I + G Saving < Investment Net capital Outflow < 0

deficit