1.The Value of the Goods and Services Australia Purchases from the U.S. Are Less Than The

1.The value of the goods and services Australia purchases from the U.S. are less than the value of goods and services the U.S. purchases from Australia. The U.S. has

a. / positive net exports with Australia and a trade surplus with Australia.
b. / positive net exports with Australia and a trade deficit with Australia.
c. / negative net exports with Australia and a trade surplus with Australia.
d. / negative net exports with Australia and a trade deficit with Australia.
ANSWER: / d

2.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: / d

3.If a country has $2.4 billion of net exports and purchases $4.8 billion of goods and services from foreign countries, then it has

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: / a
Table 31-1
Bolivian Trade Flows
Goods / Services
Purchased
Abroad / $40 billion / Purchased
Abroad / $20 billion
Sold Abroad / $10 billion / Sold Abroad / $25 billion
4.Refer to Table 31-1. What are Bolivia’s exports?
a. / $60 billion
b. / $35 billion
c. / $10 billion
d. / None of the above are correct.
ANSWER: / b
5.Refer to Table 31-1. What are Bolivia’s imports?
a. / $60 billion
b. / $35 billion
c. / $40 billion
d. / None of the above are correct.
ANSWER: / a
6.Refer to Table 31-1. What are Bolivia’s net exports?
a. / $30 billion
b. / $5 billion
c. / -$5 billion
d. / -$25 billion
ANSWER: / d
7.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 decreases Russian net exports.
b. / increases U.S. net exports and has no effect on Russian net exports.
c. / decreases U.S. net exports and increases Russian net exports.
d. / decreases U.S. net exports and has no effect on Russian net exports.
ANSWER: / c
8.A company in Panama pays for a U.S. architect to design a factory building. By itself this transaction
a. / increases U.S. exports and so increases the U.S. trade balance.
b. / increases U.S. exports and so decreases the U.S. trade balance.
c. / increases U.S. imports and so increases the U.S. trade balance.
d. / increases U.S. imports and so decreases the U.S. trade balance.
ANSWER: / a
9.If a country had a trade deficit of $20 billion and then its exports rose by $7 billion and its imports fell by $10 billion, its net exports would now be
a. / $37 billion
b. / $3 billion
c. / -$3 billion
d. / -$37 billion
ANSWER: / c
10.Which of the following is correct? Since 1950
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: / b
11.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: / d
12.Net capital outflow is defined as 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: / a
13.If domestic residents of France purchase 1.2 trillion euros of foreign assets and foreigners purchase 1.5 trillion euros of French assets, then France’s net capital outflow is
a. / -.3 trillion euros, so it must have a trade deficit.
b. / -.3 trillion euros, so it must have a trade surplus.
c. / .3 trillion euros, so it must have a trade deficit.
d. / .3 trillion euros, so it must have a trade surplus.
ANSWER: / a
14.The purchase of U.S. government bonds by Egyptians is an example of
a. / U.S. imports.
b. / U.S. exports.
c. / foreign portfolio investment by Egyptians.
d. / foreign direct investment by Egyptians.
ANSWER: / c
15.Suppose that foreign citizens decide to purchase more U.S. pharmaceuticals and U.S. citizens decide to buy more stock in foreign corporations. Other things the same, these actions
a. / raise both U.S. net exports and U.S. net capital outflows.
b. / raise U.S. net exports and lower U.S. net capital outflows.
c. / lower both U.S. net exports and U.S. net capital outflows.
d. / lower U.S. net exports and raise U.S. net capital outflows.
ANSWER: / a
16.Which of the following is an example of U.S. foreign direct investment?
a. / A Chinese company opens a restaurant in the U.S.
b. / An Australian bank buys stocks issued by a U.S. corporation.
c. / A U.S. bank buys bonds issued by an Australian corporation.
d. / A U.S. company opens an auto parts factory in Canada.
ANSWER: / d
17.Which of the following is an example of U.S. foreign portfolio investment?
a. / Disney builds a new amusement park near Barcelona, Spain.
b. / A U.S. citizen buys bonds issued by the British government.
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: / b
