ECON FINAL

If a country has a trade deficit Answers: a. it has positive net exports and positive net capital outflow. b. it has negative net exports and negative net capital outflow. c. it has positive net exports and negative net capital outflow. d. it has negative net exports and positive net capital outflow.

B it has negative net exports and negative net capital outflow.

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 and net capital outflow equals $225 billion. What is national saving? a. $735 billion b. $510 billion c. $225 billion d. $1,390 billion

a. $735 billion

Figure 32-5 Refer to this diagram of the open-economy macroeconomic model to answer the questions below. Refer to Figure 32-5. Starting from 3% and .75, an increase in the government budget surplus can be illustrated as a move to Answers: a. 2% and .5 b. 4% and .5 c. 4% and 1 d. 2% and 1

a. 2% and .5

In the U.S. a candy bar costs $1. If the nominal exchange rate were 6 Chinese yuan per dollar and the real exchange rate were 1.2, then, what would be the price of a candy bar in China? Answers: a. 5 yuan b. 7.2 yuan c. 6 yuan d. 3.6 yuan

a. 5 yuan

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

a. A U.S. citizen builds and operates a coffee shop in the Netherlands.

Which of the following statements is incorrect for an open economy? Answers: a. A country that has a trade deficit has positive net capital outflow. b. National saving equals domestic investment plus net capital outflow. c. Net exports must equal net capital outflow. d. A country can have a trade deficit, trade surplus, or balanced trade.

a. A country that has a trade deficit has positive net capital outflow.

The nominal exchange rate is .80 euros per U.S. dollar and a basket of goods in France costs 1,000 euros while the same basket costs $800 in the U.S. The nominal exchange rate is 1.2 Australian dollars per U.S. dollar and a basket of goods in Australia costs 960 Australian dollars while the same basket costs $800 in the U.S.. Which country has purchasing-power parity with the U.S.? Answers: a. Australia but not France b. both France and Australia c. France but not Australia d. neither France nor Australia

a. Australia but not France

If the nominal exchange rate e is foreign currency per dollar, the domestic price is P, and the foreign price is P*, then the real exchange rate is defined as Answers: a. e(P/P*), b. P/(P*e). c. e(P*/P). d. P*/(Pe).

a. e(P/P*),

You hold currency from a foreign country. If that country has a higher rate of inflation than the United States, then over time the foreign currency will buy Answers: a. fewer goods in that country and buy fewer dollars. b. more goods in that country but buy fewer dollars. c. more goods in that country and buy more dollars. d. fewer goods in that country but buy more dollars.

a. fewer goods in that country and buy fewer dollars.

In 2002, the United States imposed restrictions on the importation of steel into the United States. The open-economy macroeconomic model shows that such a policy would Answers: a. raise the real exchange rate and have no effect on net exports. b. lower the real exchange rate and have no effect on net exports. c. raise the real exchange rate and decrease net exports. d. lower the real exchange rate and increase net exports.

a. raise the real exchange rate and have no effect on net exports.

Other things the same, an increase in the U.S. interest rate causes the quantity of loanable funds supplied to Answers: a. rise because national saving rises. b. rise because net capital outflow and domestic investment rise. c. fall because national saving falls. d. fall because net capital outflow and domestic investment rise.

a. rise because national saving rises.

If purchasing-power parity holds, the price level in the U.S. is 140, and the price level in Canada is 120, which of the following is true? Answers: a. the nominal exchange rate is 120/140 b. the real exchange rate is 120/140. c. the nominal exchange rate is 140/120 d. the real exchange rate is 140/120.

a. the nominal exchange rate is 120/140

In the open-economy macroeconomic model, if investment demand decreases, then Answers: a. the supply of dollars in the market for foreign-currency exchange shifts right. b. the supply of dollars in the market for foreign-currency exchange shifts left. c. the demand for dollars in the market for foreign-currency exchange shifts left. d. the demand for dollars in the market for foreign-currency exchange shifts right.

a. the supply of dollars in the market for foreign-currency exchange shifts right.

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 Answers: a. 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. c. it takes more dollars to build the factory. By itself building the factory decreases U.S. net capital outflow. d. it takes fewer 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.

