Question 1

Derive the relation between savings,domestic investment,and net capital outflow using the national income accounting identity.

Accepted Answer

Start from the national income accounting identity,
(1) Y = C + I + G + NX.
Recall from Chapter 25 that national saving is the income that is left after paying for current consumption and government expenditure,
(2) S = Y - C - G.
Rearranging,(1)we obtain Y - C - G = I + NX,and substituting in (2)
(3) S = I + NX.
Because net exports also equal net capital outflow,we can also write this equation as
(4) S = I + NCO.

Question 2

A country has $60 million of saving and domestic investment of $40 million.Net exports are

Accepted Answer

A)  $20 million.
B)  -$20 million.
C)  $100 million.
D)  -$100 million.

Question 3

In an open economy,gross domestic product equals $1,850 billion,consumption expenditure equals $975 billion,government expenditure equals $225 billion,investment equals $500 billion,and net exports equals $150 billion.What is national savings?

Accepted Answer

A)  $0
B)  $500 billion
C)  $650 billion
D)  $975 billion

Question 4

According to the theory of purchasing-power parity,the nominal exchange rate between two countries must reflect the different

Accepted Answer

A)  price levels in those countries.
B)  resource endowments in those countries.
C)  income levels in those countries.
D)  standards of living between those countries.

Question 5

Other things the same,the purchase of a U.S.government bond by a resident of Singapore decreases U.S.net capital outflow and increases Singapore's net capital outflow.

Accepted Answer

A) True 
 B)False

Question 6

Which of the following is an example of U.S.foreign portfolio investment?

Accepted Answer

A)  Toni, a U.S.citizen, buys bonds issued by a Swedish corporation.
B)  Randall, a U.S.citizen, opens a cheesecake factory in Italy.
C)  Both A and B are examples of U.S.portfolio investment.
D)  Neither A nor B are examples of U.S.portfolio investment.

Question 7

If the U.S.real exchange rate appreciates relative to the euro,U.S.exports to Europe

Accepted Answer

A)  and European exports to the U.S.both rise.
B)  and European exports to the U.S.both fall.
C)  rise, and European exports to the U.S.fall.
D)  fall, and European exports to the U.S.rise.

Question 8

If the exchange rate is 125 yen per dollar.Then a hotel room in Tokyo that costs 25,000 yen costs $200.

Accepted Answer

A) True 
 B)False  True

Question 9

Suppose the Mexican nominal exchange rate does not change,but prices rise faster abroad than in Mexico.Based on this information,the Mexican real exchange rate

Accepted Answer

A)  does not change.
B)  rises.
C)  declines.
D)  None of the above is necessarily correct.

Question 10

If Argentina's domestic investment exceeds national saving,then Argentina has

Accepted Answer

A)  positive net capital outflows and negative net exports.
B)  positive net capital outflows and positive net exports.
C)  negative net capital outflows and negative net exports.
D)  negative net capital outflows and positive net exports.

Question 11

A rational investor will always purchase the bond that pays the highest real interest rate.

Accepted Answer

A) True 
 B)False  False

Question 12

Ivan,a Russian citizen,sells several hundred cases of caviar to a restaurant chain in the United States.By itself,this sale

Accepted Answer

A)  increases U.S.net exports and has no effect on Russian net exports.
B)  increases U.S.net exports and decreases Russian net exports.
C)  decreases U.S.net exports and has no effect on Russian net exports.
D)  decreases U.S.net exports and increases Russian net exports.

Question 13

A depreciation of the U.S.real exchange rate induces U.S.consumers to buy

Accepted Answer

A)  fewer domestic goods and fewer foreign goods.
B)  more domestic goods and fewer foreign goods.
C)  fewer domestic goods and more foreign goods.
D)  more domestic goods and more foreign goods.

Question 14

If a country changes its corporate tax laws so that domestic firms build and manage more firms overseas,then this country will

Accepted Answer

A)  increase foreign direct investment which increases net capital outflow.
B)  increase foreign direct investment which decreases net capital outflow.
C)  increase foreign portfolio investment which increases net capital outflow.
D)  increase foreign portfolio investment which decreases net capital outflow.

Question 15

Clear Brook Farms,a U.S.manufacturer of frozen vegetarian entrees,sells cases of their product to stores overseas.Its sales

Accepted Answer

A)  decrease U.S.exports but increase U.S.net exports.
B)  decrease both U.S.exports and U.S.net exports.
C)  increase both U.S.exports and U.S.net exports.
D)  increase U.S.exports but decrease U.S.net exports.

Question 16

If a country has negative net capital outflows,then its net exports are

Accepted Answer

A)  positive and its saving is larger than its domestic investment.
B)  positive and its saving is smaller than its domestic investment.
C)  negative and its saving is larger than its domestic investment.
D)  negative and its saving is smaller than its domestic investment.

Question 17

If the purchasing power of the dollar is always the same at home and abroad,then the nominal exchange rate defined as units of foreign currency per dollar decreases if the U.S.price level rises more than the price level in foreign countries.

Accepted Answer

A) True 
 B)False

Question 18

In every economy,national saving equals domestic investment plus net capital outflow.

Accepted Answer

A) True 
 B)False

Question 19

One year a country has negative net exports.The next year it still has negative net exports and imports have risen more than exports.

Accepted Answer

A)  its trade surplus fell.
B)  its trade surplus rose.
C)  its trade deficit fell.
D)  its trade deficit rose

Question 20

If US goods cost 1/5 of one dollar for every Markka Finnish goods cost,the real exchange rate would be computed as how many Finnish goods per U.S.goods?

