Macro Ch5

a

QN=58 If there's an increase in the future marginal product of capital in a large open economy, it causes the current account to ________ and saving to ________. a. fall; rise b. rise; rise c. fall; remain unchanged d. rise; remain unchanged

b

QN=1 Net exports of goods are known as a. the current account. b. the merchandise trade balance c. the balance of payments d. the capital and financial account

c

QN=10 Suppose a wealthy Canadian donates $10 million to charities in Mexico. Mexican net exports ________ and the current account balance ________. a. are unchanged; is unchanged b. rise; rises c. fall; is unchanged d. fall; rises

a

QN=11 If a French company exports $2 million of machinery to Italy and French tourists spend $2 million at Italian beaches, the French merchandise trade balance ________ , and the French capital and financial account balance ________. a. rises; is unchanged b. rises; rises c. is unchanged; is unchanged d. is unchanged; rises

a

QN=12 If a Japanese company sells 200 VCRs to a French company and uses the money to buy U.S. government bonds, the Japanese merchandise trade balance ________, and the Japanese capital and financial account balance ________. a. rises; falls b. rises; rises c. falls; rises d. falls; falls

b

QN=13 Which of the following would be part of the nation's current account? a. a factory built by the Japanese in the United States b. the interest an American earns on a British bond c. an old house purchased by an American in Italy d. the purchase of a U.S. Treasury bond by a foreigner

c

QN=14 A country has a current account surplus if a. the value of its net exports of services exceeds the value of its net exports of goods. b. its capital inflows exceed its capital outflows. c. the value of its exports exceeds the value of its imports, assuming net income from foreign assets and net unilateral transfers have a value of zero. d. it receives more income from foreign assets than it pays to foreigners for foreign-owned domestic assets.

d

QN=15 Which of the following would be part of the nation's capital and financial account? a. A night club show seen by an American in Mexico City b. A payment to the Philippine government for the use of military bases in their country c. A dividend from a British equity owned by an American d. One hundred shares of British Petroleum stock purchased by an American

d

QN=16 If a French company exports $2 million of machinery to Italy and French tourists spend $2 million at Italian beaches, the Italian current account balance ________, and the Italian capital and financial account balance ________. a. is unchanged; rises b. rises; is unchanged c. rises; rises d. is unchanged; is unchanged

b

QN=17 The official settlements balance equals a. the current account minus net unilateral transfers. b. the net increase in a country's official reserve assets. c. net investment income from abroad. d. the sum of the current account and the capital and financial account.

c

QN=18 A negative value for the U.S. official reserve assets line in the balance of payments accounts means that a. U.S. residents have sold more gold to foreigners than they bought. b. the U.S. central bank has decreased its holdings of foreign reserve assets. c. the U.S. central bank has increased its holdings of foreign reserve assets. d. U.S. residents bought more gold from foreigners than they sold.

b

QN=19 If the Federal Reserve buys $3 billion worth of Japanese yen and sells $5 billion of euros, how does this affect the official settlements balance? a. Falls by $5 billion b. Falls by $2 billion c. Rises by $2 billion d. Rises by $3 billion

c

QN=2 If a country's merchandise exports exceed its merchandise imports it has a a. trade deficit. b. current account surplus. c. trade surplus. d. current account deficit.

b

QN=20 Suppose the current account shows debits of $5.3 billion and credits of $4.7 billion. The current account balance is ________, and the capital and financial account balance is ________. a. +$0.6 billion; -$0.6 billion b. -$0.6 billion; +$0.6 billion c. +$0.6 billion; +$0.6 billion d. -$0.6 billion; -$0.6 billion

a

QN=21 A capital and financial account surplus necessarily implies a. a current account deficit. b. an increase in the nation's official reserve assets. c. a current account surplus. d. a balance of payments surplus.

c

QN=22 If the United States had a capital and financial account deficit of $50 billion, we could say the United States had a. a current account deficit of $50 billion. b. net imports of $50 billion. c. acquired net foreign assets of $50 billion. d. net foreign borrowing of $50 billion.

a

QN=23 A country's capital and financial account balance decreases if a. its current account balance increases. b. its domestic residents working abroad reduce the income they send home to their families. c. its income payment inflows on foreign assets decrease. d. foreigners increase their purchases of its existing assets.

b

QN=24 If a country has a current account surplus, it also has a. an increase in its official reserve assets. b. an increase in its holding of net foreign assets. c. a balance of payments deficit. d. a capital and financial account surplus.

a

QN=25 If there are no net factor payments from abroad and no unilateral transfers, net exports of $10 billion is the same as a. net acquisition of foreign assets of $10 billion. b. net foreign borrowing of $10 billion. c. a current account deficit of $10 billion. d. a capital and financial account surplus of $10 billion.

a

QN=26 Assuming no change in the effective tax rate on capital, a decrease in the government budget deficit will reduce the current account deficit if and only if the decrease in the budget deficit a. increases desired national saving. b. reduces desired national saving. c. increases desired national investment. d. reduces desired national investment.

c

QN=27 Assume that an increase in Costa Rica's government budget deficit reduced desired national saving by 10 million colon. Assuming Costa Rica is a small open economy, you would expect the government's action to a. increase the current account balance by less than 10 million colon. b. increase the current account balance by exactly 10 million colon. c. reduce the current account balance by exactly 10 million colon. d. reduce the current account balance by more than 10 million colon.

a

QN=28 An increase in a small open economy's government budget deficit that reduces national saving and the current account balance causes an a. increase in absorption. b. increase in desired saving. c. increase in exports. d. increase in the world real interest rate.

b

QN=29 In a large open economy like the United States, an increased government budget deficit which reduces national saving a. has no effect on investment, but reduces the current account balance. b. reduces investment and reduces the current account balance. c. has no effect on either investment or the current account balance. d. reduces investment and improves the current account balance.

a

QN=3 If France has a trade deficit, then a. imports into France exceed exports from France. b. imports into France from the United States exceed exports from France into the United States. c. imports into the United States from France exceed exports from the United States into France. d. exports from France exceed imports into France.

b

QN=30 In goods market equilibrium in an open economy, a. the desired amount of national saving must equal the desired amount of domestic investment. b. the desired amount of national saving must equal the desired amount of domestic investment plus the amount lent abroad. c. the desired amount of exports must equal the desired amount of imports less the amount lent abroad. d. the desired amount of exports must equal the desired amount of imports.

b

QN=32 Total spending by domestic residents, businesses, and governments is called a. GDP b. absorption. c. investment. d. net domestic purchases.

c

QN=33 Suppose output is $1000 billion, government purchases are $200 billion, desired consumption is $700 billion, and desired investment is $150 billion. Net foreign lending would be equal to a. -$150 billion. b. $50 billion. c. -$50 billion. d. $150 billion.

c

QN=34 Suppose output is $35 billion, government purchases are $10 billion, desired consumption is $15 billion, and net exports are $4 billion. Then desired investment equals a. $8 billion. b. $2 billion. c. $6 billion. d. $4 billion.

d

QN=35 Suppose output is $35 billion, government purchases are $10 billion, desired consumption is $15 billion, and desired investment is $6 billion. Absorption is equal to a. $35 billion. b. $25 billion. c. $39 billion. d. $31 billion.

b

QN=36 Suppose output is $440 billion, government purchases are $40 billion, desired consumption is $320 billion, and net exports are $35 billion. Then desired investment equals a. $30 billion. b. $45 billion. c. $35 billion. d. $20 billion.

a

QN=37 Suppose output is $440 billion, government purchases are $40 billion, desired consumption is $320 billion, and net exports are $35 billion. Absorption is equal to a. $405 billion. b. $420 billion. c. $440 billion. d. $435 billion.

c

QN=38 An economy is considered a small open economy if it a. has GDP less than 1% of world GDP. b. has a zero trade balance. c. is too small to affect the world real interest rate. d. doesn't trade internationally.

a

QN=39 A small open economy has a current account balance of zero. A rise in the world real interest rate causes a. a current account surplus. b. absorption to exceed income. c. net borrowing from abroad. d. a capital and financial account surplus.

b

QN=4 If all international factor payment flows are investment income, then net investment income from abroad equals a. net exports. b. net factor payments from abroad. c. the trade balance. d. the current account balance.

b

QN=40 A small open economy has a current account balance of zero. A rise in its investment demand causes a. a current account surplus. b. net borrowing from abroad. c. income to exceed absorption. d. a capital and financial account deficit.

