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Homework answers / question archive / 1) Net exports of goods are known as A) the balance of payments

1) Net exports of goods are known as A) the balance of payments

Economics

1) Net exports of goods are known as

A) the balance of payments.

B) the merchandise trade balance.

C) the current account.

D) the capital and financial account.

 

 

 

 

2) If a country's merchandise exports exceed its merchandise imports it has a

A) trade surplus.

B) trade deficit.

C) current account surplus.

D) current account deficit.

 

 

4) If all international factor payment flows are investment income, then net investment income from abroad equals

A) net exports.

B) the current account balance.

C) the trade balance.

D) net factor payments from abroad.

 

5) If the United States donates footballs to Japan, how is the transaction recorded on the U.S. balance of payments accounts?

A) Debit: merchandise trade; credit: capital and financial account

B) Debit: capital and financial account; credit: merchandise trade

C) Debit: net unilateral transfers; credit: merchandise trade

D) Debit: merchandise trade; credit: net unilateral transfers

 

6) If the United States sells computers?export? to Russia, and uses the proceeds to buy shares of stock in Russian companies, the U.S. trade balance ________ and the U.S. capital and financial account balance ________.

A) rises; rises

B) rises; falls

C) falls; falls

D) falls; rises

 

10) Suppose a wealthy Canadian donates $10 million to charities in Mexico. Mexican net exports ________ and the current account balance ________.

A) fall; rises

B) rise; rises

C) are unchanged; is unchanged

D) fall; is unchanged

 

11) If a French company exports $2 million of machinery to Italy and French tourists spend $2 million at Italian beaches, the French merchandise trade balance ________, and the French capital and financial account balance ________.

A) rises; rises

B) rises; is unchanged

C) is unchanged; is unchanged

D) is unchanged; rises

 

 

14) Which of the following would be part of the nation's current account?

A) An old house purchased by an American in Italy

B) The purchase of a U.S. Treasury bond by a foreigner

C) The interest an American earns on a British bond ?new income?

D) A factory built by the Japanese in the United States

 

15) A country has a current account surplus if

A) the value of its exports exceeds the value of its imports, assuming net income from foreign assets and net unilateral transfers have a value of zero.

B) the value of its net exports of services exceeds the value of its net exports of goods.

C) it receives more income from foreign assets than it pays to foreigners for foreign-owned domestic assets.

D) its capital inflows exceed its capital outflows.

 

16) Which of the following would be part of the nation's capital and financial account?

A) A night club show seen by an American in Mexico City

B) A dividend from a British equity owned by an American

C) A payment to the Philippine government for the use of military bases in their country

D) One hundred shares of British Petroleum stock purchased by an American

 

17) If a French company exports $2 million of machinery to Italy and French tourists spend $2 million at Italian beaches, the Italian current account balance ________, and the Italian capital and financial account balance ________.

A) rises; rises

B) rises; is unchanged

C) is unchanged; is unchanged

D) is unchanged; rises

 

18) The official settlements balance equals

A) the sum of the current account and the capital and financial account.

B) the current account minus net unilateral transfers.

C) net investment income from abroad.

D) the net increase in a country's official reserve assets.

 

19) A negative value for the U.S. official reserve assets line in the balance of payments accounts means that

A) U.S. residents have sold more gold to foreigners than they bought.

B) U.S. residents bought more gold from foreigners than they sold.

C) the U.S. central bank has increased its holdings of foreign reserve assets.?minus item?

D) the U.S. central bank has decreased its holdings of foreign reserve assets.

 

20) If the Federal Reserve buys $3 billion worth of Japanese yen and sells $5 billion of euros, how does this affect the official settlements balance?

A) Falls by $2 billion     

B) Rises by $2 billion

C) Rises by $3 billion

D) Falls by $5 billion

 

 

21) A capital and financial account surplus necessarily implies

A) a balance of payments surplus.

B) a current account surplus.

C) a current account deficit.

D) an increase in the nation's official reserve assets.

 

22) If the United States had a capital and financial account deficit of $50 billion, we could say the United States had

A) net imports of $50 billion.

B) net foreign borrowing of $50 billion.

C) acquired net foreign assets of $50 billion. Buy foreign asset financial outflow

D) a current account deficit of $50 billion.

 

 

23) If a country has a current account surplus, it also has

A) a capital and financial account surplus.

B) an increase in its official reserve assets.

C) a balance of payments deficit.

D) an increase in its holding of net foreign assets.

 

24) An economic benefit of capital outflows is that they

A) create future income payment inflows.

B) increase domestic investment.

C) reduce domestic saving.

D) reduce domestic unemployment.