Accepted Answer

A)  five
B)  one fifth the price of the U.S.goods
C)  the amount of Markka that can be bought with 1/5 of one dollar.
D)  None of the above is correct.

Exam 31: Open-Economy Macroeconomics: Basic Concepts

Derive the relation between savings,domestic investment,and net capital outflow using the national income accounting identity.

A country has $60 million of saving and domestic investment of $40 million.Net exports are

Correct Answer
verified

In an open economy,gross domestic product equals $1,850 billion,consumption expenditure equals $975 billion,government expenditure equals $225 billion,investment equals $500 billion,and net exports equals $150 billion.What is national savings?

Correct Answer
verified

According to the theory of purchasing-power parity,the nominal exchange rate between two countries must reflect the different

Correct Answer
verified

Other things the same,the purchase of a U.S.government bond by a resident of Singapore decreases U.S.net capital outflow and increases Singapore's net capital outflow.

Correct Answer
verified

Which of the following is an example of U.S.foreign portfolio investment?

Correct Answer
verified

If the U.S.real exchange rate appreciates relative to the euro,U.S.exports to Europe

Correct Answer
verified

If the exchange rate is 125 yen per dollar.Then a hotel room in Tokyo that costs 25,000 yen costs $200.

Correct Answer
verified
True

Suppose the Mexican nominal exchange rate does not change,but prices rise faster abroad than in Mexico.Based on this information,the Mexican real exchange rate

Correct Answer
verified

If Argentina's domestic investment exceeds national saving,then Argentina has

Correct Answer
verified

A rational investor will always purchase the bond that pays the highest real interest rate.

Correct Answer
verified
False

Ivan,a Russian citizen,sells several hundred cases of caviar to a restaurant chain in the United States.By itself,this sale

Correct Answer
verified

A depreciation of the U.S.real exchange rate induces U.S.consumers to buy

Correct Answer
verified

If a country changes its corporate tax laws so that domestic firms build and manage more firms overseas,then this country will

Correct Answer
verified

Clear Brook Farms,a U.S.manufacturer of frozen vegetarian entrees,sells cases of their product to stores overseas.Its sales

Correct Answer
verified

If a country has negative net capital outflows,then its net exports are

Correct Answer
verified

If the purchasing power of the dollar is always the same at home and abroad,then the nominal exchange rate defined as units of foreign currency per dollar decreases if the U.S.price level rises more than the price level in foreign countries.

Correct Answer
verified

In every economy,national saving equals domestic investment plus net capital outflow.

Correct Answer
verified

One year a country has negative net exports.The next year it still has negative net exports and imports have risen more than exports.

Correct Answer
verified

If US goods cost 1/5 of one dollar for every Markka Finnish goods cost,the real exchange rate would be computed as how many Finnish goods per U.S.goods?

Correct Answer
verified

Exam 31: Open-Economy Macroeconomics: Basic Concepts

Derive the relation between savings,domestic investment,and net capital outflow using the national income accounting identity.

A country has $60 million of saving and domestic investment of $40 million.Net exports are

Correct AnswerverifiedShow Answer

In an open economy,gross domestic product equals $1,850 billion,consumption expenditure equals $975 billion,government expenditure equals $225 billion,investment equals $500 billion,and net exports equals $150 billion.What is national savings?

Correct AnswerverifiedShow Answer

According to the theory of purchasing-power parity,the nominal exchange rate between two countries must reflect the different

Correct AnswerverifiedShow Answer

Other things the same,the purchase of a U.S.government bond by a resident of Singapore decreases U.S.net capital outflow and increases Singapore's net capital outflow.

Correct AnswerverifiedShow Answer

Which of the following is an example of U.S.foreign portfolio investment?

Correct AnswerverifiedShow Answer

If the U.S.real exchange rate appreciates relative to the euro,U.S.exports to Europe

Correct AnswerverifiedShow Answer

If the exchange rate is 125 yen per dollar.Then a hotel room in Tokyo that costs 25,000 yen costs $200.

Correct AnswerverifiedTrue

Suppose the Mexican nominal exchange rate does not change,but prices rise faster abroad than in Mexico.Based on this information,the Mexican real exchange rate

Correct AnswerverifiedShow Answer

If Argentina's domestic investment exceeds national saving,then Argentina has

Correct AnswerverifiedShow Answer

A rational investor will always purchase the bond that pays the highest real interest rate.

Correct AnswerverifiedFalse

Ivan,a Russian citizen,sells several hundred cases of caviar to a restaurant chain in the United States.By itself,this sale

Correct AnswerverifiedShow Answer

A depreciation of the U.S.real exchange rate induces U.S.consumers to buy

Correct AnswerverifiedShow Answer

If a country changes its corporate tax laws so that domestic firms build and manage more firms overseas,then this country will

Correct AnswerverifiedShow Answer

Clear Brook Farms,a U.S.manufacturer of frozen vegetarian entrees,sells cases of their product to stores overseas.Its sales

Correct AnswerverifiedShow Answer

If a country has negative net capital outflows,then its net exports are

Correct AnswerverifiedShow Answer

If the purchasing power of the dollar is always the same at home and abroad,then the nominal exchange rate defined as units of foreign currency per dollar decreases if the U.S.price level rises more than the price level in foreign countries.

Correct AnswerverifiedShow Answer

In every economy,national saving equals domestic investment plus net capital outflow.

Correct AnswerverifiedShow Answer

One year a country has negative net exports.The next year it still has negative net exports and imports have risen more than exports.

Correct AnswerverifiedShow Answer

If US goods cost 1/5 of one dollar for every Markka Finnish goods cost,the real exchange rate would be computed as how many Finnish goods per U.S.goods?

Correct AnswerverifiedShow Answer

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True

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False

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