A Starbucks Grande Latte costs $3.75 in the U.S. and 28 yuan in China. The nominal exchange rate is 6.75 yuan per dollar. The real exchange rate is Answers: a. 1.106. If purchasing-power parity held the nominal exchange rate would be lower. b. .904. If purchasing power parity held the nominal exchange rate would be higher. c. 1.106. If purchasing-power parity held the nominal exchange rate would be higher. d. .904. If purchasing-power parity held the nominal exchange rate would be lower.

b. .904. If purchasing power parity held the nominal exchange rate would be higher.

Which of the following is correct? Since 1950 Answers: a. U.S. exports about doubled and U.S. imports about tripled. b. U.S. exports and U.S. imports each about tripled. c. U.S. exports about tripled and U.S. imports about doubled. d. U.S. exports and U.S. imports each about doubled.

b. U.S. exports and U.S. imports each about tripled.

If people thought that many banks in a certain country were at or near the point of bankruptcy, then that country's interest rate Answers: a. would fall and its net exports would rise. b. and net exports would rise. c. and its net exports would fall. d. would rise and its net exports would fall.

b. and net exports would rise.

At the original exchange rate an import quota Answers: a. creates a shortage in the market for foreign-currency exchange, so the exchange rate falls. b. creates a shortage in the market for foreign-currency exchange, so the exchange rate rises. c. creates a surplus in the market for foreign-currency exchange, so the exchange rate rises. d. creates a surplus in the market for foreign-currency exchange, so the exchange rate falls.

b. creates a shortage in the market for foreign-currency exchange, so the exchange rate rises.

Trade policies Answers: a. do not affect either a country's overall trade balance or specific firms or industries. b. do not affect a country's overall trade balance, but affect some firms or industries differently than others. c. affect a country's overall trade balance, but affect all firms and industries the same. d. 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.

The purchase of U.S. government bonds by Egyptians is an example of Answers: a. U.S. exports. b. foreign portfolio investment by Egyptians. c. U.S. imports. d. foreign direct investment by Egyptians.

b. foreign portfolio investment by Egyptians.

A U.S. bakery buys wheat from Canada and pays for it with US dollars. This transaction Answers: a. increases Canadian net exports, and increases U.S. net capital outflow. b. increases Canadian net exports, and decreases U.S. net capital outflow. c. decreases Canadian net exports, and increases U.S. net capital outflow. d. decreases Canadian net exports, and decreases U.S. net capital outflow.

b. increases Canadian net exports, and decreases U.S. net capital outflow.

One year a country has negative net exports. The next year it still has negative net exports and imports have risen more than exports. a. its trade surplus fell. b. its trade deficit rose c. its trade deficit fell. d. its trade surplus rose.

b. its trade deficit rose

When the real exchange rate for the dollar appreciates, U.S. goods become Answers: a. 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. c. less expensive relative to foreign goods, which makes exports fall and imports rise. d. 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.

If a country has positive net capital outflows, then its net exports are Answers: a. positive, and its saving is smaller than its domestic investment. b. positive, and its saving is larger than its domestic investment. c. negative, and its saving is larger than its domestic investment. d. negative, and its saving is smaller than its domestic investment.

b. positive, and its saving is larger than its domestic investment.

Figure 32-3 Refer to this diagram of the open-economy macroeconomic model to answer the questions below. ​ Refer to Figure 32-3. National saving is represented by the Answers: a. supply curve in panel c. b. supply curve in panel a. c. demand curve in panel a. d. demand curve in panel c.

b. supply curve in panel a.

An increase in a country's budget surplus shifts its Answers: a. demand for loanable funds right and decreases investment spending. b. supply of loanable funds right and increases investment spending. c. supply of loanable funds left and decreases investment spending. d. None of the above is correct.

b. supply of loanable funds right and increases investment spending.

A tax on imported goods is called a(n) Answers: a. excise tax. b. tariff. c. import quota. d. None of the above is correct.

b. tariff.