18.Suppose that real interest rates in the U.S. rise relative to real interest rates in other countries. This increase would make foreigners
a. / more willing to purchase U.S. bonds, so U.S. net capital outflow would fall.
b. / more willing to purchase U.S. bonds, so U.S. net capital outflow would rise.
c. / less willing to purchase U.S. bonds, so U.S. net capital outflow would fall.
d. / less willing to purchase U.S. bonds, so U.S. net capital outflow would rise.
ANSWER: / a
19.Other things the same, which of the following could explain a rise in Sweden’s net capital outflow?
a. / interest rates on Swedish bonds rise
b. / the probability of default on Swedish bonds rises
c. / Sweden enacts a law reducing taxes on income earned by foreign-owned businesses operating in Sweden
d. / None of the above are correct.
ANSWER: / b
20.If a country changes its corporate tax laws so that foreign businesses build and manage more business in that country, then the net capital outflow of that country
a. / and the net capital outflow of other countries rise.
b. / rises and the net capital outflow of other countries fall.
c. / falls and the net capital outflow of other countries rise.
d. / None of the above are correct.
ANSWER: / c
21.A Japanese bank buys U.S. government bonds, this purchase
a. / increases U.S. net capital outflow and has no affect on Japanese net capital outflow.
b. / increases U.S. net capital outflow and increases Japanese net capital outflow.
c. / increases U.S. net capital outflow, but decreases Japanese net capital outflow.
d. / decreases U.S. net capital outflow, but increases Japanese net capital outflow.
ANSWER: / d
22.Suppose that U.S. citizens purchase more cars made in Korea, and Koreans purchase more bonds issued by U.S. corporations. Other things the same, these actions
a. / raise both U.S. net exports and U.S. net capital outflows.
b. / raise U.S. net exports and lower U.S. net capital outflows.
c. / lower both U.S. net exports and U.S. net capital outflows.
d. / lower U.S. net exports and raise U.S. net capital outflows.
ANSWER: / c
23.An Italian company exchanges euros for dollars from U.S. residents and then uses the dollars to buy U.S. products to sell in its stores in Rome. U.S. residents who exchanged their dollars for euros use the euros to buy bonds issued by French corporations. At this point
a. / both U.S. net exports and U.S. net capital outflows have risen.
b. / both U.S. net exports and U.S. net capital outflow have fallen.
c. / U.S. net exports have risen and U.S. net capital outflow have fallen.
d. / U.S. net exports have fallen and U.S. net capital outflow have risen.
ANSWER: / a
24.If saving is greater than domestic investment, then
a. / there is a trade deficit and Y > C + I + G.
b. / there is a trade deficit and Y < C + I + G.
c. / there is a trade surplus and Y > C + I + G.
d. / there is a trade surplus and Y < C + I + G.
ANSWER: / c
25.If saving is less than domestic investment, then
a. / there is a trade deficit and Y > C + I + G.
b. / there is a trade deficit and Y < C + I + G.
c. / there is a trade surplus and Y > C + I + G.
d. / there is a trade surplus and Y < C + I + G.
ANSWER: / b
26.A Japanese flour mill buys wheat 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: / c
27.U.S- based Dell sells computers to an Irish company that pays with previously obtained U.S. currency. This exchange
a. / increases U.S. net capital outflow because the U.S. acquires foreign-owned assets.
b. / decreases U.S. net capital outflow because the U.S. acquires foreign-owned assets.
c. / increases U.S. net capital outflow because the U.S. sells capital goods.
d. / decreases U.S. net capital outflow because the U.S. sells capital goods.
ANSWER: / a

28.A U.S. grocery chain buys bananas from Honduras and pays for them with U.S. dollars.

a. / The purchase of the bananas increases U.S. net exports and the payment with dollars increases U.S. net capital outflow.
b. / The purchase of bananas increases U.S. net exports and the payment with dollars decreases U.S. net capital outflow.
c. / The purchase of bananas decreases U.S. net exports and the payment with dollars increases U.S. net capital outflow.
d. / The purchase of bananas decreases U.S. net exports and the payment with dollars decreases U.S. net capital outflow.

