Deck 31: Open-Economy Macroeconomics: Basic Concepts

Question 1

If a country's imports exceed its exports it has a trade surplus.

Answer 1

False

Question 2

Reduced barriers to trade help explain an increase in U.S. exports and imports relative to GDP since 1950.

Answer 2

True

Question 3

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

Answer 3

False

Question 4

When a company from Germany builds an automobile factory in the United States, the German firm has engaged in foreign direct investment.

Question 5

Net capital outflow is the purchase of domestic assets by foreign residents minus the purchase of foreign assets by domestic residents.

Question 6

If a country sells more goods and services abroad than it purchases abroad, it has positive net exports and a trade surplus.

Question 7

If a country's net exports fall, then its net capital outflow falls by the same amount.

Question 8

Over the past six decades, the U.S. economy has experienced a dramatic increase in the relative importance of international trade and finance.

Question 9

If a U.S. firm buys Chinese toys using previously obtained Chinese currency, then both U.S. net exports and U.S. net capital outflow decrease.

Question 10

By itself, if a U.S. firm builds a new factory overseas, U.S. net capital outflow rises.

Question 11

A country with negative net exports has a trade surplus.

Question 12

For an economy as a whole, net exports must equal minus one times net capital outflow.

Question 13

By itself, when a Japanese bank purchases a bond issued by a U.S. corporation, U.S. net capital outflow rises.

Question 14

U.S. exports make up less than 20 percent of GDP.

Question 15

Movies are a major export of the U.S.

Question 16

If purchases of foreign assets by U.S. residents exceed purchases of U.S. assets by foreign residents, then U.S. net capital outflow is positive.

Question 17

A country must have a positive net outflow of capital if it has a trade deficit.

Question 18

When net capital outflow is negative, it means that on net the value of domestic assets purchased by foreigners exceeds the value of foreign assets purchased by domestic residents.

Question 19

Both foreign direct investment and foreign portfolio investment by U.S. residents increase U.S. net capital outflow.

Question 20

Reductions in transportation costs help explain the increase in U.S. trade flows.

Question 21

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.

Question 22

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

Question 23

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.

Question 24

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

Question 25

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.

Question 26

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

Question 27

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.

Question 28

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.

Question 29

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.

Question 30

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.

Question 31

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

Question 32

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

Question 33

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

Question 34

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

Question 35

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

Question 36

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

Question 37

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

Question 38

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.

Question 39

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

Question 40

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

Question 41

If prices in the U.S. rise faster than prices in the United Kingdom, then according to the doctrine of purchasing-power parity the U.S. nominal exchange rate should rise

Question 42

Many economists believe that the theory of purchasing-power parity describes the forces that determine exchange rates in the long run.

Question 43

The theory of purchasing-power parity states that a unit of a country's currency should be able to buy the same quantity of goods in foreign countries as it does in the domestic economy.

Question 44

Purchasing-power parity says that the nominal exchange rate must equal the real exchange rate.

Question 45

When the central bank of some country prints large quantities of money, that county's currency loses value both in terms of the goods and services it buys and in terms of the amount of foreign currencies it can buy.

Question 46

If U.S. residents purchase $450 billion of foreign assets and foreigners purchase $575 billion of U.S. assets, then the U.S. has net capital outflows of -$125 billion and a trade deficit of $125 billion.

Question 47

In the 1970s and 1980s the U.S. dollar depreciated against the German mark and appreciated against the Italian lira because U.S. inflation was lower than in Germany but higher than in Italy.

Question 48

If foreign residents purchase 30 billion pesos of Mexican assets and Mexican residents purchase 25 billion pesos of foreign assets, then Mexico has a net capital outflow of 5 billion pesos.

Question 49

If over the next year the inflation rate in the euro area is higher than the inflation rate in Japan, then the euro should depreciate relative to the Japanese yen.

Question 50

If the U.S. real exchange rate is greater than 1, then there is the possibility of arbitraging by buying foreign goods to sell in the U.S.

Question 51

Other things the same, an increase in the U.S. real exchange rate makes U.S. goods more expensive relative to foreign goods.

Question 52

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.

Question 53

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

Question 54

According to purchasing-power parity theory, the nominal exchange rate between the U.S. and another country should equal the U.S. price level divided by the price level in the foreign country.

Question 55

Other things the same, an increase in the real exchange rate raises U.S. net exports.

