Macro Test 3 Ole Miss
If a country raises its budget deficit, then its
a. net capital outflow and net exports fall.
The purchase of U.S. government bonds by Egyptians is an example of
c. foreign portfolio investment by Egyptians.
A large and sudden movement of funds out of a country is called
capital flight.
Net capital outflow
is always equal to net exports.
If a country has positive net capital outflows, then its net exports are
positive, and its saving is larger than its domestic investment.
The nominal exchange rate is the
rate at which a person can trade the currency of one country for another.
If the demand for loanable funds shifts right, then the real interest rate
and the equilibrium quantity of loanable funds both rise.
A depreciation of the U.S. real exchange rate induces U.S. consumers to buy
more domestic goods and fewer foreign goods.
In an open economy, gross domestic product equals $2,450 billion, consumption expenditure equals $1,390 billion, government expenditure equals $325 billion, investment equals $510 billion, and net capital outflow equals $225 billion. What is national saving?
$735 billion
Suppose that a country imports $90 million worth of goods and services and exports $80 million worth of goods and services. What is the value of net exports?
-$10 million
Which of the following would make both the equilibrium real interest rate and the equilibrium quantity of loanable funds decrease?
The demand for loanable funds shifts left.
An open economy's GDP can be expressed by
Y = C + I + G + NX.
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.
Trade policies
do not alter the trade balance because they cannot alter the national saving or domestic investment of the country that implements them.
In an open economy, national saving equals
domestic investment plus 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
more willing to purchase U.S. bonds, so U.S. net capital outflow would fall.
At the equilibrium real interest rate in the open-economy macroeconomic model,
net capital outflow + domestic investment = saving.
The open-economy macroeconomic model examines the determination of
the trade balance and the exchange rate.
A country purchases $3 billion of foreign-produced goods and services and sells $2 billion of domestically produced goods and services to foreign countries. It has exports of
$2 billion and a trade deficit of $1 billion.
Which of the following is an example of U.S. foreign portfolio investment?
A U.S. citizen buys bonds issued by the British government.
Which of the following is an example of U.S. foreign direct investment?
A U.S. company opens an auto parts factory in Canada.
Domestic saving must equal domestic investment in
closed, but not open economies.
If a country places tariffs on imported goods, then its
currency appreciates which reduces exports leaving the trade balance unchanged.
Net exports of a country are the value of
goods and services exported minus the value of goods and services imported.
A country's trade balance
is greater than zero only if exports are greater than imports.
A country's trade balance will fall if either
saving falls or investment rises.
Other things the same, in the open-economy macroeconomic model, if the real exchange rate rises, the
quantity of dollars demanded falls.
Suppose that foreign citizens decide to purchase more U.S. pharmaceuticals and U.S. citizens decide to buy stock in foreign corporations. Other things the same, these actions
raise both U.S. net exports and U.S. net capital outflows.
In the open-economy macroeconomic model, the price that balances supply and demand in the market for foreign-currency exchange is the
real exchange rate
If the supply of dollars in the market for foreign-currency exchange shifts left, then the exchange rate
rises and the quantity of dollars exchanged for foreign currency falls.