d

QN=41 A small open economy increases its investment demand. This causes the world real interest rate to ________ and the country's current account balance to ________. a. rise; rise b. rise; fall c. remain unchanged; rise d. remain unchanged; fall

d

QN=42 A small open economy reduces its desired saving. This causes the world real interest rate to ________ and the country's current account balance to ________ a. remain unchanged; rise b. fall; fall c. fall; rise d. remain unchanged; fall

d

QN=43 When a temporary beneficial supply shock hits a small open economy, it causes the current account to ________ and investment to ________. a. fall; remain unchanged b. rise; remain unchanged c. rise; fall d. fall; fall

b

QN=44 When future labor income falls in a small open economy, it causes the current account to ________ and investment to ________. a. fall; remain unchanged b. rise; remain unchanged c. fall; rise d. rise; rise

a

QN=45 If there is an increase in the future marginal product of capital in a small open economy, it causes the current account to ________ and saving to ________. a. fall; remain unchanged b. rise; remain unchanged c. rise; rise d. fall; rise

a

QN=46 If there is a decrease in taxes on business firms in a small open economy, it causes the current account to ________ and saving to ________. a. fall; remain unchanged b. fall; fall c. rise; remain unchanged d. rise; fall

d

QN=47 If a freeze destroys much of the crop of an agricultural nation, then a. net foreign lending would decrease. b. the desired investment curve would shift to the right. c. net foreign lending would increase. d. the desired investment curve would shift to the left.

c

QN=48 The best weather in a decade has given Australia a bumper wheat crop. Australia is a small open economy. Based on this information alone, you would expect that a. desired investment would decrease. b. the current account would decrease. c. the current account would increase. d. desired investment would increase.

b

QN=49 Consider a small open economy with desired national saving of S(d)= 200 + 10,000r and desired investment of I(d) = 1,000 - 5,000r. If r = 0.05, then net exports equal a. -100. b. -50. c. 50. d. 100.

d

QN=5 If the United States donates footballs to Japan, how is the transaction recorded on the U.S. balance of payments accounts? a. debit: capital and financial account; credit: merchandise trade b. debit: merchandise trade; credit: net unilateral transfers c. debit: merchandise trade; credit:capital and financial account d. debit: net unilateral transfers; credit: merchandise trade

d

QN=50 Consider a small open economy with desired national saving of S(d) = 200 + 10,000r and desired investment of I(d) = 1,000 - 5,000r. If r= 0.05, and output = 5,000, then absorption equals a. 4,900. b. 5,100. c. 4,950. d. 5,050.

b

QN=51 When there are two large open economies, the world real interest rate will be such that a. desired international borrowing will be the same in both countries. b. desired international lending by one country equals desired international borrowing by the other country. c. desired international lending will be the same in both countries. d. desired international lending and borrowing will be zero in both countries.

a

QN=52 When there are two large open economies, if desired international lending by the domestic country exceeds desired international borrowing by the foreign country, then a. the world real interest rate must fall. b. the world real interest rate must rise. c. domestic saving must rise. d. domestic saving must fall.

d

QN=53 When there are two large open economies, if desired international borrowing by the domestic country exceeds desired international lending by the foreign country, then a. domestic investment must fall. b. the world real interest rate must fall. c. the world real interest rate must rise. d. domestic investment must rise.

b

QN=54 A large open economy reduces its investment demand. This causes the world real interest rate to ________ and the country's current account balance to ________. a. fall; fall b. fall; rise c. rise; rise d. rise; fall

b

QN=55 A large open economy increases its desired saving. This causes the world real interest rate to ________ and the country's current account balance to ________. a. remain unchanged; rise b. fall; rise c. fall; fall d. remain unchanged; fal

d

QN=56 When a temporary adverse supply shock hits a large open economy, it causes the current account to ________ and investment to ________. a. rise; remain unchanged b. rise; fall c. fall; remain unchanged d. fall; fall

c

QN=57 When future labor income falls in a large open economy, it causes the current account to ________ and investment to ________. a. fall; fall b. fall; rise c. rise; rise d. rise; remain unchanged

c

QN=59 If business taxes rise in a large open economy, it causes the current account to ________ and saving to ________. a. fall; remain unchanged b. rise; remain unchanged c. rise; fall d. fall; fall

b

QN=6 If the United States sells computers to Russia, and uses the proceeds to buy shares of stock in Russian companies, the U.S. trade balance ________ and the U.S. capital and financial account balance ________. a. falls; falls b. rises; falls c. falls; rises d. rises; rises

b

QN=60 A large country imposes capital controls that prohibit foreign borrowing and lending by domestic residents. The country is currently running a capital and financial account surplus. The imposition of the capital controls will cause a. desired national saving to fall. b. real domestic interest rates to rise. c. net exports to decrease. d. real world interest rates to rise.