Question 56

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

Question 57

Jason plans to buy shrimp in Florida and sell them in Manhattan, Kansas where the price is higher. Jason plans to engage in arbitrage.

Question 58

If prices in Mexico rise at a higher rate than prices in the U.S., then according to purchasing-power parity the U.S. nominal exchange rate with Mexico should rise.

Question 59

According to purchasing power parity, the nominal exchange rate between the U.S. and another country should equal the price level of foreign goods divided by the price level of U.S. goods.

Question 60

Other things the same, an increase in the foreign price level leads to an increase in the real exchange rate.

Question 61

If the U.S. real exchange rate with Japan is greater than 1, then U.S. goods are relatively cheap.

Question 62

A country recently had a trade deficit of $2.5 trillion and purchased $3 trillion of foreign assets. How many of its assets did foreigners purchase?

Question 63

In the first quarter of 2015 the U.S. had a trade deficit. In the first quarter of 2016 exports fell and imports rose. According to these numbers what happened to net exports?

Question 64

If a country's saving rises, then either its investment or its net capital outflow rises (or both).

Question 65

If a country's exports were 500 billion pesos and its imports were 300 billion pesos, what would its trade balance be?

Question 66

Last year a country sold $500 billion euros worth of goods to foreigners and had a trade deficit of $100 billion euros. What was the value of its imports?

Question 67

Last year residents of Country A purchased $600 billion of foreign assets. Foreigners purchased $425 billion dollars of assets and $375 billion of goods and services from country A. What was the value of Country A's imports?

Question 68

A department store chain in Japan uses yen to purchase 500,000 U.S. dollars from a U.S. bank. It then uses these dollars to buy DVDs from a U.S. filmmaker. As a result of these transactions:
A. By how much and in what direction did U.S. net exports change?
B. By how much and in which direction did U.S. net capital outflow change?

Question 69

The Norwegian government uses $500,000 of previously obtained U.S. dollars to buy $500,000 of police cars from a U.S. company.
As a result of this exchange, by how much, if at all, and in which direction did:
A. U.S. net exports change?
B. U.S. net capital outflow change?

Question 70

A country had a net capital outflow of $1.5 trillion and imports of $0.5 trillion. What was the value of its exports?

Question 71

A U.S. bank loaned a Canadian oil company 1 million U.S. dollars. The Canadian company then used the entire loan to buy mining equipment from a U.S. company.
As a result of these transactions, by how much and in which direction did:
A. U.S. net exports change?
B. U.S. net capital outflow change?

Question 72

Last month a country sold more goods and services to residents of foreign countries than it purchased from them. What does this imply about this country's trade balance?

Question 73

A U.S. grocery store chain bought $800,000 worth of Kenyan currency from a bank in Kenya. It then used these funds to buy $800,000 worth of coffee from Kenyan coffee growers.
As a result of this exchange, by how much and in which direction did:
A. U.S. net exports change?
B. U.S. net capital outflow change?

Question 74

Other things the same, if the government reduced its budget deficit, the country's trade balance would rise.

Question 75

A country had a net capital outflow of 300 billion euros and exports of 400 billion euros. What was the value of its imports?

Question 76

A U.S. mutual fund uses $1 million to buy yen from a Japanese bank. It then uses these yen to buy stocks in a Japanese electronics firm. The Japanese electronic firm then exchanges the $1 million dollars of yen for dollars from a U.S. bank. It uses these dollars to buy equipment manufactured by a company located in the U.S.
As a result of these exchanges, by how much, if at all, and in which direction does:
A. U.S. net exports change?
B. U.S. net capital outflow change?

Question 77

As measured by the amount of trade it does, has the U.S. economy become more internationalized? Provide two reasons for this change.

Question 78

A U.S. firm called EcoWind produces windmills for households to generate electricity. It uses 25,000 recently obtained pesos to buy copper from a mining company in Argentina. As a result of this exchange, by how much, if at all, and in which direction did:
A. U.S. net exports change?
B. U.S. net capital outflow change?

Question 79

A U.S. mutual fund buys stock issued by a corporation in Colombia. A U.S. grocery store chain builds and manages a new warehouse in Honduras. Which one(s) of these is foreign direct investment? Which one(s) would be taken into account when computing U.S. net capital outflows?

Question 80

A country recently had a trade deficit of 350 billion euros. Its residents also purchased 400 billion euros of foreign assets. What was the value of this country's assets purchased by foreigners?