Other things the same, the real exchange rate between U.S. and Belgian goods would be higher if Answers: a. ​prices in the U.S. were higher, 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 higher. c. ​prices in the U.S. were lower, or the number of euro the dollar purchased were lower. d. ​prices in the U.S. were lower, or the number of euro the dollar purchased were higher.

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

A country has $50 million of domestic investment and net capital outflow of $15 million. What is saving? Answers: a. -$35 million b. -$65 million c. $65 million d. $35 million

c. $65 million

In the open-economy macroeconomic model, a higher U.S. real exchange rate makes Answers: a. foreign goods more expensive relative to U.S. goods and reduces the quantity of dollars demanded. b. foreign goods more expensive relative to U.S. goods and reduces the quantity of dollars supplied. c. U.S. goods more expensive relative to foreign goods and reduces the quantity of dollars demanded. d. U.S. goods more expensive relative to foreign goods and reduces the quantity of dollars supplied.

c. U.S. goods more expensive relative to foreign goods and reduces the quantity of dollars demanded.

Suppose that the nominal exchange rate is .80 euro per dollar, that the price of a basket of goods in the U.S. is $500 and the price of a basket of goods in Germany is 400 Euro. Suppose that these values change to .90 euro per dollar, $600, and 600 euro. Then the real exchange rate would Answers: a. appreciate which by itself would make U.S. net exports fall. b. depreciate which by itself would make U.S. net exports fall. c. depreciate which by itself would make U.S. net exports rise. d. appreciate which by itself would make U.S. net exports rise.

c. depreciate which by itself would make U.S. net exports rise.

An increase in U.S. sales of movies to other countries raises U.S. Answers: a. imports and so reduces the U.S. trade balance. b. imports and so raises the U.S. trade balance. c. exports and so raises the U.S. trade balance. d. exports and so reduces the U.S. trade balance.

c. exports and so raises the U.S. trade balance.

Other things the same, a decrease in the real interest rate Answers: a. shifts the demand for loanable funds to the right. b. decreases the quantity of loanable funds demanded. c. increases the quantity of loanable funds demand d. shifts the demand for loanable funds to the left.

c. increases the quantity of loanable funds demand

Which of the following is the most likely result from an increase in a country's government budget surplus? Answers: a. higher interest rates b. lower net capital outflows c. lower imports d. lower domestic investment

c. lower imports

Other things the same, if the real interest rate in a country falls, domestic residents will desire to purchase Answers: a. more foreign bonds but fewer capital goods. b. more capital goods but fewer foreign bonds. c. more capital goods and more foreign bonds. d. fewer capital goods and fewer foreign bonds.

c. more capital goods and more foreign bonds.

If the risk of buying U.S. assets rises because it is discovered that lending institutions had not carefully evaluated borrowers prior to lending them funds, then Answers: a. the real exchange rate and the interest rate will rise. b. the real exchange rate and the interest rate will fall. c. the real exchange rate will fall and the interest rate will rise. d. the real exchange rate will rise and the interest rate will fall.

c. the real exchange rate will fall and the interest rate will rise.

A country has private saving of $100 billion, public saving of -$30 billion, domestic investment of $50 billion, and net capital outflow of $20 billion. What is its supply of loanable funds? Answers: a. $50 billion b. $120 billion c. $90 billion d. $70 billion

d. $70 billion

Paul, a Canadian citizen, purchases oranges grown in Florida. This purchase is an example of Answers: a. an import for both Canada and the U.S. b. a U.S. import and a Canadian export c. an export for both the U.S. and Canada d. a U.S. export and a Canadian import

d. a U.S. export and a Canadian import

If a country removed an import quota on cotton, then overall that country's Answers: a. exports would rise and imports would fall. b. exports and imports would fall. c. exports would fall and imports would rise. d. exports and imports would rise.

d. exports and imports would rise.

Greg, a U.S. citizen, opens an ice cream store in Bermuda. His expenditures are U.S. Answers: a. foreign direct investment that decrease U.S. net capital outflow. b. foreign portfolio investment that increase U.S. net capital outflow. c. foreign portfolio investment that decrease U.S. net capital outflow. d. foreign direct investment that increase U.S. net capital outflow.

d. foreign direct investment that increase U.S. net capital outflow.

