Question 1

If Walmart buys $50 million worth of consumer goods from China and sells them in the U.S. ,and China uses the $50 million to purchase U.S.bonds,U.S.net exports and U.S.net capital outflow both fall.

Accepted Answer

When Walmart buys $50 million worth of consumer goods from China and sells them in the U.S., it increases the U.S. imports and decreases the U.S. net exports. This means that the U.S. is now buying more than it is selling to other countries.

When China uses the $50 million to purchase U.S. bonds, it decreases the U.S. net capital outflow because China is now investing in the U.S. financial market. This means that less money is flowing out of the U.S. to buy foreign assets.

Overall, both U.S. net exports and U.S. net capital outflow decrease because of this transaction.

Question 2

A Turkish firm exchanges lira (Turkish currency)for dollars.It then uses these dollars to purchase computers from the U.S.These actions decrease U.S.net capital outflow and increase U.S.net exports.

Accepted Answer

The exchange of lira for dollars and subsequent purchase of computers from the U.S. would increase U.S. net exports due to the sale of goods abroad, but it would not affect U.S. net capital outflow, which pertains to U.S. investments abroad minus foreign investments in the U.S.

Question 3

The increase in the trade deficit in the 1980's reflected a decrease in national saving that is associated with an increase in the government budget deficit.

Accepted Answer

When national saving decreases, it means that the amount of money available for investment in the economy decreases. This leads to an increase in borrowing from foreign countries to finance domestic investment. As a result, the trade deficit increases. The increase in the government budget deficit also leads to a decrease in national saving as the government spends more than it collects in taxes, which puts upward pressure on interest rates and further reduces private investment. Therefore, the increase in the trade deficit in the 1980s was indeed associated with a decrease in national saving and an increase in the government budget deficit.

Question 4

If a country's trade surplus falls,its net capital outflow rises.

Accepted Answer

A country's trade surplus falling does not necessarily mean its net capital outflow rises. Trade surplus is the difference between a country's exports and imports, while net capital outflow is the difference between domestic investments abroad and foreign investments in the domestic economy. These two are related but not directly proportional; changes in one do not automatically lead to specific changes in the other.

Question 5

When U.S.national saving rises,domestic investment also necessarily rises.

Accepted Answer

An increase in U.S. national saving does not necessarily lead to an increase in domestic investment. The relationship depends on various factors, including interest rates, economic conditions, and the global financial market. Increased savings can lead to higher investment, but it can also result in increased capital outflows to foreign investments.

Question 6

If the price of a good in the U.S.is $10,the exchange rate is 2 units of foreign currency per dollar,and the foreign price of the same good is 30 units of foreign currency,then the real exchange rate is 2/3.

Accepted Answer

The real exchange rate is calculated as the foreign price of the good divided by the domestic price of the good multiplied by the exchange rate. 
Real exchange rate = (30 units of foreign currency / $10) * 2 units of foreign currency per dollar
Real exchange rate = 6 units of foreign currency per dollar
Therefore, the real exchange rate is 2/3 (or 0.6667) units of foreign currency per domestic dollar.

Question 7

If a German firm buys goods from a U.S.firm with dollars it obtains by exchanging euros for dollars,both U.S.net exports and U.S.net capital outflow increase.

Accepted Answer

When a German firm buys goods from a U.S. firm using dollars obtained by exchanging euros for dollars, it increases U.S. net exports because a sale was made to a foreign entity, and it also increases U.S. net capital outflow because the U.S. received dollars in exchange for allowing foreign ownership of its assets.

Question 8

In an open economy national saving equals domestic investment plus net capital outflow.

Accepted Answer

This is a fundamental identity in macroeconomics known as the national saving-investment identity. It states that all the saving in the economy (from households, businesses, and the government) can be used for either domestic investment (such as buying new capital goods) or for lending to foreign countries (net capital outflow). In an open economy where there is international trade and investment, this identity must hold true.

Question 9

If the exchange rate is 80 yen per dollar,then a hotel room in Tokyo that costs 25,000 yen costs $200.

Accepted Answer

To convert yen to dollars, we need to divide the yen amount by the exchange rate.

25,000 yen / 80 yen per dollar = $312.50

Therefore, a hotel room in Tokyo that costs 25,000 yen actually costs $312.50, not $200.

Question 10

Other things the same,an increase in the nominal exchange rate raises the real exchange rate.

Accepted Answer

An increase in the nominal exchange rate means that the domestic currency becomes more valuable relative to foreign currencies. This causes an increase in the real exchange rate because the purchasing power of the domestic currency has increased relative to foreign currencies.

Question 11

If a nation is selling more goods and services to foreigners than it is buying from them,then on net it must be selling assets abroad.

Accepted Answer

If a nation is selling more goods and services to foreigners than it is buying from them, it has a trade surplus, not necessarily selling assets abroad. This means it is earning more from exports than it spends on imports, which can increase its foreign reserves or be invested in foreign assets, but doesn't imply a net sale of domestic assets to foreigners.

Question 12

To increase domestic investment,a country must increase its saving.

Accepted Answer

The answer of To increase domestic investment,a country must increase...

Question 13

It is possible for a country to have domestic investment that exceeds national saving.

Accepted Answer

This occurs when the country borrows from foreign markets to finance the excess investment, resulting in a current account deficit.

Question 14

In an open economy,national saving can be less than investment.

Accepted Answer

In an open economy, investment can be financed by foreign savings through capital inflows, which means that national saving can be less than investment.

Question 15

The large trade deficits in the U.S.during the 1990's were primarily associated with a rise in domestic investment spending rather than a rise in the budget deficit.

Accepted Answer

The large trade deficits during the 1990s were mainly caused by increased domestic investment spending, such as investments in new technologies and infrastructure, rather than a rise in the budget deficit. This led to increased imports of capital goods and other foreign products, contributing to the trade deficit.

Question 16

If a nation is selling more goods and services to foreigners than it is buying from them,then on net it must be buying assets abroad.

Accepted Answer

If a nation has a trade surplus, it means it is receiving more international currency than it is sending out. This surplus can be used to buy assets abroad such as foreign stocks, bonds or real estate.

Question 17

From 2008 to 2012 both U.S.saving and U.S.investment fell.

Accepted Answer

According to data from the Bureau of Economic Analysis, both U.S. saving and U.S. investment decreased from 2008 to 2012 as a result of the global financial crisis.

Question 18

A nation with a trade surplus will necessarily have saving that is greater than domestic investment.

Accepted Answer

A trade surplus means that a nation is exporting more goods and services than it is importing, which leads to an increase in its foreign assets. This increase in foreign assets represents savings that are greater than domestic investment.

Question 19

Other things the same,if U.S.net capital outflow rises,so does U.S.saving.

Accepted Answer

The answer of Other things the same,if U.S.net capital outflow...

Question 20

If the exchange rate is 12.5 pesos per U.S.dollar,it is also 1/12.5 U.S.dollars per peso.

Accepted Answer

This is correct as the reciprocal of 12.5 pesos per U.S. dollar is indeed 1/12.5 U.S. dollars per peso.

Quiz 18: Open Economy Macroeconomics Basic Concepts: Part B