Chapter 4: Open-Economy Macroeconomic basic concepts
MULTIPLE CHOICE
1
[Link]-produced goods and services that are purchased domestically are called
a. imports.
b. exports.
c. net imports.
d. net exports.
[Link] Claudia, a U.S. citizen, purchases a handbag made in France, the purchase is
a. both a U.S. and French import.
b. a U.S. export and a French import.
c. a U.S. import and a French export.
d. neither an export nor an import for either country.
3.A country's trade balance
a. must be zero.
b. must be greater than zero.
c. is greater than zero only if exports are greater than imports.
d. is greater than zero only if imports are greater than exports.
[Link] value of Peru's exports minus the value of Peru's imports is called
a. Peru's foreign portfolio investment.
b. Peru's foreign direct investment.
c. Peru's net exports.
d. Peru's net imports.
[Link] Germany purchased more goods and services abroad than it sold abroad last year, then it had
a. positive net exports which is a trade surplus.
b. positive net exports which is a trade deficit.
c. negative net exports which is a trade surplus.
d. negative net exports which is a trade deficit.
Table 18-1
Bolivian Trade Flows
Goods Services
Purchased $40 billion Purchased $20 billion
Abroad Abroad
Sold Abroad $10 billion Sold Abroad $25 billion
[Link] to Table 18-1. What are Bolivia’s exports?
a. $60 billion
b. $35 billion
c. $10 billion
d. None of the above are correct.
[Link] to Table 18-1. What are Bolivia’s imports?
a. $60 billion
b. $35 billion
c. $40 billion
d. None of the above are correct.
[Link] to Table 18-1. What are Bolivia’s net exports?
a. $30 billion
b. $5 billion
c. -$5 billion
d. -$25 billion
[Link] buy a new car built in Sweden. Other things the same, your purchase by itself
a. raises both Vietnam’s exports and Vietnam’s net exports.
b. raises Vietnam’s and lowers Vietnam net exports.
c. raises both Vietnam imports and Vietnam net exports.
d. raises Vietnam’s imports and Vietnam’s U.S. net exports.
[Link] capital outflow is defined as the purchase of
a. foreign assets by domestic residents minus the purchase of domestic assets by
foreign residents.
b. foreign assets by domestic residents minus the purchase of foreign goods and
services by domestic residents.
c. domestic assets by foreign residents minus the purchase of domestic goods and
services by foreign residents.
d. domestic assets by foreign residents minus the purchase of foreign assets by
domestic residents.
11. Net capital outflow measures
a. foreign assets held by domestic residents minus domestic assets held by foreign
residents.
b. the imbalance between the amount of foreign assets bought by domestic residents
and the amount of domestic assets bought by foreigners.
c. the imbalance between the amount of foreign assets bought by domestic residents
and the amount of domestic goods and services sold to foreigners.
d. None of the above is correct.
[Link] capital outflow equals
a. the purchase of foreign assets by domestic residents.
b. the purchase of domestic assets by foreign residents.
c. the purchase of domestic assets by foreign residents - the purchase of foreign
assets by domestic residents
d. the purchase of foreign assets by domestic residents - the purchase of domestic
assets by foreign residents
[Link] open economy's GDP is always given by
a. Y = C + I + G.
b. Y = C + I + G + T.
c. Y = C + I + G + S.
d. Y = C + I + G + NX.
[Link] of the following equations is always correct in an open economy?
a. I = Y - C
b. I = S
c. I = S - NCO
d. I = S + NX
[Link] of the following is correct?
a. NCO + C = NX
b. NCO = NX
c. NX - NCO = C
d. NX + NCO = C
[Link] a country has a trade surplus
a. it has positive net exports and positive net capital outflow.
b. it has positive net exports and negative net capital outflow.
c. it has negative net exports and positive net capital outflow.
d. it has negative net exports and negative net capital outflow.
[Link] a country has a trade deficit
a. it has positive net exports and positive net capital outflow.
b. it has positive net exports and negative net capital outflow.
c. it has negative net exports and positive net capital outflow.
d. it has negative net exports and negative net capital outflow.
[Link] a country has a trade surplus, then its
a. saving is greater than domestic investment and Y > C + I + G.
b. saving is greater than domestic investment and Y < C + I + G.
c. saving is less than domestic investment and Y > C +I + G.
d. saving is less than domestic investment and Y < C + I + G.
THE PRICES FOR INTERNATIONAL TRANSACTIONS: REAL AND NOMINAL
EXCHANGE RATES
[Link] nominal exchange rate is the
a. nominal interest rate in one country divided by the nominal interest rate in the
other country.
b. the ratio of a foreign country’s interest rate to the domestic interest rate.
c. rate at which a person can trade the currency of one country for another.
d. the real exchange rate minus the inflation rate.
[Link] the exchange rate were 5 Egyptian pounds per U.S. dollar, a watch that costs $25 US dol-
lars would cost
a. 125 Egyptian pounds
b. 50 Egyptian pounds
c. 5 Egyptian pounds
d. None of the above is correct.
[Link] things the same, if the dollar depreciates relative to the Japanese yen, then
a. the exchange rate falls. It will cost fewer yen to travel in the U.S.
b. the exchange rate falls. It will cost more yen to travel in the U.S.
c. the exchange rate rises. It will cost fewer yen to travel in the U.S.
d. the exchange rate rises. It will cost more yen to travel in the U.S.
[Link] things the same, if the dollar appreciates relative to the Japanese yen, then
a. the exchange rate falls. It will cost fewer yen to travel in the U.S.
b. the exchange rate falls. It will cost more yen to travel in the U.S.
c. the exchange rate rises. It will cost fewer yen to travel in the U.S.
d. the exchange rate rises. It will cost more yen to travel in the U.S.
[Link] you are vacationing in France and the dollar depreciates relative to the euro, then
a. the dollar buys more euros. It will take fewer dollars to buy a good that costs 50
euros.
b. the dollar buys more euros. It will take more dollars to buy a good that costs 50
euros.
c. the dollar buys fewer euros. It will take fewer dollars to buy a good that costs 50
euros.
d. the dollar buys fewer euros. It will take more dollars to buy a good that costs 50
euros.
[Link] things the same, if the exchange rate changes from 30 Thai bhat per dollar to 25 Thai
bhat per dollar, then the dollar has
a. appreciated and so buys more Thai goods.
b. appreciated and so buys fewer Thai goods.
c. depreciated and so buys more Thai goods.
d. depreciated and so buys fewer Thai goods.
[Link] things the same, if the exchange rate changes from .30 Kuwaiti dinar per dollar to .35
Kuwaiti dinar per dollar, then the dollar has
a. appreciated and so buys more Kuwaiti goods.
b. appreciated and so buys fewer Kuwaiti goods.
c. depreciated and so buys more Kuwaiti goods.
d. depreciated and so buys fewer Kuwaiti goods.
[Link] a dollar currently purchases 12.5 pesos and someone forecasts that in a year it will be 14
pesos, then the forecast is given in
a. real terms and implies the dollar will appreciate.
b. real terms and implies the dollar will depreciate.
c. nominal terms and implies the dollar will appreciate.
d. nominal terms and implies the dollar will depreciate.
SHORT ANSWER
[Link] that Bill, a resident of the U.S., buys software from a company in Japan. Explain why
and in what directions this changes U.S. net exports and U.S. net capital outflow.
[Link] the relation between savings, domestic investment, and net capital outflow using the na-
tional income accounting identity.