29.Ann, a U.S. citizen, uses some previously obtained euros to purchase a bond issued by a Spanish 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: / c

30.If sales of Saudi Arabian oil to the rest of the world increase and Saudis use the proceeds to buy foreign goods, which of the following increases?

a. / Saudi Arabian net exports but not Saudi Arabian net capital outflow
b. / Saudi Arabian net capital outflow but not Saudi Arabian net exports
c. / both Saudi Arabian net exports and net capital outflow
d. / neither Saudi Arabian net exports nor net capital outflow
ANSWER: / d
DIFFICULTY: / Moderate

31.If a country’s government reduced corruption and reformed its tax system so that businesses found operating there less risky, it’s likely that this country’s

a. / net exports and net capital outflows would increase.
b. / net exports would increase and its net capital outflows would decrease.
c. / net exports and net capital outflow would decrease.
d. / net exports would decrease and its net capital outflow would increase.
ANSWER: / c

32.All saving in the U.S. economy shows up as

a. / investment in the U.S. economy.
b. / U.S. net capital outflow.
c. / either investment in the U.S. economy or U.S. net capital outflow.
d. / None of the above is correct.
ANSWER: / c

33.A country’s trade balance will fall if

a. / either investment or saving rise.
b. / either investment falls or saving rises.
c. / either saving falls or investment rises.
d. / either investment or saving fall.
ANSWER: / c

34.A country has a trade deficit. Which of the following must also be true?

a. / net capital outflow is positive and domestic investment is larger than saving
b. / net capital outflow is positive and saving is larger than domestic investment
c. / net capital outflow is negative and domestic investment is larger than saving
d. / net capital outflow is negative and saving is larger than domestic investment
ANSWER: / c

35.A country’s saving is greater than its domestic investment. This difference means that its

a. / net capital outflow and net exports are positive.
b. / net capital outflow and net exports are negative.
c. / net capital outflow is positive and net exports are negative.
d. / net capital outflow is negative and net exports are positive.
ANSWER: / a

36.If Israel's domestic investment exceeds its national saving, then Israel has

a. / positive net capital outflows and negative net exports.
b. / positive net capital outflows and positive net exports.
c. / negative net capital outflows and negative net exports.
d. / negative net capital outflows and positive net exports.
ANSWER: / c

37.Other things the same, if a country saves less, then

a. / net capital outflow rises, so net exports rise.
b. / net capital outflow rises, so net exports fall.
c. / net capital outflow falls, so net exports rise.
d. / net capital outflow falls, so net exports fall.
ANSWER: / d

38.Other things the same, a country could move from having a trade deficit to having a trade surplus if either

a. / saving rose or domestic investment rose.
b. / saving rose or domestic investment fell.
c. / saving fell or domestic investment rose.
d. / saving fell or domestic investment fell.
ANSWER: / b

39.Last year a country had exports of $100 billion, imports of $70 billion, and purchased $60 billion worth of foreign assets. What was the value of domestic assets purchased by foreigners?

a. / $70 billion
b. / $40 billion
c. / $30 billion
d. / $10 billion
ANSWER: / c

40.If a country has saving of $2 trillion and investment of $1.5 trillion, then it has

a. / a trade surplus and its net capital outflow = $.5 trillion.
b. / a trade surplus and its net capital outflow = -$.5 trillion.
c. / a trade deficit and its net capital outflow = $.5 trillion.
d. / a trade deficit and its net capital outflow = -$.5 trillion.
ANSWER: / a

41.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.
ANSWER: / c

42.A country has $3 billion of domestic investment and net exports of -$2 billion. What is its saving?

a. / -$1 billion
b. / -$2 billion
c. / $1 billion
d. / $2 billion
ANSWER: / c

43.In an open economy, gross domestic product equals $1,970 billion, government expenditure equals $300 billion, investment equals $500 billion, 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: / c

44.If citizens of a country are not saving much, it is better to

a. / force citizens to save.
b. / reduce investment.
c. / have foreigners invest in the domestic economy than no one at all.
d. / prevent opportunities for citizens to buy capital assets abroad.
ANSWER: / c

