Econ 202 - Unit 4 Questions

A country has $50 million of domestic investment and net capital outflow of $15 million. What is saving? A. $65 million B. -$35 million C. -$65 million D. $35 million

A. $65 million

***If domestic residents of other countries purchase $600 billion of U.S. assets and U.S residents purchase $500 billion of foreign assets, then U.S. net capital outflow is A. -$100 billion and the U.S. has a trade deficit. B. $100 billion and the U.S has a trade deficit. C. -$100 billion and the U.S. has a trade surplus. D. $100 billion and the U.S. has a trade surplus.

A. -$100 billion and the U.S. has a trade deficit.

Jen and Alica are both U.S. citizens. Jen opens a cafe in France. Alicia buys equipment from a company in Canada to use in her factory. Whose action is an example of U.S. foreign direct investment? A. Jen's but not Alicia's B. Alicia's but not Jen's C. Jen's and Alica's D. Neither Anthony's nor Tom's.

A. Jen's but not Alicia's

Which of the following is the most likely response to an increase in the U.S. real interest rate? A. a London bank purchases a U.S. bond instead of a Japanese bond it had considered purchasing B. U.S. firms decide to buy more capital goods C. a U.S. citizen decides to put less money in his savings account than he had planned. D. All of the above are consistent.

A. a London bank purchases a U.S. bond instead of a Japanese bond it had considered purchasing

A farmer in Mexico purchases a tractor made in the U.S. This purchase is an example of A. a U.S. export and a Mexican import B. a U.S. import and a Mexican export C. an import for both Mexico and the U.S. D. an export for both the U.S. and Mexico

A. a U.S. export and a Mexican import

***In the open-economy macroeconomic model, which of the following increases net capital outflow? A. a fall in the real interest rate, but not a fall in the real exchange rate B. both a fall in the real exchange rate and a fall in the real interest rate C. a fall in the real exchange rate, but not a fall in the real interest rate D. neither a fall in the real exchange rate nor a fall in the real interest rate

A. a fall in the real interest rate, but not a fall in the real exchange rate

When a country experiences capital flight, the interest rate A. rises because the demand for loanable funds shifts right. B. rises because the supply for loanable funds shifts left. C. falls because the demand for loanable funds shifts left. D. falls because the supply for loanable funds shifts right.

A. rises because the demand for loanable funds shifts right.

A country has national saving of $80 billion, government expenditures of $40 billion, domestic investment of $50 billion, and net capital outflow of $30 billion. What is its supply of loanable funds? A. $30 billion B. $80 billion C. $50 billion D. $40 billion

B. $80 billion

A country has national saving of $90 billion, government expenditures of $30 billion, domestic investment of $50 billion, and net capital outflow of $40 billion. What is its demand for loanable funds? A. $60 billion B. $90 billion C. $40 billion D. $130 billion

B. $90 billion

If the exchange rate is 5 Egyptian pounds per U.S. dollar, a watch that costs $25 US dollars costs A. 50 Egyptian pounds B. 125 Egyptian pounds C. 5 Egyptian pounds D. None of the above is correct.

B. 125 Egyptian pounds

Other things the same, which of the following could be a consequence of an appreciation of the U.S. real exchange rate? A. Roberta, a U.S. citizen, decides to import fewer windshield wipers for her auto parts company. B. Nick, a U.S. citizen, decides that the trip to Nepal he's been thinking about is now affordable. C. John, a French citizen, decides that Iowa pork is now relatively less expensive and orders more for his restaurant. D. All of the above are correct.

B. Nick, a U.S. citizen, decides that the trip to Nepal he's been thinking about is now affordable.

***Which of the following results if the U.S. removes an import quota on computer components? A. U.S. exports increase but U.S. imports are unchanged B. U.S. exports and U.S. imports both increase C. U.S. imports increase but U.S. exports are unchanged D. None of the above are correct

B. U.S. exports and U.S. imports both increase

If Chileans buy more U.S. stocks and bonds and U.S. residents buy more Chilean wine, then A. U.S. net exports fall and U.S. net capital outflows rise. B. both U.S. net exports and U.S. net capital outflows fall. C. both U.S. net exports and U.S. net capital outflows rise. D. U.S. net exports rise and U.S. net capital outflows fall.

B. both U.S. net exports and U.S. net capital outflows fall.

If the U.S. has exports of $1.5 trillion and imports of $2.2 trillion, then the U.S. A. sells more overseas then it buys from overseas; it has a trade surplus. B. buys more from overseas then it sells overseas; it has a trade deficit. C. buys more from overseas then it sells overseas; it has a trade surplus. D. sells more overseas then it buys from overseas; it has a trade deficit.

B. buys more from overseas then it sells overseas; it has a trade deficit.

Trade policies A. affect a country's overall trade balance, but affect some firms or industries differently than others. B. do not affect a country's overall trade balance, but affect some firms or industries differently than others. C. do not affect either a country's overall trade balance or specific firms or industries. D. affect a country's overall trade balance, but affect all firms and industries the same

B. do not affect a country's overall trade balance, but affect some firms or industries differently than others.

You are the CEO of a U.S. firm considering building a factory in Chile. If the dollar appreciates relative to the Chilean peso, then other things the same A. it takes more dollars to build the factory. By itself building the factory decreases U.S. net capital outflow. B. it takes fewer dollars to build the factory. By itself building the factory increases U.S. net capital outflow. C. it takes fewer dollars to build the factory. By itself building the factory decreases U.S. net capital outflow. D. it takes more dollars to build the factory. By itself building the factory increases U.S. net capital outflow.

B. it takes fewer dollars to build the factory. By itself building the factory increases U.S. net capital outflow.

When the real exchange rate for the dollar appreciates, U.S. goods become A. less expensive relative to foreign goods, which makes exports rise and imports fall. B. more expensive relative to foreign goods, which makes exports fall and imports rise. C. less expensive relative to foreign goods, which makes exports fall and imports rise. D. more expensive relative to foreign goods, which makes exports rise and imports fall.

B. more expensive relative to foreign goods, which makes exports fall and imports rise.

If a country has a negative net capital outflow, then A. on net it is purchasing assets from abroad. This subtracts from its demand for domestically generated loanable funds. B. on net other countries are purchasing assets from it. This subtracts from its demand for domestically generated loanable funds. C. on net other countries are purchasing assets from it. This adds to its demand for domestically generated loanable funds. D. on net it is purchasing assets from abroad. This adds to its demand for domestically generated loanable funds.

B. on net other countries are purchasing assets from it. This subtracts from its demand for domestically generated loanable funds.

If it took as many dollars to buy goods in the United States as it did to buy enough currency to buy the same goods in India, the real exchange rate would be computed as how many Indian goods per U.S. goods? A. the number of dollars needed to buy U.S. goods divided by the number of rupees needed to buy Indian goods B. one C. the number of rupees needed to buy Indian goods divided by the number of dollars needed to buy U.S. goods D. None of the above is correct.

B. one

According to the theory of purchasing-power parity, the nominal exchange rate between two countries must reflect the differing A. resource endowments in those countries. B. price levels in those countries. C. standards of living between those countries. D. income levels in those countries.

B. price levels in those countries.

***When a country's government budget deficit decreases, A. the real exchange rate of its currency and its net exports decrease. B. the real exchange rate of its currency decreases and its net exports increase. C. the real exchange rate of its currency increases and its net exports decrease. D. the real exchange rate of its currency and its net exports increase.

B. the real exchange rate of its currency decreases and its net exports increase.

According to purchasing-power parity, if a basket of goods costs $100 in the U.S. and the same basket costs 800 pesos in Argentina, then what is the nominal exchange rate? A. 1/8 peso per dollar B. 1 peso per dollar C. 8 pesos per dollar D. None of the above is correct

C. 8 pesos per dollar

Purchasing-power parity theory does not hold at all times because A. many goods are not easily transported. B. the same goods produced in different countries may be imperfect substitutes for each other. C. Both a and b are correct. D. prices are different across countries.

C. Both a and b are correct.

The law of one price states that A. a good cannot sell for a price greater than the legal price ceiling. B. a good must sell at the price fixed by law. C. a good must sell at the same price at all locations. D. nominal exchange rates will not vary.

C. a good must sell at the same price at all locations.

***A government budget deficit A. increases both net capital outflow and net exports. B. decreases net capital outflow and increases net exports. C. decreases both net capital outflow and net exports. D. increases net capital outflow and decreases net exports.

C. decreases both net capital outflow and net exports.

***An increase in a country's budget deficit A. increases net capital outflow, so the supply of its currency in the market for foreign-currency exchange shifts right. B. decreases net capital outflow, so the demand for its currency in the market for foreign-currency exchange shifts left. C. decreases net capital outflow, so the supply of its currency in the market for foreign-currency exchange shifts left. D. increases net capital outflow, so the demand for its currency in the market for foreign-currency exchange shifts right.

