Question 1

A U.S. citizen buys bonds issued by a construction equipment manufacturer in Poland. Her expenditures are U.S.
A)foreign portfolio investment that increase U.S. net capital outflow.
B)foreign portfolio investment that decrease U.S. net capital outflow.
C)foreign direct investment that increase U.S. net capital outflow.
D)foreign direct investment that decrease U.S. net capital outflow.

Accepted Answer

The U.S. citizen is buying bonds issued by a foreign company, which falls under foreign portfolio investment. Since the investment is going out of the country, it increases U.S. net capital outflow.

Question 2

A U.S. mutual fund buys stocks issued by a Columbian company. This purchase is an example of
A)U.S. foreign direct investment. It increases Columbia's net capital outflow.
B)U.S. foreign direct investment. It decreases Columbia's net capital outflow.
C)U.S. foreign portfolio investment. It decreases Columbia's net capital outflow.
D)U.S. foreign portfolio investment. It increases Columbia's net capital outflow.

Accepted Answer

The purchase of stocks by a U.S. mutual fund in a Columbian company would be considered foreign portfolio investment since it involves the purchase of stocks rather than a direct investment in the company. As for its effect on capital outflow, it would decrease Columbia's net capital outflow as the U.S. is investing in Columbian securities, which would increase the inflow of capital to Columbia from foreign investors.

Question 3

Suppose that real interest rates in the U.S. rise relative to real interest rates in other countries. This increase would make foreigners
A)more willing to purchase U.S. bonds, so U.S. net capital outflow would fall.
B)more willing to purchase U.S. bonds, so U.S. net capital outflow would rise.
C)less willing to purchase U.S. bonds, so U.S. net capital outflow would fall.
D)less willing to purchase U.S. bonds, so U.S. net capital outflow would rise.

Accepted Answer

When real interest rates in the U.S. rise relative to those in other countries, U.S. bonds become more attractive to foreigners because they can earn a higher return on these investments. This increased demand for U.S. bonds by foreigners means that more foreign capital is flowing into the U.S., which reduces the U.S. net capital outflow. Net capital outflow is the purchase of foreign assets by domestic residents minus the purchase of domestic assets by foreigners. When foreigners buy more U.S. bonds, they are increasing their purchase of U.S. assets, which decreases the net capital outflow.

Question 4

Sam, a U.S. citizen, buys bonds issued by a Greek company that bottles olives. Sam's purchase is
A)foreign direct investment. By itself it increases U.S. net capital outflow.
B)foreign direct investment. By itself it decreases U.S. net capital outflow.
C)foreign portfolio investment. By itself it increases U.S. net capital outflow.
D)foreign portfolio investment. By itself it decreases U.S. net capital outflow.

Accepted Answer

Sam's purchase of bonds issued by a Greek company is an example of foreign portfolio investment, as he is investing in securities without taking an active role in the management of the company. This type of investment increases U.S. net capital outflow, as money is flowing out of the country to purchase foreign assets.

Question 5

John, a U.S. citizen, opens up a Sports bar in Tokyo. This is an example of U.S.
A)exports.
B)imports.
C)foreign portfolio investment.
D)foreign direct investment.

Accepted Answer

This is foreign direct investment, as John is directly investing in and opening a business in Tokyo.

Question 6

Matt and Melinda are American residents. Matt buys stock issued by a German corporation. Melinda opens a shoe factory in Panama. Whose purchase, by itself, increases the U.S.'s net capital outflow?
A)Matt's
B)Melinda's
C)both Matt's and Melinda's
D)neither Matt's nor Melinda's

Accepted Answer

The answer of Matt and Melinda are American residents. Matt...

Question 7

A U.S. citizen buys bonds issued by an automobile manufacturer in Japan. Her expenditures are U.S.
A)foreign direct investment that increase U.S. net capital outflow.
B)foreign direct investment that decrease U.S. net capital outflow.
C)foreign portfolio investment that increase U.S. net capital outflow.
D)foreign portfolio investment that decrease U.S. net capital outflow.

Accepted Answer

The U.S. citizen buying bonds issued by an automobile manufacturer in Japan is an example of foreign portfolio investment (FPI) as it does not involve the purchase of ownership (stock) in the foreign company. FPI increases U.S. net capital outflow as it involves U.S. residents investing in foreign assets, which results in a decrease in the amount of capital flowing into the United States.

Question 8

Other things the same, which of the following could explain a rise in Sweden's net capital outflow?
A)interest rates on Swedish bonds rise
B)the probability of default on Swedish bonds rises
C)Sweden enacts a law reducing taxes on income earned by foreign-owned businesses operating in Sweden
D)None of the above are correct.

Accepted Answer

The answer of Other things the same, which of the...

Question 9

Susan, a U.S. citizen, builds and operates a kennel in France. This action is an example of
A)investment for Susan and U.S. foreign direct investment.
B)investment for Susan and U.S. foreign portfolio investment.
C)U.S. foreign direct investment and U.S. domestic investment.
D)U.S. foreign portfolio investment and U.S. domestic investment.

Accepted Answer

Susan's building and operating a kennel in France qualifies as U.S. foreign direct investment because she has controlling ownership and management of the French kennel. Additionally, it is an investment for Susan herself as she is putting money into the business.

Question 10

Greg, a U.S. citizen, opens an ice cream store in Bermuda. His expenditures are U.S.
A)foreign portfolio investment that increase U.S. net capital outflow.
B)foreign portfolio investment that decrease U.S. net capital outflow.
C)foreign direct investment that increase U.S. net capital outflow.
D)foreign direct investment that decrease U.S. net capital outflow.

Accepted Answer

Opening an ice cream store in Bermuda would be considered foreign direct investment, as Greg is directly investing in and owning the business. This would increase U.S. net capital outflow, as money is being invested overseas. Therefore, the best answer is C - foreign direct investment that increase U.S. net capital outflow.

Question 11

Alfonso, a citizen of Italy, decides to purchase bonds issued by Ireland instead of ones issued by the United States even though the Irish bonds have a higher risk of default. An economic reason for his decision might be that
A)he dislikes U.S. foreign policy.
B)the Irish bonds pay a higher rate of interest.
C)the U.S. government is more stable than the Irish government.
D)None of the above provide an economic reason for buying the riskier bond.

Accepted Answer

The economic reason for Alfonso's decision is that the Irish bonds pay a higher rate of interest, meaning they offer a higher potential return on investment. This is despite the higher risk of default associated with investing in Irish bonds instead of U.S. bonds. The other options provided (A and C) do not offer a direct economic rationale for Alfonso's decision.

Question 12

If a country changes its corporate tax laws so that domestic businesses build and manage more business in other countries, then the net capital outflow of that country
A)and the net capital outflow of other countries rise.
B)rises and the net capital outflow of other countries fall.
C)falls and the net capital outflow of other countries rise.
D)None of the above are correct.

Accepted Answer

The answer of If a country changes its corporate tax...

Question 13

A U.S. firm buys bonds issued by a technology center in India. This purchase is an example of U.S.
A)foreign portfolio investment. By itself it is an increase in U.S. holdings of foreign bonds and increases U.S. net capital outflow.
B)foreign portfolio investment. By itself it is an increase in U.S. holdings of foreign bonds and decreases U.S. net capital outflow.
C)foreign direct investment. By itself it is an increase in U.S. holdings of foreign bonds and increases U.S. net capital outflow.
D)foreign direct investment. By itself it is an increase in U.S. holdings of foreign bonds and decreases U.S. net capital outflow.

Accepted Answer

The purchase of bonds by a U.S. firm in India is an example of foreign portfolio investment, as it involves the purchase of financial assets issued by a foreign entity. This purchase increases U.S. holdings of foreign bonds and leads to an increase in U.S. net capital outflow, as the U.S. is investing in a foreign country. Therefore, choice A is the correct answer.

Question 14

Suppose that the real return from operating factories in Canada rises relative to the real rate of return in the United States. Other things the same,
A)this will increases U.S. net capital outflow and decrease Canadian net capital outflow.
B)this will decreases U.S. net capital outflow and increase Canadian net capital outflow.
C)this will only increase U.S. net capital outflow.
D)this will only increase Canadian net capital outflow.

Accepted Answer

If the real return from operating factories in Canada rises relative to the real rate of return in the United States, it will incentivize investors to move their money to Canada in search of higher returns. As a result, US net capital outflow will increase, as investors will be sending more money to Canada. On the other hand, Canadian net capital outflow will decrease as investors will be keeping their money in Canada, resulting in a decrease in the outflow of capital. Therefore, option A is the correct choice.

Question 15

Mark, a U.S. citizen, buys stock in a British Shipping company. This purchase is an example of
A)investment for Mark and U.S. foreign direct investment.
B)investment for Mark and U.S. foreign portfolio investment.
C)saving for Mark and U.S. foreign direct investment.
D)saving for Mark and U.S. foreign portfolio investment.