45.If the price levels in the U.S and in Canada are unchanged, but the nominal exchange rate (Canadian dollars per U.S. dollar) rises, then

a. / ​the U.S. dollar appreciates and so U.S. net exports rise.
b. / the U.S. dollar appreciates and so U.S. net exports fall.
c. / the U.S. dollar depreciates and so U.S. net exports rise.
d. / the U.S. dollar depreciates and so U.S. net exports fall.
ANSWER: / b

46.The dollar is said to depreciate against the euro if

a. / the exchange rate falls. Other things the same, it will cost fewer euros to buy U.S. goods.
b. / the exchange rate falls. Other things the same, it will cost more euros to buy U.S. goods.
c. / the exchange rate rises. Other things the same, it will cost fewer euros to buy U.S. goods.
d. / the exchange rate rises. Other things the same, it will cost more euros to buy U.S. goods.
ANSWER: / a

47.If you go to the bank and notice that a dollar buys more Japanese yen than it used to, then the dollar has

a. / appreciated. Other things the same, the appreciation would make Americans less likely to travel to Japan.
b. / appreciated. Other things the same, the appreciation would make Americans more likely to travel to Japan.
c. / depreciated. Other things the same, the depreciation would make Americans less likely to travel to Japan.
d. / depreciated. Other things the same, the depreciation would make Americans more likely to travel to Japan.
ANSWER: / b

48.If the exchange rate rises from .65 British pounds per dollar to .70 pounds per dollar, then compared to British goods, U.S. goods become

a. / relatively more expensive for both British and U.S. residents.
b. / relatively more expensive for British residents and relatively less expensive for U.S. residents.
c. / relatively less expensive for British residents and relatively more expensive for U.S. residents.
d. / relatively less expensive for both British and U.S. residents.
ANSWER: / a

49.The real exchange rate is the nominal exchange rate, defined as foreign currency per dollar, times

a. / U.S. prices minus foreign prices.
b. / U.S. prices divided by foreign prices.
c. / foreign prices divided by U.S. prices.
d. / None of the above is correct.
ANSWER: / b

50.Other things the same, an increase in the foreign price level

a. / reduces the real exchange rate. This reduction could be offset by a decrease in the domestic price level.
b. / reduces the real exchange rate. This reduction could be offset by an increase in the domestic price level.
c. / increases the real exchange rate. This increase could be offset by a decrease in the domestic price level.
d. / increases the real exchange rate. This increase could be offset by an increase in the domestic price level.
ANSWER: / b

51.Other things the same, the real exchange rate between American and Chinese goods would be higher if

a. / prices of Chinese goods were higher, or the number of yuan a dollar purchased was higher.
b. / prices of Chinese goods were higher, or the number of yuan a dollar purchased was lower.
c. / prices of Chinese goods were lower, or the number of yuan a dollar purchased was higher.
d. / prices of Chinese goods were lower, or the number of yuan a dollar purchased was lower.
ANSWER: / c

52.If the exchange rate is 1.25 New Zealand dollars per U.S dollar, the price of apples is $2 a pound in the U.S. and 1 New Zealand dollar per pound in New Zealand, what is the real exchange rate?

a. / 2.50
b. / 2
c. / 1.25
d. / .75
ANSWER: / a

53.The nominal exchange rate is 4 Saudi Arabian riyals, 8 Moroccan dirham, 60 Indian rupees, or .8 euros per U.S. dollar. A fast food breakfast costs $5 in the U.S., 30 riyals in Saudi Arabia, 40 Moroccan dirham in Morocco, 250 Indian rupees in India, and 5 euros in France. According to these numbers, where is the real exchange rate between American and foreign goods the lowest?

a. / Saudi Arabia
b. / Morocco
c. / India
d. / Britain
ANSWER: / a

54.In the U.S. a candy bar costs $1. If the nominal exchange rate were 6 Chinese yuan per dollar and the real exchange rate were 1.2, then, what would be the price of a candy bar in China?