C. decreases net capital outflow, so the supply of its currency in the market for foreign-currency exchange shifts left.

A limit on the quantity of a good produced abroad that can be purchased domestically is called a(n) A. tariff. B. excise tax. C. import quota. D. None of the above is correct.

C. import quota.

From 1970 to 1998 the U.S. dollar A. gained value compared to the German mark because inflation was higher in the U.S. B. lost value compared to the German mark because inflation was lower in the U.S. C. lost value compared to the German mark because inflation was higher in the U.S. D. gained value compared to the German mark because inflation was lower in the U.S.

C. lost value compared to the German mark because inflation was higher in the U.S.

According to purchasing-power parity, if prices in the United States increase by a smaller percentage than prices in the United Kingdom, then the A. nominal exchange rate falls. B. real exchange rate falls. C. nominal exchange rate rises. D. real exchange rate rises.

C. nominal exchange rate rises.

Other things the same, the real exchange rate between U.S. and Belgian goods would be higher if A. prices in the U.S. were lower, or the number of euro the dollar purchased were lower. B. prices in the U.S. were higher, or the number of euro the dollar purchased were lower. C. prices in the U.S. were higher, or the number of euro the dollar purchased were higher. D. prices in the U.S. were lower, or the number of euro the dollar purchased were higher.

C. prices in the U.S. were higher, or the number of euro the dollar purchased were higher.

In the open-economy macroeconomic model, the market for loanable funds equates national saving with A. net capital outflow. B. domestic investment. C. the sum of domestic investment and net capital outflow. D. the sum of national consumption and government spending.

C. the sum of domestic investment and net capital outflow.

Other things the same, if the exchange rate changes from 6 Chinese yuan per dollar to 7 Chinese yuan per dollar, then the dollar A. depreciates and buys fewer Chinese goods. B. appreciates and buys fewer Chinese goods. C. depreciates and buys more Chinese goods. D. appreciates and buys more Chinese goods.

D. appreciates and buys more Chinese goods.

In an open economy, the source for the demand for loanable funds is A. national saving + net capital outflow. B. investment C. national saving. D. investment + net capital outflow

D. investment + net capital outflow

Other things the same, a higher real interest rate raises the quantity of A. net capital outflow. B. domestic investment. C. loanable funds demanded. D. loanable funds supplied.

D. loanable funds supplied.

If a country raises its budget deficit, then its A. net capital outflow falls and net exports rise. B. net capital outflow and net exports rise. C. net capital outflow rises and net exports fall. D. net capital outflow and net exports fall.

D. net capital outflow and net exports fall.

In the open-economy macroeconomic model, if foreign interest rates rise and the U.S interest rate stays the same then, U.S. A. net capital outflow rises, so the demand for dollars in the market for foreign exchange shifts right. B. net capital outflow falls, so the supply of dollars in the market for foreign exchange shifts left. C. net capital outflow falls, so the demand for dollars in the market for foreign exchange shifts left. D. net capital outflow rises, so the supply of dollars in the market for foreign exchange shifts right.

D. net capital outflow rises, so the supply of dollars in the market for foreign exchange shifts right.

If purchases of French assets by foreigners are less than French purchases of foreign assets, then France has a A. negative net capital outflow and a trade deficit. B. positive net capital outflow and a trade deficit. C. negative net capital outflow and a trade surplus. D. positive net capital outflow and a trade surplus.

D. positive net capital outflow and a trade surplus.

In 2002 it looked like the Argentinean government might default on its debt (which eventually it did). The open-economy macroeconomic model predicts that this should have A. lowered Argentinean interest rates and caused the Argentinean currency to appreciate. B. lowered Argentinean interest rates and caused the Argentinean currency to depreciate. C. raised Argentinean interest rates and caused the Argentinean currency to appreciate. D. raised Argentinean interest rates and caused the Argentinean currency to depreciate.

D. raised Argentinean interest rates and caused the Argentinean currency to depreciate.

Other things the same, which of the following would both make Americans more willing to buy Italian goods? A. the nominal exchange rate falls, the price of goods in Italy falls B. the nominal exchange rate falls, the price of goods in Italy rises C. the nominal exchange rate rises, the price of goods in Italy rises D. the nominal exchange rate rises, the price of goods in Italy falls

D. the nominal exchange rate rises, the price of goods in Italy falls

When a country experiences capital flight, its net capital outflow, A. which is part of the supply of loanable funds, decreases. B. which is part of the demand for loanable funds, decreases. C. which is part of the supply of loanable funds, increases. D. which is part of the demand for loanable funds, increases.

D. which is part of the demand for loanable funds, increases.