Ch. 15 (just vocab)

Which of the following equations is equivalent to the equation S - NX = I?

S + KI = I

The principal suppliers of U.S. dollars to the foreign exchange market are:

U.S. households or firms wishing to purchase foreign goods or assets.

The U.S. trade deficit has been mainly caused by:

a low rate of national saving.

An increase in the value of a currency relative to other currencies is called a(n):

appreciation

Purchasing power parity is the theory that nominal exchange rates are determined:

as necessary for the law of one price to hold.

Net capital outflows equal:

capital outflows minus capital inflows.

The foreign exchange market is the market on which ______ of various nations are traded for one another.

currencies

A decrease in the value of a currency relative to other currencies is called a(n):

depreciation.

The sum of national saving and capital inflows from abroad must equal:

domestic investment in new capital goods.

In an open economy, domestic investment equals:

domestic saving plus net capital inflows.

In an open economy, the domestic real interest rate is determined by:

domestic saving, domestic investment, and net capital inflows.

A trade surplus occurs when:

exports exceed imports.

An exchange rate that is set by official government policy is called a ______ exchange rate.

fixed

The gold standard is an example of a ______ exchange rate system.

fixed

An exchange rate that varies according to the supply and demand for the currency in the foreign exchange market is called a ______ exchange rate.

flexible

The principal demanders of U.S. dollars in the foreign exchange market are:

foreigners wishing to purchase U.S. goods or assets.

A trade deficit occurs when:

imports exceed exports.

The purchasing power parity theory is a reasonably good explanation for nominal exchange rate determination:

in the long run

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 exchange rate that equates the quantities of the currency supplied and demanded in the foreign exchange market is called the ______ exchange rate.

market equilibrium value of the

There is ______ connection between the strength of a country's currency and the strength of its ______.

no simple; economy

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 law of one price states that if transportation costs are relatively small, then the:

price of an internationally traded commodity must be the same in all locations.

From the point of view of a particular country, capital inflows are:

purchases of domestic assets by foreigners.

From the point of view of a particular country, capital outflows are:

purchases of foreign assets by domestic households or firms.

International capital flows are:

purchases or sales of real and financial assets across international borders.

The theory that nominal exchange rates are determined so that the law of one price holds is called:

purchasing power parity.

The nominal exchange rate is the:

rate at which two currencies can be traded for each other.

The price of the average domestic good or service relative to the price of the average foreign good or service, when prices are expressed in terms of a common currency is called the ______ exchange rate.

real

The nominal exchange rate, e, is defined as the number of units of:

the foreign currency that one unit of domestic currency will buy.

A country's trade balance equals:

the value of exports minus the value of imports.

Net exports plus net capital inflows equal:

zero