Quiz #1
a trade surplus
(See Exhibit 1: Saving and Investment in a Small Open Economy) In a small open economy, if the world interest rate is r1, then the economy has:
a trade deficit.
(See Exhibit 1: Saving and Investment in a Small Open Economy) In a small open economy, if the world interest rate is r3, then the economy has:
domestic interest rate equals the world interest rate.
A "small" economy is one in which the:
GDP minus consumption of domestic goods and services minus investment of domestic goods and services minus government purchases of domestic goods and services.
A country's exports may be written as equal to:
its domestic interest rate always exceeds the world interest rate.
A small open economy with perfect capital mobility is characterized by all of the following except that:
borrowing from domestic lenders
A trade deficit can be financed in all of the following ways except by:
There is a trade in goods and services with the rest of the world.
An "open" economy is one which:
an increase in government spending
An increase in the trade deficit of a small open economy could be the result of:
an increase in the world interest rate.
An increase in the trade surplus of a small open economy could be the result of:
weaker; deficit
As the U.S. budget deficit shrank in the 1990s, the increase in U.S. national saving was ______ than the expansionary shift in the U.S. investment function, resulting in a trade ______.
this simplifying assumption can assist our understanding and intuition of open economy macroeconomics.
Building an economic model based on the assumption of a small open economy is useful because:
reduce national saving and lead to a trade deficit.
Holding other factors constant, legislation to cut taxes in an open economy will:
Domestic spending is greater than output.
I'm a small open economy if net exports are negative, then:
do not change; do not change
If a U.S. corporation sells a product in Canada and uses the proceeds to purchase a product manufactured in Canada, then U.S. net exports ______ and net capital outflows ______.
increase; increase
If a U.S. corporation sells a product in Europe and uses the proceeds to purchase shares in a European corporation, then U.S. net exports ______ and net capital outflows ______.
Positive; positive
If domestic saving exceeds domestic investment, then net exports are _____ and net capital outflows are _____.
Import; negative
If domestic spending exceeds output, we _____ the difference ---net exports are _____.
The trade balance must be positive.
If net capital outflow is positive, then:
increasing taxes
If the government of a small open economy wishes to reduce a trade deficit, which policy action will be successful in achieving this goal:
equal to the world real interest rate.
In a small open economy with perfect capital mobility, the real interest rate will always be:
Borrowing from abroad
In a small open economy, if domestic investment exceeds domestic saving, then the extra investment will be financed by:
make loans to foreigners
In a small open economy, if domestic saving exceeds domestic investment, then the extra saving will be used to:
-$10 billion
In a small open economy, if exports equal $20 billion, imports equal $30 billion, and domestic national saving equals $25 billion, then net capital outflow equals:
Deficit ; negative
In a small open economy, if exports equal $5 billion and imports equal $7 billion, then there is a trade _____ and ____ net capital outflow.
surplus; positive
In a small open economy, if the world real interest rate is above the rate at which national saving equals domestic investment, then there will be a trade ______ and ______ net capital outflow.
investment tend to cause a trade deficit.
In a small open economy, policies that increase:
deficit; negative
In a small open economy, starting from a position of balanced trade, if the government increases domestic government purchases, this produces a tendency toward a trade ______ and ______ net capital outflow.
a trade deficit may be good or bad.
In an open economy:
saving is fixed, and investment is determined by the investment function and the world interest rate.
In the small open economy in equilibrium:
National saving minus domestic investment.
Net Capital outflow is equal to:
All goods and services.
Net Exports equal GDP minus domestic spending on:
Domestic investors lead abroad minus the amount that foreign investors lend here.
Net capital outflow is equal to the amount that:
increase; decrease
Starting from a trade balance, if the world interest rate falls, then, holding other factors constant, in a small open economy the amount of domestic investment will _____ and net exports will _____.
is the interest rate prevailing in world financial markets.
The world interest rate:
Domestic investment exceeds domestic saving.
When exports exceed imports, all of the following are true except: