Final: 17, 18, 19

Question 1

1. Inflation can be measured by the
   a. change in the consumer price index.
   b. percentage change in the consumer price index.
   c. percentage change in the price of a specific commodity.
   d. change in the price of a specific commodity.

Answer 1

b

Question 2

2. Over the last 70 years the average annual U.S. inflation rate was about
   a. 2 percent.
   b. 4 percent.
   c. 6 percent.
   d. 8 percent.

Answer 2

b

Question 3

3. Over the last 70 years the average annual U.S. inflation rate was about
   a. 2 percent implying that prices have increased 10-fold.
   b. 4 percent implying that prices have increased 10-fold.
   c. 2 percent implying that prices have increased 16-fold.
   d. 4 percent implying that prices increased about 16-fold.

Answer 3

d

Question 4

4. The price level rises from 120 to 150. What was the inflation rate?
   a. 30%
   b. 25%
   c. 20%
   d. None of the above is correct.

Answer 4

b

Question 5

5. The price level rises from 120 to 126. What is the inflation rate?
   a. 3%
   b. 5%
   c. 6%
   d. None of the above is correct.

Answer 5

b

Question 6

6. When prices are falling, economists say that there is
   a. disinflation.
   b. deflation.
   c. a contraction.
   d. an inverted inflation.

Answer 6

b

Question 7

7. If the price index in some country were falling over time, economists would say that country had
   a. disinflation.
   b. deflation.
   c. a contraction.
   d. an inverted inflation.

Answer 7

b

Question 8

8. Deflation
   a. increases the ability to pay debts and raises the value of money.
   b. increases the ability to pay debts and lowers the value of money.
   c. reduces the ability to pay debts and raises the value of money.
   d. reduces the ability to pay debts and lowers the value of money.

Answer 8

c

Question 9

9. Which of the following statements about U.S. inflation is not correct?
   a. Low inflation was viewed as a triumph of President Carter’s economic policy.
   b. There were long periods in the nineteenth century during which prices fell.
   c. The U.S. public has viewed inflation of even 7 percent as a major economic problem.
   d. The U.S. inflation rate has varied over time, but international data shows even more variation.

Answer 9

a

Question 10

10. Which of the following concerning the history of U.S. inflation is not correct?
    a. Prices rose at an average annual rate of about 4 percent over the last 70 years.
    b. There was about a 16-fold increase in the price level over the last 70 years.
    c. Inflation in the 1970s was below the average over the last 70 years.
    d. During it’s history the United States has experienced periods of deflation.

Answer 10

c

Question 11

11. Which of the following is correct?
    a. hyperinflation is a period of extraordinarily high inflation.
    b. deflation is negative inflation, not just a decrease in the inflation rate.
    c. during the 1990s US inflation averaged 2% per year.
    d. All of the above are correct.

Answer 11

d

Question 12

12. There was hyperinflation
    a. during 1880-1896 in the United States.
    b. in post-World War I Germany.
    c. during the 1970s in the United States.
    d. All of the above are correct.

Answer 12

b

Question 13

13. The classical theory of inflation
    a. is also known as the quantity theory of money.
    b. was developed by some of the earliest economic thinkers.
    c. is used by most modern economists to explain the long-run determinants of the inflation rate.
    d. All of the above are correct.

Answer 13

d

Question 14

14. The quantity theory of money
    a. is a fairly recent addition to economic theory.
    b. can explain both moderate inflation and hyperinflation.
    c. argues that inflation is caused by too little money in the economy.
    d. All of the above are correct.

Answer 14

b

Question 15

15. Economists all agree that
    a. neither high inflation nor moderate inflation is very costly.
    b. both high and moderate inflation are quite costly.
    c. high inflation is costly, but disagree about the costs of moderate inflation.
    d. moderate inflation is as costly as high inflation.

Answer 15

c

Question 16

16. As the price level decreases, the value of money
    a. increases, so people want to hold more of it.
    b. increases, so people want to hold less of it.
    c. decreases, so people want to hold more of it.
    d. decreases, so people want to hold less of it.

Answer 16

b

Question 17

17. An increase in the price level makes the value of money
    a. increase, so people want to hold more of it.
    b. increase, so people want to hold less of it.
    c. decrease, so people want to hold more of it.
    d. decrease, so people want to hold less of it.

Answer 17

c

Question 18

18. When the price level falls, the number of dollars needed to buy a representative basket of goods
    a. increases, so the value of money rises.
    b. increases, so the value of money falls.
    c. decreases, so the value of money rises.
    d. decreases, so the value of money falls.

Answer 18

c

Question 19

19. When the price level rises, the number of dollars needed to buy a representative basket of goods
    a. increases, and so the value of money rises.
    b. increases, and so the value of money falls.
    c. decreases, and so the value of money rises.
    d. decreases, and so the value of money falls

Answer 19

b

Question 20

20. The supply of money is determined by
    a. the price level.
    b. the Treasury and Congressional Budget Office.
    c. the Federal Reserve System.
    d. the demand for money.

Answer 20

c

Question 21

21. The supply curve of money is vertical because the quantity of money supplied increases
    a. when the value of money increases.
    b. when the value of money decreases.
    c. only if people desire to hold more money.
    d. only if the central bank increases the money supply.

Answer 21

d

Question 22

22. The supply of money increases when
    a. the value of money increases.
    b. the interest rate increases.
    c. the Fed makes open-market purchases.
    d. None of the above is correct.

Answer 22

c

Question 23

23. Money demand refers to
    a. the total quantity of financial assets that people want to hold.
    b. how much income people want to make per year.
    c. how much wealth people want to hold in liquid form.
    d. how much currency the Federal Reserve decides to print.

Answer 23

c

Question 24

24. When the money market is drawn with the value of money on the vertical axis, the money demand curve slopes
    a. upward because at higher prices people want to hold more money.
    b. downward because at higher prices people want to hold more money.
    c. downward because at higher price people want to hold less money.
    d. upward, because at higher prices people want to hold less money.

Answer 24

b

Question 25

25. When the money market is drawn with the value of money on the vertical axis, as the price level increases the quantity of money
    a. demanded increases.
    b. demanded decreases.
    c. supplied increases.
    d. supplied decreases.

Answer 25

a

Question 26

26. When the money market is drawn with the value of money on the vertical axis, an increase in the price level causes a
    a. shift to the right of the money demand curve.
    b. shift to the left of the money demand curve.
    c. movement to the left along the money demand curve.
    d. movement to the right along the money demand curve.

Answer 26

d

Question 27

27. When the money market is drawn with the value of money on the vertical axis, as the price level increases, the value of money
    a. increases, so the quantity of money demanded increases.
    b. increases, so the quantity of money demanded decreases.
    c. decreases, so the quantity of money demanded decreases.
    d. decreases, so the quantity of money demanded increases.

Answer 27

d

Question 28

28. When the money market is drawn with the value of money on the vertical axis,
    a. money demand slopes up and money supply is horizontal.
    b. money demand slopes down and money supply is vertical.
    c. money demand slopes up and money supply is horizontal.
    d. money demand slope down and money supply is vertical.

Answer 28

b

Question 29

29. When the money market is drawn with the value of money on the vertical axis, long-run equilibrium is obtained when the quantity demanded and quantity supplied of money are equal due to adjustments in the
    a. the value of money.
    b. real interest rates.
    c. nominal interest rates.
    d. money supply.

Answer 29

a

Question 30

30. When the money market is drawn with the value of money on the vertical axis, if the price level is above the equilibrium level, there is an
    a. excess demand for money, so the price level will rise.
    b. excess demand for money, so the price level will fall.
    c. excess supply of money, so the price level will rise.
    d. excess supply of money, so the price level will fall.

Answer 30

b

Question 31

31. When the money market is drawn with the value of money on the vertical axis, if the value of money is below the equilibrium level,
    a. the price level will rise.
    b. the value of money will rise.
    c. money demand will shift left.
    d. money demand will shift right.

Answer 31

b

Question 32

32. Suppose the money market,drawn with the value of money on the vertical axis, is in equilibrium. If the money supply increases, then at the old value of money there is
    a. a shortage that will increase spending.
    b. a shortage that will reduce spending.
    c. a surplus that will increase spending.
    d. a surplus that will reduce spending.

Answer 32

c

Question 33

33. Which of the following is correct?
    a. If the Fed purchases bonds in the open market, then the money supply curve shifts right. A change in the price level does not shift the money supply curve.
    b. If the Fed sells bonds in the open market, then the money supply curve shifts right. A change in the price level does not shift the money supply curve.
    c. If the Fed purchases bonds, then the money supply curve shifts right. An increase in the price level shifts the money supply curve right.
    d. If the Fed sells bonds, then the money supply curve shifts right. A decrease in the price level shifts the money supply curve right.

Answer 33

a

Question 34

34. When the money market is drawn with the value of money on the vertical axis, an increase in the money supply shifts the money supply curve to the
    a. right, lowering the price level.
    b. right, raising the price level.
    c. left, raising the price level.
    d. left, lowering the price level.

Answer 34

b

Question 35

35. If the Fed raises the money supply, then 1/P
    a. falls, so the value of money falls.
    b. falls, so the value of money rises.
    c. rises, so the value of money falls.
    d. rises, so the value of money rises.

Answer 35

a

Question 36

36. When the money market is drawn with the value of money on the vertical axis, an increase in the money supply
    a. increases the price level and the value of money.
    b. increases the price level and decreases the value of money.
    c. decreases the price level and increases the value of money.
    d. decreases the price level and the value of money.

Answer 36

b

Question 37

37. When the money market is drawn with the value of money on the vertical axis, an increase in the money supply causes the equilibrium value of money
    a. and equilibrium quantity of money to increase.
    b. and equilibrium quantity of money to decrease.
    c. to increase, while the equilibrium quantity of money decreases.
    d. to decrease, while the equilibrium quantity of money increases.

Answer 37

d

Question 38

38. When the money market is drawn with the value of money on the vertical axis, if the Fed sells bonds then
    a. the money supply and the price level increase.
    b. the money supply and the price level decrease.
    c. the money supply increases and the price level decreases.
    d. the money supply increases and the price level increases.

Answer 38

b

Question 39

39. When the money market is drawn with the value of money on the vertical axis, the value of money increases if
    a. either money demand or money supply shifts right.
    b. either money demand or money supply shifts left.
    c. money demand shifts right or money supply shifts left.
    d. money demand shifts left or money supply shifts right.

Answer 39

c

Question 40

40. When the money market is drawn with the value of money on the vertical axis, the price level increases if
    a. either money demand or money supply shifts right.
    b. either money demand or money supply shifts left.
    c. money demand shifts right or money supply shifts left.
    d. money demand shifts left or money supply shifts right.

Answer 40

d

Question 41

41. When the money market is drawn with the value of money on the vertical axis, the price level decreases if
    a. either money demand or money supply shifts right.
    b. either money demand or money supply shifts left.
    c. money demand shifts right or money supply shifts left.
    d. money demand shifts left or money supply shifts right.

