Question 1

Which of the following is not included in the balance of the financial account of the United States?

Accepted Answer

A)   a purchase of Toyota stock by Ford
B)   a purchase of GE stock by a firm in China
C)   a purchase of U.S. car manufacturing plant by Toyota
D)   a purchase of a German brewery by the U.S. company, Budweiser
E)   a purchase of German financial services by Chase Manhattan bankF) A) and E)
G) B) and D)

Question 2

Suppose the majority of the shares of Ford stock were sold to a Japanese firm.Assuming all else remains constant,this will

Accepted Answer

A)   increase the balance of the U.S. financial account.
B)   increase foreign direct investment in the United States.
C)   increase the balance of the U.S. current account.
D)   decrease net portfolio investment in the United States.
E)   create a capital outflow in the United States.F) A) and C)
G) All of the above

Question 3

Suppose China decides to sell a vast majority of their large holdings of U.S.Treasury bonds.If you are thinking of refinancing your house,how would China's action affect your decision to refinance?

Accepted Answer

A)   You would want to refinance as soon as possible as interest rates should rise.
B)   You would want to wait to refinance as interest rates should rise.
C)   You would want to wait to refinance as interest rates should fall.
D)   China's actions should not affect your decision to refinance in any way.E) A) and C)
F) All of the above

Question 4

China runs a current account surplus with the United States.Which of the following must be true about China's balance of payments with the United States?

Accepted Answer

A)   It must run a financial account deficit.
B)   Its balance of trade must be in deficit.
C)   Its net exports must be negative.
D)   Its balance of payments must run a deficit.E) B) and D)
F) B) and C)

Question 5

Why is the multiplier for contractionary fiscal policy smaller in an open economy?

Accepted Answer

A)   Contractionary fiscal policy reduces the deficit, which raises the interest rate, which raises the foreign exchange value of the dollar, which increases net exports.
B)   Contractionary fiscal policy increases the deficit, which raises the interest rate, which reduces the foreign exchange value of the dollar, which increases net exports.
C)   Contractionary fiscal policy reduces the deficit, which reduces the interest rate, which reduces the foreign exchange value of the dollar, which increases net exports.
D)   Contractionary fiscal policy reduces the deficit, which reduces the interest rate, which reduces the foreign exchange value of the dollar, which decreases net exports.E) B) and D)
F) B) and C)

Question 6

If net foreign investment in the United States is negative,how must national saving and domestic investment be related?

Accepted Answer

A)   Domestic investment and national saving must also be negative.
B)   Domestic investment must be greater than national saving.
C)   Domestic investment must be less than national saving.
D)   Domestic investment can be greater than or less than national saving.E) None of the above
F) A) and D)

Question 7

If Californians increase their purchases of Italian wine,assuming all else remains constant,this will ________ of the United States.

Accepted Answer

A)   decrease the balance of trade
B)   increase net exports
C)   increase the current account balance
D)   decrease the trade deficit
E)   decrease the balance of paymentsF) None of the above
G) C) and D)

Question 8

Which of the following equations is true in an open economy?

Accepted Answer

A)   Private saving = net foreign investment + domestic investment.
B)   Domestic saving = net capital flows.
C)   Net exports = -Financial account balance.
D)   Net exports = net foreign investment.E) B) and C)
F) A) and D)

Question 9

According to the saving and investment equation,if net foreign investment rises by $60 million,

Accepted Answer

A)   national saving will increase by $60 million.
B)   national saving will fall by $60 million.
C)   domestic investment will rise by $60 million.
D)   private saving will fall by $60 million.E) A) and B)
F) A) and C)

Question 10

Hugo Chavez,Venezuela's president,proposed that the independence of the Venezuelan central bank be eliminated.Given the research on the relationship between central bank independence and inflation,we should expect this event to cause inflation to ________ and the real exchange rate to ________ between the two counties.(Assume the nominal exchange does not change,and that the United States is the domestic country) .

Accepted Answer

A)   rise in Venezuela relative to the United States; fall
B)   fall in Venezuela relative to the United States; fall
C)   rise in Venezuela relative to the United States; rise
D)   fall in Venezuela relative to the United States; riseE) All of the above
F) B) and C)

Question 11

An increase in capital inflows will

Accepted Answer

A)   increase net foreign investment.
B)   increase capital outflows.
C)   decrease capital outflows.
D)   increase the equilibrium exchange rate.E) All of the above
F) C) and D)

Question 12

Which of the following is an example of foreign direct investment in China?

Accepted Answer

A)   U.S. auto entrepreneur Carroll Shelby buys stock in the Chinese auto company, Chevy Automobile Company.
B)   Chinese Shenzen Airlines company buys a small U.S. midwest airline company, Air Chicago.
C)   The U.S. company Wal-Mart buys a warehouse in Shanghai.
D)   The bank of China purchases U.S. Treasury bonds.
E)   A U.S. foreign exchange speculator buys $200,000 worth of the Chinese currency the yuan.F) A) and B)
G) A) and C)

Question 13

A country which incurs a current account deficit will most likely have a financial or capital account surplus.

Accepted Answer

A) True 
 B)False

Question 14

If we take into account transfer payments (TR) when we derive the saving and investment relationship,the saving and investment equation becomes

Accepted Answer

A)   S = I + NFI.
B)   S + TR = I + NFI.
C)   S = I + NFI + TR.
D)   S = I + NX - TR.E) None of the above
F) A) and B)

Question 15

An increase in United States net foreign direct investment would occur if

Accepted Answer

A)   United States citizens have increased the value of foreign stocks and bonds they own.
B)   United States citizens have increased their building or purchasing of facilities in foreign countries.
C)   net foreign investment increases.
D)   net capital flows decrease.E) A) and B)
F) None of the above

Question 16

The balance of trade includes trade in

Accepted Answer

A)   goods only.
B)   services only.
C)   both goods and services.
D)   neither goods not services.E) None of the above
F) A) and B)

Question 17

How does an increase in government purchases financed by an increase in the deficit affect exchange rates? Support your answer with graphs of the loanable funds market and the foreign exchange market.

Accepted Answer

An increase in government purchases fina...

Question 18

The saving and investment equation holds only when the federal budget is balanced.

Accepted Answer

A) True 
 B)False

Question 19

If the dollar appreciates against the Mexican peso,

Accepted Answer

A)   Mexican imports to the U.S. become more expensive.
B)   U.S. exports to Mexico become less expensive.
C)   U.S. exports to Mexico become more expensive.
D)   The value of Mexican imports to the United States does not change.E) A) and B)
F) C) and D)

Question 20

If net exports are equal to net foreign investment,which of the following is not true?

Accepted Answer

A)   The balance of payments is zero.
B)   The current account balance is equal to the negative of the financial account balance.
C)   Net capital inflows are equal to imports minus exports.
D)   The balance on the financial account is zero.E) A) and B)
F) A) and C)

Exam 29: Macroeconomics in an Open Economy

A country which incurs a current account deficit will most likely have a financial or capital account surplus.

Correct Answer
verified

China runs a current account surplus with the United States.Which of the following must be true about China's balance of payments with the United States?

Correct Answer
verified

Suppose China decides to sell a vast majority of their large holdings of U.S.Treasury bonds.If you are thinking of refinancing your house,how would China's action affect your decision to refinance?

Correct Answer
verified

Why is the multiplier for contractionary fiscal policy smaller in an open economy?

Correct Answer
verified

If the dollar appreciates against the Mexican peso,

Correct Answer
verified

If net foreign investment in the United States is negative,how must national saving and domestic investment be related?

Correct Answer
verified

According to the saving and investment equation,if net foreign investment rises by $60 million,

Correct Answer
verified

An increase in capital inflows will

Correct Answer
verified

If we take into account transfer payments (TR) when we derive the saving and investment relationship,the saving and investment equation becomes

Correct Answer
verified

Suppose the majority of the shares of Ford stock were sold to a Japanese firm.Assuming all else remains constant,this will

Correct Answer
verified

Correct Answer
verified

The saving and investment equation holds only when the federal budget is balanced.

Correct Answer
verified

Which of the following equations is true in an open economy?

Correct Answer
verified

An increase in United States net foreign direct investment would occur if

Correct Answer
verified

If net exports are equal to net foreign investment,which of the following is not true?

Correct Answer
verified

Which of the following is not included in the balance of the financial account of the United States?

Correct Answer
verified

If Californians increase their purchases of Italian wine,assuming all else remains constant,this will ________ of the United States.

Correct Answer
verified

The balance of trade includes trade in

Correct Answer
verified

Which of the following is an example of foreign direct investment in China?

Correct Answer
verified

How does an increase in government purchases financed by an increase in the deficit affect exchange rates? Support your answer with graphs of the loanable funds market and the foreign exchange market.

Correct Answer
verified
An increase in government purchases fina...
View Answer

Exam 29: Macroeconomics in an Open Economy

A country which incurs a current account deficit will most likely have a financial or capital account surplus.

Correct AnswerverifiedShow Answer

China runs a current account surplus with the United States.Which of the following must be true about China's balance of payments with the United States?

Correct AnswerverifiedShow Answer

Suppose China decides to sell a vast majority of their large holdings of U.S.Treasury bonds.If you are thinking of refinancing your house,how would China's action affect your decision to refinance?

Correct AnswerverifiedShow Answer

Why is the multiplier for contractionary fiscal policy smaller in an open economy?

Correct AnswerverifiedShow Answer

If the dollar appreciates against the Mexican peso,

Correct AnswerverifiedShow Answer

If net foreign investment in the United States is negative,how must national saving and domestic investment be related?

Correct AnswerverifiedShow Answer

According to the saving and investment equation,if net foreign investment rises by $60 million,

Correct AnswerverifiedShow Answer

An increase in capital inflows will

Correct AnswerverifiedShow Answer

If we take into account transfer payments (TR) when we derive the saving and investment relationship,the saving and investment equation becomes

Correct AnswerverifiedShow Answer

Suppose the majority of the shares of Ford stock were sold to a Japanese firm.Assuming all else remains constant,this will

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

The saving and investment equation holds only when the federal budget is balanced.

Correct AnswerverifiedShow Answer

Which of the following equations is true in an open economy?

Correct AnswerverifiedShow Answer

An increase in United States net foreign direct investment would occur if

Correct AnswerverifiedShow Answer

If net exports are equal to net foreign investment,which of the following is not true?

Correct AnswerverifiedShow Answer

Which of the following is not included in the balance of the financial account of the United States?

Correct AnswerverifiedShow Answer

If Californians increase their purchases of Italian wine,assuming all else remains constant,this will ________ of the United States.

Correct AnswerverifiedShow Answer

The balance of trade includes trade in

Correct AnswerverifiedShow Answer

Which of the following is an example of foreign direct investment in China?

Correct AnswerverifiedShow Answer

How does an increase in government purchases financed by an increase in the deficit affect exchange rates? Support your answer with graphs of the loanable funds market and the foreign exchange market.

Correct AnswerverifiedAn increase in government purchases fina...View AnswerShow Answer

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An increase in government purchases fina...
View Answer