d

QN=61 A large country imposes capital controls that prohibit foreign borrowing and lending by domestic residents. The country is currently running a capital and financial account deficit. The imposition of the capital controls will cause a. real world interest rates to fall. b. real domestic interest rates to rise. c. net exports to increase. d. desired national saving to fall.

a

QN=62 Real domestic interest rates would increase in a large open economy if a. there were a temporary negative domestic supply shock. b. the government imposed capital controls and the capital and financial account had been in deficit. c. there were a temporary negative supply shock abroad in a small open economy. d. foreigners were more willing to save.

a

QN=63 A large open economy's real interest rate will decrease if a. there is a temporary positive domestic supply shock. b. the expected future marginal product of foreign capital rises. c. the expected future marginal product of domestic capital rises. d. there is a temporary negative domestic supply shock.

a

QN=64 Suppose the development of the European Union leads to greater investment in Europe. You'd expect a. an increase in the world real interest rate. b. a rise in the current account in Europe. c. a recession in Europe. d. a decline in the world real interest rate.

c

QN=65 A large open economy has desired national saving of S= 1200 + 1000r, and desired national investment of I= 1000 - 500r. The foreign economy has desired national saving of S(for)= 1300 + 1000r, and desired national investment of I(for = 1800 - 500r. The equilibrium world real interest rate equals a. 0.15 b. 0.20 c. 0.10 d. 0.05

c

QN=66 A large open economy has desired national saving of S = 1200 + 1000r, and desired national investment of I = 1000 - 500r. The foreign economy has desired national saving of S(for) = 1300 + 1000r, and desired national investment of I(for) = 1800 - 500r. In equilibrium, the foreign country has net exports equal to a. 500. b. -500. c. -350. d. 350.

a

QN=67 Assuming no change in the effective tax rate on capital, a decrease in the government budget deficit will reduce the current account deficit if and only if the decrease in the budget deficit a. increases desired national saving. b. reduces desired national saving. c. reduces desired national investment. d. increases desired national investment.

a

QN=68 Assume that an increase in Costa Rica's government budget deficit reduced desired national saving by 10 million colon. Assuming Costa Rica is a small open economy, you would expect the government's action to a. reduce the current account balance by exactly 10 million colon. b. reduce the current account balance by more than 10 million colon. c. increase the current account balance by less than 10 million colon. d. increase the current account balance by exactly 10 million colon.

c

QN=69 An increase in a small open economy's government budget deficit that reduces national saving and the current account balance causes an a. increase in the world real interest rate. b. increase in desired saving. c. increase in absorption. d. increase in exports.

a

QN=7 The current account balance consists of a. net exports of goods and services, plus investment income from abroad, plus net unilateral transfers. b. net exports of goods and services, minus net unilateral transfers. c. the trade balance plus the services balance. d. net exports of goods and services, plus investment income from abroad, plus net unilateral transfers, minus the capital and financial account balance.

a

QN=70 Consider a small open economy with desired national saving of S(d) = 200 + 10,000r and desired investment of I(d) = 1,000 - 5,000 r. If r = 0.05, then a rise in government spending of 50 with no change in private saving causes net exports to become a. -100 b. 50 c. 100 d. -50

b

QN=71 In a large open economy like the United States, an increased government budget deficit which reduces national saving a. has no effect on investment, but reduces the current account balance. b. reduces investment and reduces the current account balance. c. has no effect on either investment or the current account balance. d. reduces investment and improves the current account balance.

b

QN=72 A large open economy has desired national saving of S= 1200 + 1000r, and desired national investment of I= 1000 - 500r. The foreign economy has desired national saving of S(for) = 1300 + 1000r, and desired national investment of I(for) = 1800 - 500r. Suppose the foreign country's government increases its spending by 300 and private saving does not change. Then in equilibrium, the foreign country has net exports equal to a. 500 b. -500 c. -350 d. 350

a

QN=8 If a U.S. firm buys tulips from a Dutch firm and the Dutch firm uses the dollars it gets to buy U.S. stocks, the U.S. trade balance ________ and the U.S. capital and financial account ________. a. falls; rises b. rises; rises c. falls; falls d. rises; falls

d

QN=9 If a U.S. company imports 10 Toyotas from Japan at $15,000 each, and the Japanese company buys airline tickets on a U.S. airline with the money, how does this affect the U.S. balance of payments accounts? a. debit: merchandise trade; credit:capital and financial account b. debit: capital and financial account; credit: merchandise trade c. debit: services; credit: merchandise trade d. debit: merchandise trade; credit: services