Answer 41

c

Question 42

42. When the money market is drawn with the value of money on the vertical axis, the price level increases if
    a. money demand shifts right and decreases if money supply shifts right.
    b. money demand shifts right and decreases if money supply shifts left.
    c. money demand shifts left and decreases if money supply shifts right.
    d. money demand shifts left and decreases if money supply shifts left.

Answer 42

d

Question 43

43. Open-market purchases by the Fed make the money supply
    a. increase, which makes the value of money increase.
    b. increase, which makes the value of money decrease.
    c. decrease, which makes the value of money decrease.
    d. decrease, which makes the value of money increase.

Answer 43

b

Question 44

44. Consider the money market drawn with the value of money on the vertical axis. If money demand is unchanged and the price level rises, then
    a. the money supply must have increased, perhaps because the Fed bought bonds.
    b. the money supply must have increased, perhaps because the Fed sold bonds.
    c. the money supply must have decreased, perhaps because the Fed bought bonds.
    d. the money supply must have decreased, perhaps because the Fed sold bonds.

Answer 44

a

Question 45

45. In the fourteenth century, the Western African Emperor Kankan Musa traveled to Cairo where he gave away much gold, which was in use as a medium of exchange. We would predict that this increase in gold
    a. raised both the price level and the value of gold in Cairo.
    b. raised the price level, but decreased the value of gold in Cairo.
    c. lowered the price level, but increased the value of gold in Cairo.
    d. lowered both the price level and the value of gold in Cairo.

Answer 45

b

Question 46

46. In the 1970s in response to recessions caused by an increase in the price of oil, the central banks in many countries increased the money supply. The central banks might have done this by
    a. selling bonds on the open market, which would have raised the value of money.
    b. purchasing bonds on the open market, which would have raised the value of money.
    c. selling bonds on the open market, which would have raised the value of money.
    d. purchasing bonds on the open market, which would have lowered the value of money.

Answer 46

d

Question 47

47. When the money market is drawn with the value of money on the vertical axis, an increase in the money supply creates an excess
    a. supply of money causing people to spend more.
    b. supply of money causing people to spend less.
    c. demand for money causing people to spend more.
    d. demand for money causing people to spend less.

Answer 47

a

Question 48

48. A decrease in the money supply creates an excess
    a. supply of money that is eliminated by rising prices.
    b. supply of money that is eliminated by falling prices.
    c. demand for money that is eliminated by rising prices.
    d. demand for money that is eliminated by falling prices.

Answer 48

d

Question 49

49. Refer to Figure 17-1. If the money supply is MS2 and the value of money is 2,

a. the value of money is less than its equilibrium level.
b. the price level is higher than its equilibrium level.
c. the quantity of money demanded is greater than the quantity of money supplied.
d. the quantity of money supplied is greater than the quantity of money demanded.

Answer 49

d

Question 50

50. Refer to Figure 17-1. If the money supply is MS2 and the value of money is 2, there is excess
    a. demand equal to the distance between A and C.
    b. demand equal to the distance between A and B.
    c. supply equal to the distance between A and C.
    d. supply equal to the distance between A and B.

Answer 50

d

Question 51

1. International trade
   a. raises the standard of living in all trading countries.
   b. lowers the standard of living in all trading countries.
   c. leaves the standard of living unchanged.
   d. raises the standard of living for importing countries and lowers it for exporting countries.

Answer 51

a

Question 52

2. Foreign-produced goods and services that are sold domestically are called
   a. imports.
   b. exports.
   c. net imports.
   d. net exports.

Answer 52

a

Question 53

3. Net exports of a country are the value of
   a. goods and services imported minus the value of goods and services exported.
   b. goods and services exported minus the value of goods and services imported.
   c. goods exported minus the value of goods imported.
   d. goods imported minus the value of goods exported.

Answer 53

b

Question 54

4. One year a country has negative net exports. The next year it still has negative net exports and imports have risen more than exports.
   a. its trade surplus fell.
   b. its trade surplus rose.
   c. its trade deficit fell.
   d. its trade deficit rose

Answer 54

d

Question 55

5. Suppose that a country imports $100 million of goods and services and exports $75 million of goods and services, what is the value of net exports?
   a. $175 million
   b. $75 million
   c. $25 million
   d. -$25 million

Answer 55

d

Question 56

6. Oceania buys $40 of wine from Escudia and Escudia buys $100 of wool from Oceania. Supposing this is the only trade that these countries do. What are the net exports of Oceania and Escudia in that order?
   a. $140 and $140
   b. $100 and $40
   c. $60 and -$60
   d. None of the above is correct.

Answer 56

c

Question 57

7. When Dee, a U.S. citizen, purchases a designer dress made in Milan, the purchase is
   a. both a U.S. and Italian import.
   b. a U.S. export and an Italian import.
   c. a U.S. import and an Italian export.
   d. neither an export nor an import for either country.

Answer 57

c

Question 58

8. Juan lives in Ecuador and purchases a motorcycle manufactured in the United States. The motorcycle is
   a. both a U.S. and Ecuadorian export.
   b. both a U.S. and Ecuadorian import.
   c. a U.S. import and an Ecuadorian export.
   d. a U.S. export and an Ecuadorian import.

Answer 58

d

Question 59

9. If U.S. imports total $100 billion and U.S. exports total $150 billion, which of the following is correct?
   a. The U.S. has a trade surplus of $100 billion.
   b. The U.S. has a trade surplus of $50 billion.
   c. The U.S. has a trade deficit of $100 billion.
   d. The U.S. has a trade deficit of $50 billion.

Answer 59

b

Question 60

10. The value of Peru’s exports minus the value of Peru’s imports is called
    a. Peru’s foreign portfolio investment.
    b. Peru’s foreign direct investment.
    c. Peru’s net exports.
    d. Peru’s net imports.

Answer 60

c

Question 61

11. Sonya, a citizen of Denmark, produces boots and shoes that she sells to department stores in the United States. Other things the same, these sales
    a. increase U.S. net exports and have no effect on Danish net exports.
    b. decrease U.S. net exports and have no effect on Danish net exports.
    c. increase U.S. net exports and decrease Danish net exports.
    d. decrease U.S. net exports and increase Danish net exports.

Answer 61

d

Question 62

12. A firm in China sells jackets to a U.S. department store chain. Other things the same, these sales
    a. increases U.S. and Chinese net exports.
    b. decrease U.S. and Chinese net exports.
    c. increase U.S. net exports and decrease Chinese net exports.
    d. decreases U.S. net exports and increase Chinese net exports.

Answer 62

d

Question 63

13. Ivan, a Russian citizen, sells several hundred cases of caviar to a restaurant chain in the United States. By itself, this sale
    a. increases U.S. net exports and has no effect on Russian net exports.
    b. increases U.S. net exports and decreases Russian net exports.
    c. decreases U.S. net exports and has no effect on Russian net exports.
    d. decreases U.S. net exports and increases Russian net exports.

Answer 63

d

Question 64

14. Bob traps lobsters in Maine and sells them to a restaurant in Egypt. Other things the same, these sales
    a. increase U.S. net exports and has no effect on Egyptian net exports.
    b. increase U.S. net exports and decrease Egyptian net exports.
    c. decrease U.S. net exports and have no effect on Egyptian net exports.
    d. decrease U.S. net exports and increase Egyptian net exports.

Answer 64

b

Question 65

15. Suppose a country had $2.4 billion of net exports and bought $4.8 billion of goods and services from foreign countries. This country would have
    a. $7.2 billion of exports and $4.8 billion of imports.
    b. $7.2 billion of imports and $4.8 billion of exports.
    c. $4.8 billion of exports and $2.4 billion of imports.
    d. $4.8 billion of imports and $2.4 billion of exports.

Answer 65

a

Question 66

16. Suppose a country had net exports of $8.3 billion and sold $52.4 billion of goods and services abroad. This country had
    a. $60.7 billion of imports and $52.4 billion of imports.
    b. $60.7 billion of exports and $52.4 of imports.
    c. $52.4 billion of imports and $44.1 billion of exports.
    d. $52.4 billion of exports and $44.1 billion of imports.

Answer 66

d

Question 67

17. Mike, a U.S. citizen, buys $1,000 worth of cheese from France. His action alone
    a. increases U.S. imports by $1,000 and increases U.S. net exports by $1,000.
    b. increases U.S. imports by $1,000 and decreases U.S. net exports by $1,000.
    c. increases U.S. exports by $1,000 and increases U.S. net exports by $1,000.
    d. increases U.S. exports by $1,000 and decreases U.S. net exports by $1,000.

Answer 67

b

Question 68

18. Clear Brook Farms, a U.S. manufacturer of frozen vegetarian entrees, sells cases of their product to stores overseas. Its sales
    a. decrease U.S. exports but increase U.S. net exports.
    b. decrease both U.S. exports and U.S. net exports.
    c. increase both U.S. exports and U.S. net exports.
    d. increase U.S. exports but decrease U.S. net exports.

Answer 68

c

Question 69

19. You buy a new car built in Sweden. Other things the same, your purchase by itself
    a. raises both U.S. exports and U.S. net exports.
    b. raises U.S. exports and lowers U.S. net exports.
    c. raises both U.S. imports and U.S. net exports.
    d. raises U.S. imports and lowers U.S. net exports.

Answer 69

d

Question 70

20. A German company sells cameras to a retailer in the United States. These sales by themselves
    a. have no affect on U.S. net exports and increase German net exports.
    b. decrease U.S. net exports and increase German net exports.
    c. increase U.S. and German net exports.
    d. increase U.S. net exports and decrease German net exports.

Answer 70

b

Question 71

21. A country sells more to foreign countries than it buys from them. It has
    a. a trade surplus and positive net exports.
    b. a trade surplus and negative net exports.
    c. a trade deficit and positive net exports.
    d. a trade deficit and negative net exports.

Answer 71

a

Question 72

22. A country’s trade balance
    a. must be zero.
    b. must be greater than zero.
    c. is greater than zero only if exports are greater than imports.
    d. is greater than zero only if imports are greater than exports.

Answer 72

c

Question 73

23. If the United States had negative net exports, it
    a. sold more abroad than it purchased abroad and has a trade surplus.
    b. sold more abroad than it purchased abroad and has a trade deficit.
    c. bought more abroad than it sold abroad and had a trade surplus.
    d. bought more abroad than it sold abroad and had a trade deficit.

Answer 73

d

Question 74

24. Which of the following is correct?
    a. U.S. exports as a percentage of GDP have about doubled over the last 50 years. The U.S. currently has a trade surplus.
    b. U.S. exports as a percentage of GDP have about doubled over the last 50 years. The U.S. currently has a trade deficit.
    c. U.S. exports as a percentage of GDP have increased, but have not nearly doubled over the last 50 years. The U.S. currently has a trade surplus.
    d. U.S. exports as a percentage of GDP have increased, but have not nearly doubled over the last 50 years. The U.S. currently has a trade deficit.

Answer 74

b

Question 75

25. Which of the following is correct? Over about the last fifty years
    a. U.S. exports and U.S. imports each about doubled.
    b. U.S. exports and U.S. imports each about tripled.
    c. U.S. exports about doubled and U.S. imports about tripled.
    d. U.S. exports about tripled and U.S. imports about doubled.

Answer 75

c

Question 76

26. Over the past five decades, the U.S. economy has become
    a. more closed.
    b. more open.
    c. less trade-oriented.
    d. more self-sufficient.

Answer 76

b

Question 77

27. About what percentage of GDP are U.S. imports?
    a. less than 1 percent
    b. about 4 percent
    c. about 7 percent
    d. over 10 percent

Answer 77

d

Question 78

28. Over the last 50 years or so, U.S. imports as a percentage of GDP have approximately
    a. stayed constant.
    b. doubled.
    c. tripled.
    d. quadrupled.

Answer 78

c

Question 79

29. Over the last 50 years or so, U.S. exports as a percentage of GDP have approximately
    a. stayed constant.
    b. doubled.
    c. tripled.
    d. quadrupled.

Answer 79

b

Question 80

30. The increase in international trade in the United States is partly due to
    a. improvements in transportation.
    b. advances in telecommunications.
    c. increased trade of goods with a high value per pound.
    d. All of the above are correct.

Answer 80

d

Question 81

31. Net capital outflow refers to the purchase of
    a. foreign assets by domestic residents minus the purchase of domestic assets by foreign residents.
    b. foreign assets by domestic residents minus the purchase of foreign goods and services by domestic residents.
    c. domestic assets by foreign residents minus the purchase of domestic goods and services by foreign residents.
    d. domestic assets by foreign residents minus the purchase of foreign assets by domestic residents.

Answer 81

a

Question 82

32. Net capital outflow measures
    a. foreign assets held by domestic residents minus domestic assets held by foreign residents.
    b. the imbalance between the amount of foreign assets bought by domestic residents and the amount of domestic assets bought by foreigners.
    c. the imbalance between the amount of foreign assets bought by domestic residents and the amount of domestic goods and services sold to foreigners.
    d. None of the above is correct.

Answer 82

b

Question 83

33. If a country changes its corporate tax laws so that domestic firms build and manage more firms overseas, then this country will
    a. increase foreign direct investment which increases net capital outflow.
    b. increase foreign direct investment which decreases net capital outflow.
    c. increase foreign portfolio investment which increases net capital outflow.
    d. increase foreign portfolio investment which decreases net capital outflow.

Answer 83

a

Question 84

34. Suppose that more Chinese decide to vacation in the U.S. and that the Chinese purchase more U.S. Treasury bonds. Ignoring how payments are made for these purchases,
    a. the first action by itself raises U.S. net exports, the second action by itself raises U.S. net capital outflow.
    b. the first action by itself raises U.S. net exports, the second action by itself lowers U.S. net capital outflow.
    c. the first action by itself lowers U.S. net exports, the second action by itself raises U.S. net capital outflow.
    d. the first action by itself lowers U.S. net exports, the second action by itself lowers U.S. net capital outflow.

Answer 84

b

Question 85

35. Which of the following would be U.S. foreign direct investment?
    a. A Swedish car manufacturer opens a plant in Tennessee.
    b. A Dutch citizen buys shares of stock in a U.S. company.
    c. A U.S. based hotel chain opens a new hotel in Brazil.
    d. A U.S. citizen buys stock in companies located in Japan.

Answer 85

c

Question 86

36. Which of the following would be U.S. foreign direct investment?
    a. Your U.S. based mutual fund buys stock in Eastern European companies.
    b. A U.S. citizen opens and operates a law firm in Norway.
    c. A Swiss bank buys a U.S. government bond.
    d. A German tractor factory opens a plant in Waterloo, Iowa.

Answer 86

b

Question 87

37. Which of the following would be U.S. foreign direct investment?
    a. A Polish company opens a shipbuilding plant in the United States.
    b. A Bolivian bank buys U.S. corporate bonds.
    c. A U.S. bank buys Bolivian corporate bonds.
    d. A U.S. furniture maker opens a plant in Mexico.

Question 88

38. Which of the following would be U.S. foreign portfolio investment?
    a. Disney builds a new amusement park near Barcelona, Spain.
    b. A U.S. citizen buys stock in companies located in Asia.
    c. A Dutch hotel chain opens a new hotel in the United States.
    d. A citizen of Singapore buys a bond issued by a U.S. corporation.

Answer 88

b

Question 89

39. Which of the following is an example of U.S. foreign portfolio investment?
    a. Toni, a U.S. citizen, buys bonds issued by a Swedish corporation.
    b. Randall, a U.S. citizen, opens a cheesecake factory in Italy.
    c. Both A and B are examples of U.S. portfolio investment.
    d. Neither A nor B are examples of U.S. portfolio investment.

Answer 89

a

Question 90

40. Which of the following is an example of U.S. foreign portfolio investment?
    a. Albert, a German citizen, buys stock in a U.S. computer company.
    b. Larry, a citizen of Ireland, opens a fish and chips restaurant in the United States.
    c. Ruth, a U.S. citizen, buys bonds issued by a German corporation.
    d. Dustin, a U.S. citizen, opens a country-western tavern in New Zealand.

Answer 90

c

Question 91

41. John, a U.S. citizen, opens up a Sports bar in Tokyo. This counts as U.S.
    a. exports.
    b. imports.
    c. foreign portfolio investment.
    d. foreign direct investment.

Answer 91

d

Question 92

42. If 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.

Answer 92

d

Question 93

43. Sue, a U.S. citizen, buys stock in an Italian automobile corporation. Her purchase counts as
    a. investment for Sue and U.S. foreign direct investment.
    b. investment for Sue and U.S. foreign portfolio investment.
    c. saving for Sue and U.S. foreign direct investment.
    d. saving for Sue and U.S. foreign portfolio investment.

Question 94

44. Larry, a U.S. citizen, opens and operates a bookstore in Spain. This counts as
    a. investment for Larry and U.S. foreign direct investment.
    b. investment for Larry 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.

Answer 94

a

Question 95

45. An Italian citizen opens and operates a spaghetti factory in the United States. This is Italian
    a. foreign direct investment that increases Italian net capital outflow.
    b. foreign direct investment that decreases Italian net capital outflow.
    c. foreign portfolio investment that increases Italian net capital outflow.
    d. foreign portfolio investment that decreases Italian net capital outflow.

Question 96

46. 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.

Answer 96

c

Question 97

47. 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.

Question 98

48. Paul, a U.S. citizen, builds a telescope factory in Israel. His expenditures
    a. increase U.S. and Israeli net capital outflow.
    b. increase U.S. net capital outflow, but decrease Israeli net capital outflow.
    c. decrease U.S. net capital outflow, but increase Israeli net capital outflow.
    d. None of the above is correct.

Question 99

49. Bob, a Greek citizen, opens a restaurant in Chicago. His expenditures
    a. increase U.S. net capital outflow and have no affect on Greek net capital outflow.
    b. increase U.S. net capital outflow and increase Greek net capital outflow.
    c. increase U.S. net capital outflow, but decrease Greek net capital outflow.
    d. decrease U.S. net capital outflow, but increase Greek net capital outflow.

Answer 99

d

Question 100

50. 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.

Question 101

1. Over the past two decades, the United States has
   a. generally had, or been very near to a trade balance.
   b. had trade deficits in about as many years as it has trade surpluses.
   c. persistently had a trade deficit.
   d. persistently had a trade surplus.

Question 102

2. Many U.S. business leaders argue that the current state of U.S. net exports is the result of
   a. U.S. export subsidies.
   b. free trade policies of foreign governments.
   c. unproductive U.S. workers.
   d. unfair foreign competition.

Question 103

3. The open-economy macroeconomic model includes
   a. only the market for loanable funds.
   b. only the market for foreign-currency exchange.
   c. both the market for loanable funds and the market for foreign-currency exchange.
   d. neither the market for loanable funds or the market for foreign-currency exchange.

Question 104

4. The open-economy macroeconomic model examines the determination of
   a. the output growth rate and the real interest rate.
   b. unemployment and the exchange rate.
   c. the output growth rate and the inflation rate.
   d. the trade balance and the exchange rate.

Answer 104

d

Question 105

5. The open-economy macroeconomic model takes
   a. GDP, but not the price level as given.
   b. the price level, but not GDP as given.
   c. both the price level and GDP as given.
   d. the price level and GDP as variables to be determined by the model.

Answer 105

c

Question 106

6. In an open economy, the market for loanable funds equates national saving with
   a. domestic investment.
   b. net capital outflow.
   c. the sum of national consumption and government spending.
   d. the sum of domestic investment and net capital outflow.

Question 107

7. In an open economy, the market for loanable funds equates national saving with
   a. domestic investment.
   b. net capital outflow.
   c. national consumption minus domestic investment.
   d. None of the above is correct.

Answer 107

d

Question 108

8. In the open-economy macroeconomic model, the market for loanable funds identity can be written as
   a. S = I
   b. S = NCO
   c. S = I + NCO
   d. S + I = NCO

Answer 108

c

Question 109

9. In the open-economy macroeconomic model, the supply of loanable funds comes from
   a. national saving.
   b. private saving.
   c. domestic investment.
   d. the sum of domestic investment and net capital outflow.

Question 110

10. In the open-economy macroeconomic model, the demand for loanable funds comes from
    a. domestic investment.
    b. net exports.
    c. net capital outflow.
    d. the sum of net capital outflow and domestic investment.

Answer 110

d

Question 111

11. The purchase of a capital asset adds to the demand for loanable funds
    a. only if the asset is located at home.
    b. only if the asset is located abroad.
    c. whether the asset is located at home or abroad.
    d. None of the above is correct.

Answer 111

c

Question 112

12. U.S. corporation Well’s Petroleum borrows money to build an oil well in Texas and to build another in Venezuela.
    a. The borrowing for the well in the U.S. and the well in Venezuela both count as part of the demand for loanable funds in the U.S. market.
    b. Neither the borrowing for the well in the U.S. nor the well in Venezuela count as part of the demand for loanable funds in the U.S. market.
    c. The borrowing for the well in the U.S. counts as part of the demand for loanable funds in the U.S. The borrowing for the well in Venezuela does not count as part of the demand for loanable funds in the U.S. market.
    d. The borrowing for the well in Venezuela counts as part of the demand for loanable funds in the U.S. The
    borrowing for the well in the US. does not counts as part of the demand for loanable funds in the U.S. market.

Answer 112

a

Question 113

13. Other things the same, a higher real interest rate raises the quantity of
    a. domestic investment.
    b. net capital outflow.
    c. loanable funds demanded.
    d. loanable funds supplied.

Question 114

14. Other things the same, a lower real interest rate decreases the quantity of
    a. loanable funds demanded.
    b. loanable funds supplied.
    c. domestic investment.
    d. net capital outflow.

Answer 114

b

Question 115

15. An increase in the real interest rate
    a. discourages people from saving and so increases the quantity of loanable funds demanded.
    b. discourages people from saving and so decreases the quantity of loanable funds demanded.
    c. encourages people to save and so increases the quantity of loanable funds supplied.
    d. encourages people to save and so decreases the quantity of loanable funds supplied.

Answer 115

c

Question 116

16. A fall in the real interest rate
    a. increases the quantity of loanable funds demanded because firms will want to borrow more
    b. decreases the quantity of loanable funds demanded because firms will want to borrow less.
    c. increases the quantity of loanable funds supplied because firms will want to borrow more.
    d. decreases the quantity of loanable funds supplied because firms will want to borrow less.

Question 117

17. An increase in real interest rates in the United States
    a. discourages both U.S. and foreign residents from buying U.S. assets.
    b. encourages both U.S. and foreign residents to buy U.S. assets.
    c. encourages U.S. residents to buy U.S. assets, but discourages foreign residents from buying U.S. assets.
    d. encourages foreign residents to buy U.S. assets, but discourages U.S. residents from buying U.S. assets.

Answer 117

b

Question 118

18. Which of the following would be consistent with an increase in the U.S. real interest rate?
    a. a Swiss bank purchases a U.S. bond instead of the German bond it had considered purchasing.
    b. firms decide to do more investment spending.
    c. a U.S. citizen decides to put less money in his savings account than he had planned to.
    d. All of the above are consistent.

Question 119

19. If interest rates rose more in France than in the U.S., then other things the same
    a. U.S. citizens would buy more French bonds and French citizens would buy more U.S. bonds.
    b. U.S. citizens would buy more French bonds and French citizens would buy fewer U.S. bonds.
    c. U.S. citizens would buy fewer French bonds and French citizens would buy more U.S. bonds.
    d. U.S. citizens would buy fewer French bonds and French citizens would buy fewer U.S. bonds.

Answer 119

b

Question 120

20. An increase in the U.S. real interest rate induces
    a. Americans to buy more foreign assets, which increases U.S. net capital outflow.
    b. Americans to buy more foreign assets, which reduces U.S. net capital outflow.
    c. foreigners to buy more U.S. assets, which reduces U.S. net capital outflow.
    d. foreigners to buy more U.S. assets, which increases U.S. net capital outflow.

Answer 120

c

Question 121

21. Other things the same, an increase in the interest rate would tend to reduce
    a. domestic investment, but not net capital outflow.
    b. net capital outflow, but not domestic investment.
    c. both domestic investment and net capital outflow.
    d. neither domestic investment nor not capital outflow.

Answer 121

c

Question 122

22. In an open economy, the demand for loanable funds comes from
    a. only those who want to borrow funds to buy domestic capital goods.
    b. only those who want to borrow funds to buy foreign assets.
    c. those who want to borrow funds to buy either domestic capital goods or foreign assets.
    d. neither those who want to borrow funds to buy domestic capital goods nor those who want to borrow funds to buy foreign assets.

Answer 122

c

Question 123

23. In an open economy the supply of loanable funds comes from
    a. national saving. Demand comes from only domestic investment.
    b. national saving. Demand comes from domestic investment and net capital outflow.
    c. Only net capital outflow. Demand for loanable funds comes from national saving.
    d. domestic investment and net capital outflow. Demand for loanable funds comes from national saving.

Answer 123

b

Question 124

24. The supply of loanable funds comes from
    a. national saving.
    b. national saving and domestic investment.
    c. domestic investment and net capital outflow.
    d. national saving, domestic investment, and net capital outflow.

Question 125

25. If the quantity of loanable funds supplied is greater than the quantity demanded, then
    a. there is a shortage of loanable funds and the interest rate will fall.
    b. there is a shortage of loanable funds and the interest rate will rise.
    c. there is a surplus of loanable funds and the interest rate will fall.
    d. there is a surplus of loanable funds and the interest rate will rise.

Answer 125

c

Question 126

26. If there is a surplus of loanable funds, the quantity demanded is
    a. greater than the quantity supplied and the interest rate will rise.
    b. greater than the quantity supplied and the interest rate will fall.
    c. less than the quantity supplied and the interest rate will rise.
    d. less than the quantity supplied and the interest rate will fall.

Answer 126

d

Question 127

27. If the quantity of loanable funds demanded is greater than the quantity of loanable funds supplied
    a. there is a surplus and the interest rate will rise.
    b. there is a surplus and the interest rate will fall.
    c. there is a shortage and the interest rate will rise.
    d. there is a shortage and the interest rate will fall.

Answer 127

c

Question 128

28. If there is a shortage of loanable funds,
    a. the demand for loanable funds will shift right so the interest rate rises.
    b. the supply of loanable funds will shift left so the interest rate falls.
    c. there will be no shifts of the curves, but the interest rate rises.
    d. there will be no shifts of the curves, but the interest rate falls.

Answer 128

c

Question 129

29. Suppose the U.S. supply of loanable funds shifts left. This will
    a. increase U.S. net capital outflow and increase the quantity of loanable funds demanded.
    b. increase U.S. net capital outflow and decrease the quantity of loanable funds demanded.
    c. decrease U.S. net capital outflow and increase the quantity of loanable funds demanded.
    d. decrease U.S. net capital outflow and decrease the quantity of loanable funds demanded.

Answer 129

d

Question 130

30. Which of the following would make both the equilibrium interest rate and the equilibrium quantity of loanable funds increase?
    a. The demand for loanable funds shifts right.
    b. The demand for loanable funds shifts left.
    c. The supply of loanable funds shifts right.
    d. The supply of loanable funds shifts left.

Question 131

31. Which of the following would make both the equilibrium interest rate and the equilibrium quantity of loanable funds decrease?
    a. The demand for loanable funds shifts right.
    b. The demand for loanable funds shifts left.
    c. The supply of loanable funds shifts right.
    d. The supply of loanable funds shifts left.

Answer 131

b

Question 132

32. Which of the following would make the equilibrium interest rate increase and the equilibrium quantity of funds decrease?
    a. The supply of loanable funds shifts right.
    b. The supply of loanable funds shifts left.
    c. The demand for loanable funds shifts right.
    d. The demand for loanable funds shifts left.

Answer 132

b

Question 133

33. Which of the following would make the equilibrium interest rate decrease and the equilibrium quantity of loanable funds increase?
    a. The supply of loanable funds shifts right.
    b. The supply of loanable funds shifts left.
    c. The demand for loanable funds shifts right.
    d. The demand for loanable funds shifts left.

Answer 133

a

Question 134

34. At the equilibrium interest rate in the open economy macroeconomic model, the amount that people want to save equals the desired quantity of
    a. net capital outflow.
    b. domestic investment.
    c. net capital outflow plus domestic investment.
    d. foreign currency supplied.

Answer 134

c

Question 135

35. At the equilibrium interest rate in the open economy macroeconomic model, the equilibrium quantity of loanable funds equals
    a. net capital outflow.
    b. domestic investment.
    c. foreign currency supplied.
    d. national saving.

Question 136

36. In the open-economy macroeconomic model, other things the same, a decrease in the interest rate shifts
    a. the demand for dollars in the market for foreign-currency exchange to the right.
    b. the demand for dollars in the market for foreign-currency exchange to the left.
    c. the supply of dollars in the market for foreign-currency exchange to the right.
    d. the supply of dollars in the market for foreign-currency exchange to the left.

Answer 136

c

Question 137

37. In an open economy,
    a. net capital outflow = imports.
    b. net capital outflow = net exports.
    c. net capital outflow = exports.
    d. None of the above is correct.

Answer 137

b

Question 138

38. Refer to Figure 19-1. The loanable funds market is in equilibrium at
    a. 1 percent, $30 billion.
    b. 2 percent, $20 billion.
    c. 4 percent, $10 billion.
    d. None of the above is correct.

Answer 138

b

Question 139

39. Refer to Figure 19-1. In the Figure shown, if the real interest rate is 3 percent, the quantity of loanable funds demanded is
    a. $10 billion, and the quantity supplied is 20.
    b. $10 billion, and the quantity supplied is 30.
    c. $30 billion, and the quantity supplied is 10.
    d. $30 billion, and the quantity supplied is 20.

Answer 139

b

Question 140

40. Refer to Figure 19-1. In the Figure shown, if the real interest rate is 1 percent, there will be a
    a. surplus of $10 billion.
    b. surplus of $20 billion.
    c. shortage of $10 billion.
    d. shortage of $20 billion.

Answer 140

d

Question 141

41. Refer to Figure 19-1. In the Figure shown, if the real interest rate is 1 percent, there will be pressure for
    a. the real interest rate to rise.
    b. the demand for loanable funds curve to shift right.
    c. the supply for loanable funds curve to shift left.
    d. All of the above are correct.

Answer 141

a

Question 143

42. If net exports are positive, then
    a. exports are greater than imports.
    b. net capital outflow is negative.
    c. Both of the above are correct.
    d. Neither of the above is correct.

Question 144

43. If net exports are negative, then
    a. net capital outflow is positive, so foreign assets bought by Americans are greater than American assets bought by foreigners.
    b. net capital outflow is positive, so American assets bought by foreigners are greater than foreign assets bought by Americans.
    c. net capital outflow is negative, so foreign assets bought by Americans are greater than American assets bought by foreigners.
    d. net capital outflow is negative, so American assets bought by foreigners are greater than foreign assets bought by Americans.

Question 145

44. If net exports are positive, then
    a. net capital outflow is positive, so foreign assets bought by Americans are greater than American assets bought by foreigners.
    b. net capital outflow is positive, so American assets bought by foreigners are greater than foreign assets bought by Americans.
    c. net capital outflow is negative, so foreign assets bought by Americans are greater than American assets bought by foreigners.
    d. net capital outflow is negative, so American assets bought by foreigners are greater than foreign assets bought by Americans.

Answer 145

a

Question 146

45. In the market for foreign-currency exchange in the open economy macroeconomic model, the amount of net capital outflow represents the quantity of dollars
    a. supplied for the purpose of selling assets domestically.
    b. supplied for the purpose of buying assets abroad.
    c. demanded for the purpose of buying U.S. net exports of goods and services.
    d. demanded for the purpose of importing foreign goods and services.

Answer 146

b

Question 147

46. In the open economy macroeconomic model net capital outflow is equal to the quantity of
    a. dollars supplied in the foreign exchange market.
    b. dollars demand in the foreign exchange market.
    c. funds supplied in the loanable funds market.
    d. None of the above is correct.

Answer 147

a

Question 148

47. Net capital outflow is equal to
    a. national saving minus the trade balance.
    b. domestic investment plus national saving.
    c. national saving minus domestic investment.
    d. domestic investment minus national saving.

Answer 148

c

Question 149

48. The value of net exports equals the value of
    a. national saving.
    b. public saving.
    c. national saving - net exports.
    d. national saving - domestic investment.

Answer 149

d

Question 150

49. Suppose that the real exchange rate is such that the market for foreign-currency exchange has a surplus
    a. this will lead to an appreciation of the dollar, an increase in U.S. net exports, and so an increase in the quantity of dollars demanded in the foreign exchange market.
    b. this will lead to an appreciation of the dollar, a decrease in U.S. net exports, and so a decrease in the quantity of dollars demanded in the foreign exchange market.
    c. this will lead to a depreciation of the dollar, an increase in U.S. net exports, and so an increase in the quantity of dollars demanded in the foreign exchange market.
    d. this will lead to a depreciation of the dollar, a decrease in U.S. net exports, and so a decrease in the quantity of dollars demanded in the foreign exchange market.

