Econ Practice Exam 5

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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