Ch 5 Flashcards
A small open economy increases its investment demand. This causes the world real interest rate to ________ and the country’s current account balance to ________.
remain unchanged; fall
If a country’s merchandise exports exceeds its merchandise imports it has a
trade surplus
If a US firm buys tulips from a Dutch firm and the Dutch fir uses the dollars to by US stocks, the US trade balance _______ and the US capital and financial account _______.
falls;rises
A capital and financial account surplus necessarily implies
a current account deficit
The price of one currency in terms of another is called
the exchange rate
The real exchange rate is
the price of domestic goods relative to foreign goods
When the domestic currency buys fewer units of foreign currency, the
nominal exchange rate falls
Net exports of goods are known as
the merchandise trade balance
If a country’s merchandise exports exceeds its merchandise imports it has a
trade surplus
If France has a trade deficit, then
imports into France exceed exports from France
If all international factor payment flows are investment income, then net income investment income from abroad equals
net factor payments from abroad
Assume that an increase in Costa Rica’s government beget deficit reduced desired national savings by 10 million….
reduce the current account balance by exactly 10 million colon.
The current account balance consists of
net exports of goods and services, plus investment income from abroad, plus net unilateral transfers
An increase in a small open economy’s government budget deficit that reduces national saving and the current account balance causes an
increase in absorption
Consider a small open economy S^d=200 + 10,000r^w
-100