Answer 150

c

Question 151

50. Which of the following is included in the demand for dollars in the market for foreign-currency exchange in the open-economy macroeconomic model?
    a. A firm in Mexico wants to buy corn from a U.S. firm.
    b. A Japanese bank desires to purchase U.S. Treasury securities.
    c. An U.S. citizen wants to buy a bond issued by a Mexican corporation.
    d. All of the above are correct.

Answer 151

a

Question 152

51. Refer to Figure 17-1. When the money supply curve shifts from MS1 to MS2, the graph shows that
    a. the demand for goods and services decreases.
    b. the economy’s ability to produce goods and services increases.
    c. the equilibrium price level increases.
    d. the equilibrium value of money increases.

Answer 152

c

Question 153

52. Refer to Figure 17-1. When the money supply curve shifts from MS1 to MS2,
    a. the equilibrium value of money decreases.
    b. the equilibrium price level decreases.
    c. the supply of money has decreased.
    d. the demand for goods and services will decrease.

Answer 153

a

Question 154

53. Refer to Figure 17-1. If the current money supply is located at MS1,
    a. there is no excess supply or excess demand if the value of money is 2.
    b. the equilibrium is at point C.
    c. there is an excess supply of money if the value of money is 1.
    d. None of the above is correct.

Answer 154

a

Question 155

54. Economic variables whose values are measured in monetary units are called
    a. dichotomous variables.
    b. nominal variables.
    c. classical variables.
    d. real variables.

Answer 155

b

Question 156

55. Economic variables whose values are measured in goods are called
    a. dichotomous variables.
    b. nominal variables.
    c. classical variables.
    d. real variables.

Answer 156

d

Question 157

56. Sally sells 40 bags of lettuce for a total of $80 at the farmers’ market.
    a. The $80 is a real variable. The quantity of lettuce is a nominal variable.
    b. The $80 is a nominal variable. The quantity of lettuce is a real variable.
    c. Both the $80 and the quantity of lettuce are nominal variables.
    d. Both the $80 and the quantity of lettuce are real variables.

Answer 157

b

Question 158

57. Nominal GDP measures
    a. the total quantity of final goods and services produced.
    b. the dollar value of the economy’s output of final goods and services.
    c. the total income received from producing final goods and services measured in constant dollars.
    d. None of the above is correct.

Answer 158

b

Question 159

58. Real GDP measures
    a. the total quantity of final goods and services produced.
    b. the dollar value of the economy’s output of final goods and services.
    c. the total income received from producing final goods and services at current prices.
    d. All of the above are correct.

Answer 159

a

Question 160

59. The price level is a
    a. relative variable.
    b. dichotomous variable
    c. real variable.
    d. nominal variable.

Answer 160

d

Question 161

60. The price of a Honda Accord
    a. and the price of a Honda Accord divided by the price of a Honda Civic are both real variables.
    b. and the price of a Honda Accord divided by the price of Honda Civic are both nominal variables.
    c. is a real variable, and the price of a Honda Accord divided by a Honda Civic is a nominal variable.
    d. is a nominal variable and the price of a Honda Accord divided by the price of a Honda Civic is a real variable.

Answer 161

d

Question 162

61. An associate professor of economics gets a $100 a month raise. She figures that with her current monthly salary she can’t buy as many goods as she could last year.
    a. Her real and nominal salary have risen.
    b. Her real and nominal salary have fallen.
    c. Her real salary has risen and her nominal salary has fallen.
    d. Her real salary has fallen and her nominal salary has risen.

Answer 162

d

Question 163

62. Your boss gives you an increase in the number of dollars you earn per hour. This increase in pay makes
    a. your nominal wage increase. If your nominal wage rose by a greater percentage than the price level, then your real wage also increased.
    b. your nominal wage increase. If your nominal wage rose by a greater percentage than the price level, then your real wage decreased.
    c. your real wage increase. If your real wage rose by a greater percentage than the price level, then your nominal wage also increased.
    d. your real wage decrease. If your real wage rose by a greater percentage than the price level, then your nominal wage decreased.

Answer 163

a

Question 164

63. Interest rates for savings accounts listed on your bank’s website
    a. and a price index are real variables.
    b. and a price index are nominal variables.
    c. are real variable and a price index is a nominal variable.
    d. are nominal variables, and price index is a real variable

Answer 164

b

Question 165

64. Interest rates adjusted for the effects of inflation
    a. and inflation are nominal variables.
    b. and inflation are real variables.
    c. are real variables; inflation is a nominal variable.
    d. are nominal variables; inflation is a real variable.

Answer 165

c

Question 166

65. You put money in the bank. The increase in the dollar value of your savings
    a. and the change in the number of goods you can buy with your savings are both nominal variables.
    b. and the change in the number of goods you can buy with your savings are both real variables.
    c. is a nominal variable, but the change in the number goods you can buy with your savings is a real variable.
    d. is a real variable, but the change in the number of goods you buy with your savings is a nominal variable.

Answer 166

c

Question 167

66. The idea that nominal variables are heavily influenced by the quantity of money and that money is largely irrelevant for understanding the determinants of real variables is called the
    a. velocity concept.
    b. Fisher effect.
    c. classical dichotomy.
    d. Mankiw effect.

Answer 167

c

Question 168

67. The classical dichotomy refers to the idea that the supply of money
    a. is irrelevant for understanding the determinants of nominal and real variables.
    b. determines nominal variables, but not real variables.
    c. determines real variables, but not nominal variables.
    d. is a determinant of both real and nominal variables.

Answer 168

b

Question 169

68. The classical dichotomy argues that changes in the money supply
    a. affect both nominal and real variables.
    b. affect neither nominal nor real variables.
    c. affect nominal variables, but not real variables.
    d. do not affect nominal variables, but do affect real variables.

Question 170

69. According to the classical dichotomy, which of the following increases when the money supply increases?
    a. the real interest rate
    b. real GDP
    c. the real wage
    d. None of the above increases.

Answer 170

d

Question 171

70. According to the classical dichotomy, which of the following is influenced by monetary factors?
    a. real GDP
    b. unemployment
    c. nominal interest rates
    d. All of the above are correct.

Answer 171

c

Question 172

71. According to the classical dichotomy, which of the following is influenced by monetary factors?
    a. the real wage
    b. the real interest rate
    c. the nominal wage
    d. All of the above are correct.

Answer 172

c

Question 173

72. According to the classical dichotomy, which of the following is not influenced by monetary factors?
    a. the price level
    b. real GDP
    c. nominal interest rates
    d. All of the above are correct.

Answer 173

b

Question 174

73. According to the classical dichotomy, which of the following is not influenced by monetary factors?
    a. nominal GDP and nominal interest rates
    b. real wages and real GDP
    c. the price level and nominal GDP
    d. None of the above is correct.

Answer 174

b

Question 175

74. Changes in nominal variables are determined mostly by the quantity of money and the monetary system according to
    a. both the classical dichotomy and the quantity theory of money.
    b. the classical dichotomy, but not the quantity theory of money.
    c. the quantity theory of money, but not the classical dichotomy.
    d. neither the classical dichotomy nor the quantity theory of money.

Answer 175

a

Question 176

75. According to the classical dichotomy, when the money supply doubles, which of the following also double?
    a. the price level and nominal wages
    b. the price level, but not the nominal wage
    c. the nominal wage, but not the price level
    d. neither the nominal wage nor the price level

Question 177

76. According to the classical dichotomy, when the money supply doubles which of the following double?
    a. the price level and nominal GDP
    b. the price level and real GDP
    c. only real GDP
    d. only the price level

Question 178

77. The principle of monetary neutrality implies that an increase in the money supply will
    a. increase real GDP and the price level.
    b. increase real GDP, but not the price level.
    c. increase the price level, but not real GDP.
    d. increase neither the price level nor real GDP.

Answer 178

c

Question 179

78. According to the principle of monetary neutrality, a decrease in the money supply will not change
    a. nominal GDP.
    b. the price level.
    c. unemployment.
    d. All of the above are correct.

Question 180

79. Monetary neutrality implies that an increase in the quantity of money will
    a. increase employment.
    b. increase the price level.
    c. increase the incentive to save.
    d. Not increase any of the above.

Answer 180

b

Question 181

80. Most economists believe the principle of monetary neutrality is
    a. relevant to both the short and long run.
    b. irrelevant to both the short and long run.
    c. mostly relevant to the short run.
    d. mostly relevant to the long run.

Answer 181

d

Question 182

81. Most economists believe that monetary neutrality provides
    a. a good description of both the long run and the short run.
    b. a good description of neither the long run nor the short run.
    c. a good description of the short run, but not the long run.
    d. a good description of the long run, but not the short run.

Answer 182

d

Question 183

82. In order to maintain stable prices, a central bank must
    a. maintain low interest rates.
    b. keep unemployment low.
    c. tightly control the money supply.
    d. sell indexed bonds.

Question 184

83. According to the classical dichotomy, when the money supply doubles, which of the following also double?
    a. the price level
    b. nominal wages
    c. nominal GDP
    d. All of the above are correct.

Question 185

84. The velocity of money is
    a. the rate at which the Fed puts money into the economy.
    b. the same thing as the long-term growth rate of the money supply.
    c. the money supply divided by nominal GDP.
    d. the average number of times per year a dollar is spent.

Answer 185

d

Question 186

85. Velocity is computed as
    a. (P × Y)/M.
    b. (P × M)/Y.
    c. (Y × M)/P.
    d. (Y × M)/V.

Question 187

86. Based on the quantity equation, if M = 100, V = 3, and Y = 200, then P =
    a. 1.
    b. 1.5.
    c. 2.
    d. None of the above is correct.

Answer 187

b

Question 188

87. Based on the quantity equation, if M = 100, V = 4, and Y = 200, then P =
    a. 1/2.
    b. 2.
    c. 8.
    d. None of the above is correct.

Answer 188

b

Question 189

88. According to the quantity equation, if P = 12, Y = 6, and M= 8, then V =
    a. 16.
    b. 9.
    c. 4.
    d. None of the above is correct.

Answer 189

b

Question 190

89. According to the quantity equation, if P = 2, Y = 6,000, and M= 3,000, then V =
    a. 1/2.
    b. 1.
    c. 4.
    d. None of the above is correct.

Answer 190

c

Question 191

90. According to quantity equation the price level would change less the proportionately with a rise in the money supply if there were also
    a. either a rise in output or a rise in velocity.
    b. either a rise in output or a fall in velocity.
    c. either a fall in output or a rise in velocity.
    d. either a fall in output or a fall in velocity.

Answer 191

b

Question 192

91. According to the assumptions of quantity theory, if the money supply increases 5% then
    a. nominal and real GDP would rise by 5%.
    b. nominal GDP would rise by 5%; real GDP would be unchanged.
    c. nominal GDP would be unchanged; real GDP would rise by 5%.
    d. neither nominal GDP nor real GDP would change.

Answer 192

b

Question 193

92. According to the assumptions of the quantity theory, if the money supply increases 5%
    a. both the price level and real GDP would rise by 5%.
    b. the price level would rise by 5% and real GDP would be unchanged.
    c. the price level would be unchanged and real GDP would rise by 5%.
    d. both the price level and real GDP would be unchanged.

Answer 193

b

Question 194

93. Last year, Tealandia produced 50,000 bags of green tea. This was Tealandia’s only production. Each bag sold at 4 units each of Tealandia’s currency-the Leaf. Tealandia’s money supply was 10,000. What was the velocity of money in Tealandia?
    a. 20
    b. 5
    c. 1/20
    d. 1/5

Question 195

94. According to the quantity equation if P = 4 and Y= 800, which of the following pairs could M and V be?
    a. 800, 4
    b. 600, 3
    c. 400, 2
    d. 200, 1

Question 196

95. Velocity is
    a. Y/(M x P) and increases if dollars are exchanged less frequently.
    b. Y/(M x P) and increases if dollars are exchanged more frequently.
    c. (P x Y)/M and increases if dollars are exchanged less frequently.
    d. (P x Y)/M and increases if dollars are exchanged more frequently.

Question 197

96. If Y and V are constant, and M doubles, the quantity equation implies that the price level
    a. more than doubles.
    b. changes but less than doubles.
    c. doubles.
    d. does not change

Answer 197

c

Question 198

97. If Y and M are constant, and V doubles, the quantity equation implies that the price level
    a. falls to half it’s original level.
    b. doubles.
    c. more than doubles.
    d. does not change.

Answer 198

b

Question 199

98. If V and M are constant, and Y doubles, the quantity equation implies that the price level
    a. falls to half its original level.
    b. does not change.
    c. doubles.
    d. more than doubles.

Question 200

99. If velocity and output were nearly constant,
    a. the inflation rate would be much higher than the money supply growth rate.
    b. the inflation rate would be about the same as the money supply growth rate.
    c. the inflation rate would be much lower than the money supply growth rate.
    d. any of the above would be possible.

Answer 200

b

Question 201

100. Suppose that velocity rises while the money supply stays the same. It follows that
     a. P x Y must rise.
     b. P x Y must fall.
     c. P x Y must be unchanged.
     d. the effects on P x Y are uncertain.

Question 202

51. Net capital outflow equals the difference between a country’s
    a. income and expenditure.
    b. investment and saving.
    c. buying of foreign goods and services and sales of goods and services abroad.
    d. purchases of foreign assets and sales of domestic assets abroad.

Question 203

52. Net exports measures the difference between a country’s
    a. income and expenditures.
    b. sale of goods and services abroad and purchase of foreign goods and services.
    c. sale of domestic assets abroad and purchase of foreign assets.
    d. All of the above are correct.

Answer 203

b

Question 204

53. Catherine, a citizen of Spain, decides to purchase bonds issued by Chile instead of ones issued by the United States even though the Chilean bonds have a higher risk of default. An economic reason for her decision might be that
    a. she dislikes U.S. foreign policy.
    b. the Chilean bonds pay a higher rate of interest.
    c. the U.S. government is more stable than the Chilean government.
    d. None of the above provide an economic reason for buying the riskier bond.

Answer 204

b

Question 205

54. When a French vineyard establishes a distribution center in the U.S., U.S. net capital outflow
    a. increases because the foreign company makes a portfolio investment in the U.S.
    b. declines because the foreign company makes a portfolio investment in the U.S.
    c. increases because the foreign company makes a direct investment in capital in the U.S.
    d. declines because the foreign company makes a direct investment in capital in the U.S.

Question 206

55. When Microsoft establishes a distribution center in France, U.S. net capital outflow
    a. increases because Microsoft makes a portfolio investment in France.
    b. decreases because Microsoft makes a portfolio investment in France.
    c. increases because Microsoft makes a direct investment in capital in France.
    d. decreases because Microsoft makes a direct investment in capital France.

Answer 206

c

Question 207

56. When the Sykes Corporation (an American company) buys shares of Audi stock (a German company) for its pension fund, U.S. net capital outflow
    a. increases because an American company makes a portfolio investment in Germany.
    b. declines because an American company makes a portfolio investment in Germany.
    c. increases because an American company makes a direct investment in Germany.
    d. declines because an American company makes a direct investment in Germany.

Question 208

57. Net capital outflow
    a. is always greater than net exports.
    b. is always less than net exports.
    c. is always equal to net exports.
    d. could be any of the above.

Answer 208

c

Question 209

58. Which of the following is correct?
    a. NCO = NX
    b. NCO + I = NX
    c. NX + NCO = Y
    d. Y = NCO - I

Question 210

59. Which of the following is correct?
    a. NCO + C = NX
    b. NCO = NX
    c. NX - NCO = C
    d. NX + NCO = C

Answer 210

b

Question 211

60. When Ghana sells chocolate to the United States, U.S. net exports
    a. increase, and U.S. net capital outflow increases.
    b. increase, and U.S. net capital outflow decreases.
    c. decrease, and U.S. net capital outflow increases.
    d. decrease, and U.S. net capital outflow decreases.

Question 212

61. If a U.S. textbook publishing company sells texts overseas, U.S. net exports
    a. increase, and U.S. net capital outflow increases.
    b. increase, and U.S. net capital outflow decreases.
    c. decrease, and U.S. net capital outflow increases.
    d. decrease, and U.S. net capital outflow decreases.

Question 213

62. If a U.S. shirt maker purchases cotton from Egypt, U.S. net exports
    a. increase, and U.S. net capital outflow increases.
    b. increase, and U.S. net capital outflow decreases.
    c. decrease, and U.S. net capital outflow increases.
    d. decrease, and U.S. net capital outflow decreases.

Question 214

63. A U.S. firm buys sardines from Morocco and pays for them with U.S. dollars. Other things the same, U.S. net exports
    a. increase, and U.S. net capital outflow increases.
    b. increase, and U.S. net capital outflow decreases.
    c. decrease, and U.S. net capital outflow increases.
    d. decrease, and U.S. net capital outflow decreases.

Question 215

64. A U.S. firm opens a factory that produces camping equipment in Estonia
    a. This increases U.S. net capital outflow and decreases Estonian net capital outflow.
    b. This decreases U.S. net capital outflow and increases Estonian net capital outflow.
    c. This increases only U.S. net capital outflow.
    d. This increases only Estonian net capital outflow.

Question 216

65. A Japanese firm buys lumber from the United States and pays for it with yen. Other things the same, Japanese
    a. net exports increase, and U.S. net capital outflow increases.
    b. net exports increase, and U.S. net capital outflow decreases.
    c. net exports decrease, and U.S. net capital outflow increases.
    d. net exports decrease, and U.S. net capital outflow decreases.

Answer 216

c

Question 217

66. A Mexican flour mill buys wheat from the United States and pays for it with pesos. Other things the same, Mexican
    a. net exports increase, and U.S. net capital outflow increases.
    b. net exports increase, and U.S. net capital outflow decreases.
    c. net exports decrease, and U.S. net capital outflow increases.
    d. net exports decrease, and U.S. net capital outflow decreases.

Answer 217

c

Question 218

67. Jill uses some euros to purchase a bond issued by a French vineyard. This exchange
    a. increases U.S. net capital outflow by more than the value of the bond.
    b. increases U.S. net capital outflow by the value of the bond.
    c. does not change U.S. net capital outflow.
    d. decreases U.S. net capital outflow.

Answer 218

c

Question 219

68. Tony, a U.S. citizen, uses some previously obtained Portuguese currency (escudo) to purchase a bond issued by a Portuguese company. This transaction
    a. increases U.S. net capital outflow by more than the value of the bond.
    b. increases U.S. net capital outflow by the value of the bond.
    c. does not change U.S. net capital outflow.
    d. decreases U.S. net capital outflow.

Answer 219

c

Question 220

69. A citizen of Saudi Arabia uses previously obtained U.S. dollars to purchase apples from the United States. This transaction
    a. increases Saudi net capital outflow, and increases U.S. net exports.
    b. increases Saudi net capital outflow, and decreases U.S. net exports.
    c. decreases Saudi net capital outflow, and increases U.S. net exports.
    d. decreases Saudi net capital outflow, and decreases U.S. net exports.

Answer 220

c

Question 221

70. A U.S. pharmacy buys drugs from a British company and pays for them with US dollars. This transaction
    a. increases British net exports, and increases U.S. capital outflow.
    b. increases British net exports, and decreases U.S. capital outflow.
    c. decreases British net exports, and increases U.S. capital outflow.
    d. decreases British net exports, and decreases U.S. capital outflow.

Answer 221

b

Question 222

71. A Venezuelan firm purchases earth-moving equipment from a U.S. company and pays for it with Venezuelan currency. This transaction
    a. increases U.S. net exports, and increases Venezuelan net capital outflow.
    b. increases U.S. net exports, and decreases Venezuelan net capital outflow.
    c. decreases U.S. net exports, and increases Venezuelan net capital outflow.
    d. decreases U.S. net exports, and decreases Venezuelan net capital outflow.

Answer 222

b

Question 223

72. A U.S. firm buys apples from New Zealand with U.S. currency. The New Zealand firm than uses this money to buy packaging equipment from a U.S. firm. Which of the following increases?
    a. New Zealand net capital outflow and New Zealand net exports
    b. only New Zealand net exports
    c. only New Zealand net capital outflow
    d. neither New Zealand net exports nor New Zealand capital outflow

Answer 223

d

Question 224

73. U.S. based John Deere sells machinery to a South African country that pays with South African currency (the rand).
    a. This increases U.S. net capital outflow because the U.S. acquires foreign assets.
    b. This decreases U.S. net capital outflow because the U.S. acquires foreign assets.
    c. This increases U.S. net capital outflow because the U.S. sells capital goods.
    d. This decreases U.S. net capital outflow because the U.S. sells capital goods.

Answer 224

a

Question 225

74. Suppose that the real return from operating factories in Ghana 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 Ghanan net capital outflow.
    b. this will decreases U.S. net capital outflow and increase Ghanan net capital outflow.
    c. this will only increase U.S. net capital outflow.
    d. this will only increase Ghanan net capital outflow.

Answer 225

a

Question 226

75. A U.S. based company sells semiconductors to an Italian firm. The U.S. company uses all of the revenues from this sale to purchase automobiles from Italian firms. These transactions
    a. increase both U.S. net exports and U.S. net capital outflow.
    b. decrease both U.S. net exports and U.S. net capital outflow.
    c. increase U.S. net exports and do not affect U.S. net capital outflow.
    d. None of the above is correct.

Question 227

76. Bolivia buys railroad engines from a U.S. firm and pays for them with Bolivianos (Bolivian currency). By itself, this transaction
    a. increases both U.S. net exports and U.S. net capital outflow.
    b. decreases both U.S. net exports and U.S. net capital outflow.
    c. increases U.S. net exports and does not affect U.S. net capital outflow.
    d. None of the above is correct.

Question 228

77. Foreign citizens would be more likely to engage in foreign portfolio investment in the U.S. if, compared to their country’s assets, U.S. assets had
    a. a higher interest rate and a higher default risk.
    b. a higher interest rate and a lower default risk.
    c. a lower interest rate and higher default risk.
    d. a lower interest rate and a lower default risk.

Answer 228

b

Question 229

78. Stacey, a U.S. citizen, buys a bond issued by an Italian pasta manufacturer.
    a. This is foreign direct investment. By itself it increases U.S. net capital outflow.
    b. This is foreign direct investment. By itself it decreases U.S. net capital outflow.
    c. This is foreign portfolio investment. By itself it increases U.S. net capital outflow.
    d. This is foreign portfolio investment. By itself it decreases U.S. net capital outflow.

Question 230

79. A U.S. firm buys cement mixers from China and pays for them with U.S. dollars.
    a. The purchase of the cement mixers increases U.S. net exports and the payment with dollars increases U.S. net capital outflow.
    b. The purchase of cement mixers increases U.S. net exports and the payment with dollars decreases U.S. net capital outflow.
    c. The purchase of cement mixers decreases U.S. net exports and the payment with dollars increases U.S. net capital outflow.
    d. The purchase of cement mixers decreases U.S. net exports and the payment with dollars decreases U.S. net capital outflow.

Answer 230

d

Question 231

80. If a country has negative net capital outflows, then its net exports are
    a. positive and its saving is larger than its domestic investment.
    b. positive and its saving is smaller than its domestic investment.
    c. negative and its saving is larger than its domestic investment.
    d. negative and its saving is smaller than its domestic investment.

Question 232

81. If a country has a trade surplus
    a. it has positive net exports and positive net capital outflow.
    b. it has positive net exports and negative net capital outflow.
    c. it has negative net exports and positive net capital outflow.
    d. it has negative net exports and negative net capital outflow.

Answer 232

a

Question 233

82. If a country has a trade deficit
    a. it has positive net exports and positive net capital outflow.
    b. it has positive net exports and negative net capital outflow.
    c. it has negative net exports and positive net capital outflow.
    d. it has negative net exports and negative net capital outflow.

Question 234

83. In 2004 the U.S. had a large trade
    a. surplus and a large net capital inflow.
    b. surplus and a large net capital outflow.
    c. deficit and a large net capital inflow.
    d. deficit and a large net capital outflow.

Answer 234

c

Question 235

84. In 2004 economists were concerned that if foreign investors suddenly moved away from U.S. dollar denominated investments then
    a. stock prices and interest rates would rise.
    b. stock prices and interest rates would fall.
    c. stocks prices would rise and interest rates would fall.
    d. stocks prices would fall and interest rates would rise.

Answer 235

d

Question 236

85. An open economy’s GDP is always given by
    a. Y = C + I + G.
    b. Y = C + I + G + T.
    c. Y = C + I + G + S.
    d. Y = C + I + G + NX.

Answer 236

d

Question 237

86. Which of the following equations is correct?
    a. S = I + C
    b. S = I - NX
    c. S = I + NCO
    d. S = NX - NCO.

Answer 237

c

Question 238

87. Which of the following equations is correct?
    a. Y = C + I + G + NCO
    b. NX = NCO
    c. NCO = S - I
    d. All of the above are correct.

Question 239

88. Which of the following equations is always correct in an open economy?
    a. I = Y - C
    b. I = S
    c. I = S - NCO
    d. I = S + NX

Answer 239

c

Question 240

89. If there is a trade deficit, then
    a. saving is greater than domestic investment and Y > C + I + G.
    b. saving is greater than domestic investment and Y < C + I + G.
    c. saving is less than domestic investment and Y > C +I + G.
    d. saving is less than domestic investment and Y < C + I + G.

Question 241

90. If there is a trade surplus then
    a. saving is greater than domestic investment and Y > C + I + G.
    b. saving is greater than domestic investment and Y < C + I + G.
    c. saving is less than domestic investment and Y > C +I + G.
    d. saving is less than domestic investment and Y < C + I + G.

Answer 241

a

Question 242

91. In which of the following situations must national saving rise?
    a. Both domestic investment and net capital outflow increase.
    b. Domestic investment increases and net capital outflow decreases.
    c. Domestic investment decreases and net capital outflow increases.
    d. Both domestic investment and net capital outflow decrease.

Answer 242

a

Question 243

92. A country has a trade deficit. Its
    a. net capital outflow must be positive, and saving is larger than investment.
    b. net capital outflow must be positive and saving is smaller than investment.
    c. net capital outflow must be negative and saving is larger than investment.
    d. net capital outflow must be negative and saving is smaller than investment.

Answer 243

d

Question 244

93. The country of Freedonia has a GDP of $2,100, consumption of $1,200, and government purchases of $400. This implies that it has
    a. domestic investment of $500.
    b. domestic investment plus net capital outflow of $500.
    c. domestic investment - net capital outflow of $500.
    d. None of the above is correct.

Answer 244

b

Question 245

94. The country of Sylvania has a GDP of $900, investment of $200, government purchases of $200, and net capital outflow of negative $100. This means that
    a. consumption equals $700.
    b. consumption equals $600.
    c. consumption equals $500.
    d. saving equals $300.

Answer 245

b

Question 246

95. A country has $100 million of net exports and $170 million of saving. Net capital outflow is
    a. $70 million and domestic investment is $170 million.
    b. $70 million and domestic investment is $270 million.
    c. $100 million and domestic investment is $70 million.
    d. None of the above is correct.

Question 247

96. A country has $60 million of saving and domestic investment of $40 million. Net exports are
    a. $20 million.
    b. -$20 million.
    c. $100 million.
    d. -$100 million.

Question 248

97. A country has $50 million of domestic investment and net capital outflow of $15 million. What is saving?
    a. $65 million.
    b. -$65 million.
    c. $35 million.
    d. -$35 million.

Question 249

98. A country has $45 million of domestic investment and net capital outflow of -$60 million. What is saving?
    a. $15 million.
    b. -$15 million.
    c. $105 million.
    d. -$105 million.

Answer 249

b

Question 250

99. A country has $200 billion of domestic investment and net capital outflow of $100 billion. What is saving?
    a. $100 billion
    b. $300 billion
    c. -$200 billion
    d. -$300 billion

Answer 250

b

Question 251

100. In an open economy, gross domestic product equals $1,950 billion, government expenditure equals $280 billion, investment equals $500, and net capital outflow equals $280 billion. What is consumption expenditure?
     a. $280 billion
     b. $780 billion
     c. $890 billion
     d. $1,170 billion

Answer 251

c

Question 252

51. Which of the following is included in the supply of dollars in the market for foreign-currency exchange in the open-economy macroeconomic model?
    a. A retail outlet in Russia wants to buy semi-conductors from a U.S. manufacturer.
    b. A U.S. bank loans dollars to Blair, a U.S. resident, who wants to purchase a new house in the United States.
    c. A U.S. based mutual fund wants to purchase bonds issued by an Italian corporation.
    d. All of the above are correct.

Answer 252

c

Question 253

52. Which of the following would tend to shift the supply of dollars in the market for foreign-currency exchange in the open-economy macroeconomic model to the right?
    a. The exchange rate rises.
    b. The exchange rate falls.
    c. The expected rate of return on U.S. assets rises.
    d. The expected rate of return on U.S. assets falls.

Question 254

53. Which of the following would tend to shift the supply of dollars in the market for foreign-currency exchange of the open-economy macroeconomic model to the left?
    a. The exchange rate rises.
    b. The exchange rate falls.
    c. The expected rate of return on U.S. assets rises.
    d. The expected rate of return on U.S. assets falls.

Answer 254

c

Question 255

54. If for some reason Americans wished to purchase more foreign assets, then other things the same
    a. both the real exchange rate and the quantity of dollars exchanged in the market for foreign-currency exchange would fall.
    b. both the real exchange rate and the quantity of dollars exchanged in the market for foreign-currency would rise.
    c. the real exchange rate would rise and the quantity of dollars exchanged in the market for foreign-currency would fall.
    d. the real exchange rate would fall and the quantity of dollars exchanged in the market for foreign-currency would rise.

Answer 255

d

Question 256

55. You see on the Internet that the U.S. exchange rate has fallen. This might have been caused by
    a. a decrease in the demand for or a decrease in the supply of dollars in the market for foreign-currency exchange.
    b. a decrease in the demand for or an increase in the supply of dollars in the market for foreign-currency exchange.
    c. an increase in the demand for or a decrease in the supply of dollars in the market for foreign-currency exchange.
    d. an increase in the demand for or a increase in the supply of dollars in the market for foreign-currency exchange.

Answer 256

b

Question 257

56. At a given real exchange rate, which of the following, by itself, would increase the supply of dollars in the market for foreign-currency exchange?
    a. foreign citizens buy more U.S. bonds
    b. U.S. citizens buy more foreign bonds
    c. foreign citizens buy more U.S. goods
    d. U.S. citizens buy more foreign goods

Answer 257

b

Question 258

57. The amount of dollars demanded in the market for foreign-currency exchange at a given real exchange rate increases if
    a. either U.S. imports or exports increase.
    b. either U.S. imports or exports decrease.
    c. either U.S. imports increase or U.S. exports decrease.
    d. either U.S. imports decrease or U.S. exports increase.

Question 259

58. The real exchange rate measures the
    a. price of domestic currency relative to foreign currency.
    b. price of domestic goods relative to the price of foreign goods.
    c. rate of domestic and foreign interest.
    d. None of the above is correct.

Answer 259

b

Question 260

59. The price that balances supply and demand in the market for foreign-currency exchange in the open-economy macroeconomic model is the
    a. nominal exchange rate.
    b. nominal interest rate.
    c. real exchange rate.
    d. real interest rate.

Answer 260

c

Question 261

60. In the market for foreign-currency exchange in the open-economy macroeconomic model, a higher U.S. real exchange rate makes
    a. U.S. goods more expensive relative to foreign goods and reduces the quantity of dollars supplied.
    b. U.S. goods more expensive relative to foreign goods and reduces the quantity of dollars demanded.
    c. foreign goods more expensive relative to U.S. goods and reduces the quantity of dollars supplied.
    d. foreign goods more expensive relative to U.S. goods and reduces the quantity of dollars demanded.

Answer 261

b

Question 262

61. In the open-economy macroeconomic model, equilibrium is determined by the equality between the supply of dollars which comes from
    a. U.S. national saving and the demand for dollars for U.S. net exports.
    b. U.S. net capital outflow and the demand for dollars for U.S. net exports.
    c. domestic investment and the demand for U.S. net exports.
    d. foreign demand for U.S. goods and U.S. demand for foreign goods.

Answer 262

b

Question 263

62. When the real exchange rate for the dollar appreciates, U.S. goods become
    a. less expensive relative to foreign goods, which makes exports rise and imports fall.
    b. less expensive relative to foreign goods, which makes exports fall and imports rise.
    c. more expensive relative to foreign goods, which makes exports rise and imports fall.
    d. more expensive relative to foreign goods, which makes exports fall and imports rise.

Question 264

63. When the real exchange rate for the dollar depreciates, U.S. goods become
    a. less expensive relative to foreign goods, which makes exports rise and imports fall.
    b. less expensive relative to foreign goods, which makes exports fall and imports rise.
    c. more expensive relative to foreign goods, which makes exports rise and imports fall.
    d. more expensive relative to foreign goods, which makes exports fall and imports rise.

Question 265

64. If the real exchange rate for the dollar is above the equilibrium level, the quantity of dollars supplied in the market for foreign-currency exchange is
    a. greater than the quantity demanded and the dollar will appreciate.
    b. greater than the quantity demanded and the dollar will depreciate.
    c. less than the quantity demanded and the dollar will appreciate.
    d. less than the quantity demanded and the dollar will depreciate.

Answer 265

b

Question 266

65. If the real exchange rate for the dollar is below the equilibrium level, the quantity of dollars supplied in the market for foreign-currency exchange is
    a. less than the quantity demanded and the dollar will appreciate.
    b. less than the quantity demanded and the dollar will depreciate.
    c. greater than the quantity demanded and the dollar will appreciate.
    d. greater than the quantity demanded and the dollar will depreciate.

Question 267

66. In the open-economy macroeconomic model, the quantity of dollars demanded in the market for foreign-currency exchange
    a. depends on the real exchange rate. The quantity of dollars supplied in the foreign-exchange market depends on the real interest rate.
    b. depends on the real interest rate. The quantity of dollars supplied in the foreign-exchange market depends on the real exchange rate.
    c. and the quantity of dollars supplied in the market for foreign-currency exchange depend on the real exchange rate.
    d. and the quantity of dollars supplied in the market for foreign-currency exchange depend on the real interest rate.

Answer 267

a

Question 268

67. Net capital outflow
    a. is a source of the supply of loanable funds, and the source of the supply of dollars in the foreign exchange market.
    b. is a source of the supply of loanable funds, and a source of the demand for dollars in the foreign exchange market.
    c. is a part of the demand for loanable funds, and the source of the supply of dollars in the foreign exchange
    market.
    d. is a part of the demand for loanable funds, and a source of the demand for dollars in the foreign exchange
    market.

Question 269

68. The theory of purchasing-power parity implies that the demand curve for foreign-currency exchange is
    a. downward sloping.
    b. upward sloping.
    c. horizontal.
    d. vertical.

Answer 269

c

Question 270

69. The variable that links the market for loanable funds and the market for foreign-currency exchange is
    a. net capital outflow.
    b. national saving.
    c. exports.
    d. domestic investment.

Question 271

70. Which of the following is correct in an open economy?
    a. S = I
    b. S = NX + NCO
    c. S = NCO
    d. S = I + NCO

Answer 271

d

Question 272

71. In the open-economy macroeconomic model, the key determinant of net capital outflow is the
    a. nominal exchange rate.
    b. nominal interest rate.
    c. real exchange rate.
    d. real interest rate.

Answer 272

d

Question 273

72. When the U.S. real interest rate falls, owning U.S. assets is
    a. less attractive and so U.S. net capital outflow rises.
    b. less attractive and so U.S. net capital outflow falls.
    c. more attractive and so U.S. net capital outflow rises.
    d. more attractive and so U.S. net capital outflow falls.

Question 274

73. If a U.S. resident wants to buy a foreign bond, his actions are included
    a. in the U.S. supply of loanable funds and the supply of dollars in the market for foreign-currency exchange.
    b. in the U.S. supply of loanable funds and the demand for dollars in the market for foreign-currency exchange.
    c. in the U.S. demand for loanable funds and the supply of dollars in the market for foreign-currency exchange.
    d. in the U.S. demand for loanable funds and the supply of dollars in the market for foreign-currency exchange.

Answer 274

c

Question 275

74. Other things the same, if the Canadian real interest rate were to increase, Canadian net capital outflow
    a. and net capital outflow of other countries would rise.
    b. and net capital outflow of other countries would fall.
    c. would rise, while net capital outflow of other countries would fall.
    d. would fall, while net capital outflow of other countries would rise.

Question 276

75. In the open-economy macroeconomic model, which of the following would make India’s net capital outflow decrease?
    a. a decrease in U.S. interest rates.
    b. a decrease in Indian interest rates.
    c. an appreciation of the Indian rupee.
    d. None of the above is correct.

Question 277

76. In the open-economy macroeconomic model, if a country’s interest rate increases, its net capital outflow
    a. and the real exchange rate increase.
    b. and the real exchange rate decrease.
    c. increases and the real exchange rate decreases.
    d. decreases and the real exchange rate increases.

Answer 277

d

Question 278

77. In the open-economy macroeconomic model, if the supply of loanable funds increases, net capital outflow
    a. and the real exchange rate increase.
    b. and the real exchange rate decrease.
    c. increases and the real exchange rate decreases.
    d. decreases and the real exchange rate increases.

Answer 278

c

Question 279

78. In the open-economy macroeconomic model, if the supply of loanable funds increases, the interest rate
    a. and the real exchange rate increase.
    b. and the real exchange rate decrease.
    c. increases and the real exchange rate decreases.
    d. decreases and the real exchange rate increases.

Answer 279

b

Question 280

79. Refer to Figure 19-2. National saving is represented by the
    a. demand curve in panel a.
    b. demand curve in panel c.
    c. supply curve in panel a.
    d. supply curve in panel c.

Answer 280

c

Question 281

80. Refer to Figure 19-2. Domestic investment plus net capital outflow is represented by the
    a. demand curve in panel a.
    b. demand curve in panel c.
    c. supply curve in panel a.
    d. None of the above is correct.

Answer 281

a

Question 282

81. Refer to Figure 19-2. At an interest rate of 3 percent, the diagram indicates that
    a. there is a surplus in the market for foreign-currency exchange.
    b. national saving equals domestic investment.
    c. net capital outflow + domestic investment = national saving.
    d. the market for foreign-currency exchange the quantity of dollars supplied equals the quantity of dollars demanded.

Answer 282

c

Question 283

82. Refer to Figure 19-2. The curve in panel b shows that as the interest rate rises,
    a. domestic investment declines.
    b. net capital outflow declines.
    c. net capital outflow and domestic investment decline.
    d. None of the above is correct.

Answer 283

b

Question 284

83. Refer to Figure 19-2. Which curve is determined by net capital outflow only?
    a. the demand curve in panel a.
    b. the demand curve in panel c.
    c. the supply curve in panel a.
    d. the supply curve in panel c.

Answer 284

d

Question 285

84. Refer to Figure 19-2. Which curve shows the relation between the exchange rate and net exports?
    a. the demand curve in panel a.
    b. the demand curve in panel c.
    c. the supply curve in panel a.
    d. the supply curve in panel c.

Answer 285

b

Question 286

85. Because a government budget deficit represents
    a. negative public saving, it increases national savings.
    b. negative public saving, it decreases national savings.
    c. positive public saving, it increases national savings.
    d. positive public saving, it decreases national savings.

Answer 286

b

Question 287

86. If a country increases its government budget deficit, the
    a. supply of loanable funds shifts right.
    b. supply of loanable funds shifts left.
    c. demand for loanable funds shifts right.
    d. demand for loanable funds shifts left.

Answer 287

b

Question 288

87. Suppose that Egypt has a government budget surplus, and then goes into deficit. This action would
    a. increase national saving and shift Egypt’s supply of loanable funds left.
    b. increase national saving and shift Egypt’s demand for loanable funds right.
    c. decrease national saving and shift Egypt’s supply of loanable funds left.
    d. decrease national saving and shift Egypt’s demand for loanable funds right.

Answer 288

c

Question 289

88. If a country went from a government budget deficit to a surplus,
    a. national saving would increase, shifting the supply of loanable funds right.
    b. national saving would increase, shifting the supply of loanable funds left.
    c. national saving would decrease, shifting the demand for loanable funds right.
    d. national saving would decrease, shifting the demand for loanable funds left.

Question 290

89. If the government of India implemented a policy that reduced national saving, its real exchange rate would
    a. depreciate and Indian net exports would rise.
    b. depreciate and Indian net exports would fall.
    c. appreciate and Indian net exports would rise.
    d. appreciate and Indian net exports would fall.

Question 291

90. If the government of Colombia made policy changes that increased national saving, the real exchange rate of the peso would
    a. depreciate and Colombian net exports would rise.
    b. depreciate and Colombian net exports would fall.
    c. appreciate and Colombian net exports would rise.
    d. appreciate and Colombian net exports would fall.

Question 292

91. Suppose that the government of Syria raises its budget deficit. The real exchange rate of the Syrian pound would
    a. depreciate and Syrian net exports would rise.
    b. depreciate and Syrian net exports would fall.
    c. appreciate and Syrian net exports would rise.
    d. appreciate and Syrian net exports would fall.

Question 293

92. If the U.S. government went from a budget deficit to a budget surplus then
    a. the interest rate and the real exchange rate would increase.
    b. the interest rate and the real exchange rate would decrease.
    c. the interest rate would increase and the real exchange rate would decrease.
    d. the interest rate would decrease and the real exchange rate would increase.

Answer 293

b

Question 294

93. When a country runs a government budget deficit
    a. the real exchange rate of its currency and its net exports increase.
    b. the real exchange rate of its currency and its net exports decrease.
    c. the real exchange rate of its currency increases and its net exports decrease.
    d. the real exchange rate of its currency decreases and its net exports increase.

Answer 294

c

Question 295

94. A government budget deficit
    a. increases both net capital outflow and net exports.
    b. decreases both net capital outflow and net exports.
    c. increases net capital outflow and decreases net exports.
    d. decreases net capital outflow and increases net exports.

Answer 295

b

Question 296

95. If a government increases its budget deficit, then interest rates
    a. and domestic investment rise.
    b. and domestic investment falls.
    c. rise and domestic investment falls.
    d. fall and domestic investment rises.

Answer 296

c

Question 297

96. If a government increases its budget deficit, then interest rates
    a. rise and the real exchange rate appreciates.
    b. fall and the real exchange rate depreciates.
    c. rise and the real exchange rate depreciates.
    d. fall and the real exchange rate appreciates.

Question 298

97. If the government of a country with a zero trade balances increases its budget deficit, then interest rates
    a. rise and the trade balance moves to a surplus.
    b. rise and the trade balance moves to a deficit.
    c. fall and the trade balance moves to a surplus.
    d. fall and the trade balance moves to a deficit.

Answer 298

b

Question 299

98. If a government increases its budget deficit, then the real exchange rate
    a. and domestic investment rise.
    b. and domestic investment fall.
    c. rises and domestic investment falls.
    d. falls and domestic investment rises.

Answer 299

c

Question 300

99. If a government of a country with a zero trade balance increases its budget deficit, then the real exchange rate
    a. appreciates and there is a trade surplus.
    b. appreciates and there is a trade deficit.
    c. depreciates and there is a trade surplus.
    d. depreciates and there is a trade deficit.

Answer 300

b

Question 301

100. If a government started with a budget deficit and moved to a surplus, domestic investment
     a. and the real exchange rate would rise.
     b. and the real exchange rate would fall.
     c. would rise and the real exchange rate would fall.
     d. would fall and the real exchange rate would rise.

Answer 301

c