Accepted Answer

The answer of Mark, a U.S. citizen, buys stock in...

Question 16

When making investment decisions, investors
A)compare the real interest rates offered on different bonds.
B)compare the nominal, but not the real, interest rates offered on different bonds.
C)purchase the highest-priced bond available.
D)All of the above are correct.

Accepted Answer

When making investment decisions, investors should consider the real interest rates offered on different bonds rather than just the nominal rates. Real interest rates take inflation into account and provide a more accurate picture of the returns an investor can expect to receive over time. Purchasing the highest-priced bond available is not necessarily the best choice, as the price of a bond does not necessarily indicate its real value or potential for returns.

Question 17

Other things the same, which of the following would both make foreigners more willing to engage in U.S. portfolio investment?
A)U.S. interest rates rise, the default risk of U.S. assets rise
B)U.S. interest rates rise, the default risk of U.S. assets fall
C)U.S. interest rates fall, the default risk of U.S. assets rise
D)U.S. interest rates fall, the default risk of U.S. assets fall

Accepted Answer

The answer of Other things the same, which of the...

Question 18

Carl and Carly are American residents. Carl buys stock of a corporation in Austria. Carly opens a coffee shop in Austria. Whose purchase, by itself, decreases Austria's net capital outflow?
A)Carl's
B)Carly's
C)both Carl's and Carly's
D)neither Carl's nor Carly's

Accepted Answer

The answer of Carl and Carly are American residents. Carl...

Question 19

If a country changes its corporate tax laws so that foreign businesses build and manage more business in that country, then the net capital outflow of that country
A)and the net capital outflow of other countries rise.
B)rises and the net capital outflow of other countries fall.
C)falls and the net capital outflow of other countries rise.
D)None of the above are correct.

Accepted Answer

The answer of If a country changes its corporate tax...

Question 20

A Swiss watchmaker opens a factory in the United States. This is an example of Swiss
A)exports.
B)imports.
C)foreign portfolio investment.
D)foreign direct investment.

Accepted Answer

Foreign direct investment refers to a company opening a factory or investing in a business in another country. In this case, the Swiss watchmaker is investing in opening a factory in the United States. Therefore, D is the correct answer.

Quiz 31: Open-Economy Macroeconomics: Basic Concepts

A U.S. citizen buys bonds issued by a construction equipment manufacturer in Poland. Her expenditures are U.S.

A U.S. mutual fund buys stocks issued by a Columbian company. This purchase is an example of

Suppose that real interest rates in the U.S. rise relative to real interest rates in other countries. This increase would make foreigners

Sam, a U.S. citizen, buys bonds issued by a Greek company that bottles olives. Sam's purchase is

John, a U.S. citizen, opens up a Sports bar in Tokyo. This is an example of U.S.

Matt and Melinda are American residents. Matt buys stock issued by a German corporation. Melinda opens a shoe factory in Panama. Whose purchase, by itself, increases the U.S.'s net capital outflow?

A U.S. citizen buys bonds issued by an automobile manufacturer in Japan. Her expenditures are U.S.

Other things the same, which of the following could explain a rise in Sweden's net capital outflow?

Susan, a U.S. citizen, builds and operates a kennel in France. This action is an example of

Greg, a U.S. citizen, opens an ice cream store in Bermuda. His expenditures are U.S.

Alfonso, a citizen of Italy, decides to purchase bonds issued by Ireland instead of ones issued by the United States even though the Irish bonds have a higher risk of default. An economic reason for his decision might be that

If a country changes its corporate tax laws so that domestic businesses build and manage more business in other countries, then the net capital outflow of that country

A U.S. firm buys bonds issued by a technology center in India. This purchase is an example of U.S.

Suppose that the real return from operating factories in Canada rises relative to the real rate of return in the United States. Other things the same,

Mark, a U.S. citizen, buys stock in a British Shipping company. This purchase is an example of

When making investment decisions, investors

Other things the same, which of the following would both make foreigners more willing to engage in U.S. portfolio investment?

Carl and Carly are American residents. Carl buys stock of a corporation in Austria. Carly opens a coffee shop in Austria. Whose purchase, by itself, decreases Austria's net capital outflow?

If a country changes its corporate tax laws so that foreign businesses build and manage more business in that country, then the net capital outflow of that country

A Swiss watchmaker opens a factory in the United States. This is an example of Swiss