If the U.S. price level is increasing by 3 percent annually and the Japanese price level is increasing by 1 percent annually, then according to purchasing-power parity, by about what percent would the nominal exchange rate be changing? Answers: a. decreasing by 4 percent b. increasing by 4 percent c. decreasing by 2 percent d. increasing by 2 percent

d. increasing by 2 percent

If the real exchange rate for the dollar is below the equilibrium level, the quantity of dollars supplied in the market for foreign-currency exchange is Answers: a. less than the quantity demanded and the dollar will depreciate. b. greater than the quantity demanded and the dollar will depreciate. c. greater than the quantity demanded and the dollar will appreciate. d. less than the quantity demanded and the dollar will appreciate.

d. less than the quantity demanded and the dollar will appreciate.

Other things the same, if a country's domestic investment decreases, then Answers: a. net capital outflow falls, so net exports rise. b. net capital outflow falls, so net exports fall. c. net capital outflow rises, so net exports fall. d. net capital outflow rises, so net exports rise.

d. net capital outflow rises, so net exports rise.

In the open-economy macroeconomic model, if investment demand increases, then Answers: a. net exports rise and the real exchange rate falls. b. net exports and the real exchange rate rise. c. net exports and the real exchange rate fall. d. net exports fall and the real exchange rate rises.

d. net exports fall and the real exchange rate rises.

Figure 32-2 Refer to Figure 32-2. If the real exchange rate is 1, then there is a Answers: a. shortage of 100 so the real exchange rate will rise. b. surplus of 100 so the real exchange rate will rise. c. shortage of 100 so the real exchange rate will fall. d. surplus of 100 so the real exchange rate will fall.

d. surplus of 100 so the real exchange rate will fall.

Suppose a Starbucks tall latte cost $4.00 in the United States and 2.50 euros in the Euro area. Also, suppose a McDonald's Big Mac costs $4.50 in the United States and 3.60 euros in the Euro area. If the nominal exchange rate is .80 euros per dollar, which goods have prices that are consistent with purchasing-power parity? Answers: a. both the tall latte and the Big Mac b. neither the Big Mac nor the tall latte c. the tall latte but not the Big Mac d. the Big Mac but not the tall latte

d. the Big Mac but not the tall latte

If the unit of foreign currency is the peso, in which case is the real exchange rate 1.2? Answers: a. the U.S. price is $5, the foreign price 12 pesos, and the exchange rate is 2 pesos per dollar. b. the U.S. price is $3, the foreign price is 18 pesos, and the exchange rate is 5 pesos per dollar. c. the U.S. price is $10, the foreign price is 3 pesos, and the exchange rate is 4 pesos per dollar. d. the U.S. price is $2, the foreign price is 5 pesos, and the exchange rate is 3 pesos per dollar.

d. the U.S. price is $2, the foreign price is 5 pesos, and the exchange rate is 3 pesos per dollar.

If U.S. residents chose to travel overseas less due to concerns about the safety of foreign travel, then in the open-economy macroeconomic model Answers: a. the demand for dollars in the market for foreign-currency exchange shifts left. b. the supply of dollars in the market for foreign-currency exchange shifts right. c. the supply of dollars in the market for foreign-currency exchange shifts left. d. the demand for dollars in the market for foreign-currency exchange shifts right.

d. the demand for dollars in the market for foreign-currency exchange shifts right.

In the open-economy macroeconomic model, if there is a surplus in the market for foreign-currency exchange, which of the following will move the market to equilibrium? Answers: a. the real exchange rate appreciates and net exports fall. b. the real exchange rate depreciates and net exports fall. c. the real exchange rate appreciates and net exports rise. d. the real exchange rate depreciates and net exports rise.

d. the real exchange rate depreciates and net exports rise.

In the open-economy macroeconomic model, if net capital outflow increases then Answers: a. the demand for dollars in the market for foreign-currency exchange shifts right. b. the demand for dollars in the market for foreign-currency exchange shifts left. c. the supply of dollars in the market for foreign-currency exchange shifts left. d. the supply of dollars in the market for foreign-currency exchange shifts right.

d. the supply of dollars in the market for foreign-currency exchange shifts right.