Question 1

Which of the following can sometimes be referred to as "hot money"?

Accepted Answer

A)   Foreign portfolio investment
B)   Foreign direct investment
C)   Net capital inflow
D)   Net capital outflowE) B) and C)
F) C) and D)

Question 2

One reason for the huge investment by China into the US economy is the:

Accepted Answer

A)   the desire of China to â€˜sinkâ€™ the US economy.
B)   Chinese investors view that US investments are less stable.
C)   large savings rate in China that encourage capital outflow.
D)   low savings rate in China which makes the cost of borrowing very low in China.E) A) and B)
F) B) and D)

Question 3

The U.S. is able to maintain a large trade deficit because:

Accepted Answer

A)   when the business cycle is in a boom, it will be a trade surplus.
B)   it is balanced by a large capital surplus.
C)   it is balanced by a large capital deficit.
D)   None of these statements is true.E) None of the above
F) A) and B)

Question 4

Which of the following is likely to decrease the supply of U.S. dollars in the forex market?

Accepted Answer

A)   If foreign interest rates are low relative to U.S. interest rates
B)   If investors' confidence in foreign economies increases
C)   If U.S. consumers prefer foreign goods to U.S. goods
D)   All of these will increase the supply of U.S. dollars.E) A) and D)
F) B) and C)

Question 5

The Asian financial crisis was brought about by:

Accepted Answer

A)   debt crisis.
B)   exchange rate crisis.
C)   excessive loss of national resources.
D)   None of these statements is true.E) B) and D)
F) None of the above

Question 6

When Pierre in Paris, France buys stock in Disney, Inc., he is contributing to:

Accepted Answer

A)   capital outflow from the U.S.
B)   capital inflow to the U.S.
C)   domestic investment in the U.S.
D)   private savings in the U.S.E) A) and B)
F) None of the above

Question 7

A main trading partner with the U.S. is:

Accepted Answer

A)   South Africa.
B)   China.
C)   Norway.
D)   Saudi Arabia.E) None of the above
F) A) and B)

Question 8

The market for buying and selling foreign currencies is often referred to as the market for:

Accepted Answer

A)   foreign exchange.
B)   loanable funds.
C)   international trade.
D)   direct foreign investment.E) B) and C)
F) A) and C)

Question 9

Using a fixed exchange rate to undervalue your currency:

Accepted Answer

A)   will increase your exports.
B)   will encourage capital flow to countries other than your own.
C)   makes imports very expensive for your citizens.
D)   All of these statements are true.E) C) and D)
F) B) and D)

Question 10

Monetary policy is more effective when:

Accepted Answer

A)   the exchange rate is fixed.
B)   the exchange rate is floating.
C)   it is contractionary.
D)   it is expansionary.E) A) and B)
F) All of the above

Question 11

In a closed economy S = I, so in an open economy:

Accepted Answer

A)   S = I − NX.
B)   S = I + NX.
C)   S + I = NX.
D)   S + NX = I.E) A) and B)
F) None of the above

Question 12

Apple is an American company, but its iPhones are assembled in China. The sale of each iPhone then is counted in US GDP as:

Accepted Answer

A)   consumption.
B)   investment.
C)   an import.
D)   an export.E) A) and B)
F) C) and D)

Question 13

When the Fed lowers the interest rate:

Accepted Answer

A)   investment increases, and net exports decreases.
B)   both investment and net exports increase.
C)   both investment and net exports decrease.
D)   investment decreases, and net exports increase.E) C) and D)
F) A) and D)

Question 14

When interest rates in the U.S. decline, we can expect capital:

Accepted Answer

A)   inflows and outflows to decrease.
B)   inflows and outflows to increase.
C)   inflow to decrease, and outflow to increase.
D)   outflow to decrease, and inflow to increase.E) B) and C)
F) None of the above

Question 15

The balance of trade is the value of:

Accepted Answer

A)   exports minus the value of imports.
B)   imports minus the value of exports.
C)   total goods purchased by the U.S. from abroad.
D)   total goods sold by the U.S. to parties abroad.E) B) and C)
F) A) and D)

Question 16

If the dollar appreciates in the foreign exchange market:

Accepted Answer

A)   net exports will increase.
B)   net exports will decrease.
C)   net exports will be unaffected.
D)   It is impossible to say how net exports will be affected without knowing how net capital outflow is affected.E) C) and D)
F) All of the above

Question 17

When Pam from Pennsylvania buys stock in Ford Motor Co., she is contributing to:

Accepted Answer

A)   domestic portfolio investment in the U.S.
B)   capital outflow for the U.S.
C)   capital inflow for the U.S.
D)   foreign direct investment for the U.S.E) A) and B)
F) All of the above

Question 18

When the dollar appreciates against the euro, the euro has:

Accepted Answer

A)   appreciated against the dollar.
B)   depreciated against the dollar.
C)   become more valuable relative to all other currencies.
D)   become less valuable relative to all other currencies.E) A) and D)
F) A) and C)

Question 19

When the U.S. government runs a deficit, the savings in the market for loanable funds shifts:

Accepted Answer

A)   left, increasing interest rates and decreasing domestic investment and NCO.
B)   left, decreasing interest rates and increasing domestic investment and NCO.
C)   right, decreasing interest rates and increasing domestic investment and NCO.
D)   right, increasing interest rates, and increasing domestic investment and NCO.E) B) and C)
F) B) and D)

Question 20

When interest rates in the U.S. increase, we could expect:

Accepted Answer

A)   more foreigners investing in U.S. assets.
B)   less foreigners investing in U.S. assets.
C)   more U.S. citizens investing abroad.
D)   less U.S. citizens investing in U.S. assets.E) B) and C)
F) A) and D)

Exam 18: Open-Market Macroeconomics

Which of the following is likely to decrease the supply of U.S. dollars in the forex market?

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The U.S. is able to maintain a large trade deficit because:

Correct AnswerverifiedShow Answer

When the U.S. government runs a deficit, the savings in the market for loanable funds shifts:

Correct AnswerverifiedShow Answer

When Pam from Pennsylvania buys stock in Ford Motor Co., she is contributing to:

Correct AnswerverifiedShow Answer

Monetary policy is more effective when:

Correct AnswerverifiedShow Answer

When the dollar appreciates against the euro, the euro has:

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The Asian financial crisis was brought about by:

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When the Fed lowers the interest rate:

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When interest rates in the U.S. increase, we could expect:

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When Pierre in Paris, France buys stock in Disney, Inc., he is contributing to:

Correct AnswerverifiedShow Answer

One reason for the huge investment by China into the US economy is the:

Correct AnswerverifiedShow Answer

When interest rates in the U.S. decline, we can expect capital:

Correct AnswerverifiedShow Answer

Which of the following can sometimes be referred to as "hot money"?

Correct AnswerverifiedShow Answer

Using a fixed exchange rate to undervalue your currency:

Correct AnswerverifiedShow Answer

Apple is an American company, but its iPhones are assembled in China. The sale of each iPhone then is counted in US GDP as:

Correct AnswerverifiedShow Answer

The balance of trade is the value of:

Correct AnswerverifiedShow Answer

The market for buying and selling foreign currencies is often referred to as the market for:

Correct AnswerverifiedShow Answer

If the dollar appreciates in the foreign exchange market:

Correct AnswerverifiedShow Answer

A main trading partner with the U.S. is:

Correct AnswerverifiedShow Answer

In a closed economy S = I, so in an open economy:

Correct AnswerverifiedShow Answer

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