 

 

25) The United States became a net debtor because

A) it ran consistently large current account deficits.

B) it ran consistently large current account surpluses.

C) it lent a lot to people in foreign countries.

D) it provided much foreign aid to other countries.

 

26) A friend claims that the United States is a net international debtor. The best way of testing this claim is to see whether

A) U.S. foreign liabilities exceeded U.S. foreign income.

B) U.S. receipts from foreign assets exceeded U.S. payments to foreign owners of U.S. assets.

C) U.S. official reserve assets were positive or negative.

D) the United States ran a balance of payments surplus or deficit last year.

 

27) Suppose output is $35 billion, government purchases are $10 billion, desired consumption is $15 billion, and desired investment is $6 billion. Net foreign lending would be equal to

A) -$4 billion.

B) -$2 billion.

C) $2 billion.

D) $4 billion. Sd=Y-G-Cd-NX      (-KFA)

 

28) Assuming no change in the effective tax rate on capital, a decrease in the government budget deficit will reduce the current account deficit if and only if the decrease in the budget deficit

A) reduces desired national saving.

B) increases desired national saving.

C) reduces desired national investment.

D) increases desired national investment.

 

29) Assume that an increase in Costa Rica's government budget deficit reduced desired national saving by 10 million colon. Assuming Costa rice is a small open economy, you would expect the government's action to

A) increase the current account balance by exactly 10 million colon.

B) increase the current account balance by less than 10 million colon.

C) reduce the current account balance by exactly 10 million colon.

D) reduce the current account balance by more than 10 million colon.

 

30) An increase in a small open economy's government budget deficit that reduces national saving and the current account balance causes an

A) increase in desired saving.

B) increase in the world real interest rate.

C) increase in exports.

D) increase in absorption.

 

31) In a large open economy like the United States, an increased government budget deficit which reduces national saving

A) reduces investment and improves the current account balance.

B) reduces investment and reduces the current account balance.

C) has no effect on investment, but reduces the current account balance.

D) has no effect on either investment or the current account balance.

 

 

32) Suppose a country has the following balance of payments data.

 

 

 

 

(a)  Calculate the current account balance.

(b)  Calculate the capital and financial account balance.

(c)  Calculate the trade balance.

(d)  Calculate net factor payments.

 

 

33) For each of the following transactions, explain what happens to the merchandise trade balance, current account balance, and capital and financial account balance in both the United States and Mexico. The exchange rate is 2 Mexican pesos per U.S. dollar.

(a)  A Mexican firm spends 4 million pesos to buy radiology equipment from a U.S. firm.

(b)  A U.S. firm buys 20,000 sombreros at 20 pesos each.

(c)  Mexican computer firms send 200 programmers to universities in the United States, paying tuition and expenses of $3,000 each.

(d) A Mexican entrepreneur gives 50,000 pesos to the United Way of San Antonio, Texas.

(e)  Mexican investors buy $10 million worth of 30-year U.S. Treasury bonds.

 

34) Suppose an economy has output of 2100, government spending of 40, consumption of 1600, and absorption of 1940. Calculate the equilibrium values of investment and net exports.

 

 

35)How did the United States become a net debtor in the 1980s? Is our foreign debt a significant problem? Explain.

 

 

36)In goods market equilibrium in an open economy,

A) the desired amount of exports must equal the desired amount of imports.

B) the desired amount of exports must equal the desired amount of imports less the amount lent abroad.

C) the desired amount of national saving must equal the desired amount of domestic investment.

D) the desired amount of national saving must equal the desired amount of domestic investment plus the current account balance.

 

37) Total spending by domestic residents, businesses, and governments is called

A) investment.

B) net domestic purchases.

C) absorption.

D) GDP.

 

38) Absorption refers to

A) the total amount of imports purchased by a country.

B) the net amount of imports purchased by a country.

C) total spending by domestic residents, businesses, and governments.

D) GDP less desired consumption, desired investment, and government purchases.

 

 

39) Suppose output is $1000 billion, government purchases are $200 billion, desired consumption is $700 billion, and desired investment is $150 billion. Net foreign lending would be equal to

A) -$150 billion.

B) -$50 billion.

C) $50 billion.

D) $150 billion.

 

40) Suppose output is $35 billion, government purchases are $10 billion, desired consumption is $15 billion, and net exports are $4 billion. Then desired investment equals

A) $2 billion.

B) $4 billion.

C) $6 billion.

D) $8 billion.

 

41) Suppose output is $35 billion, government purchases are $10 billion, desired consumption is $15 billion, and desired investment is $6 billion. Absorption is equal to

A) $25 billion.

B) $31 billion.

C) $35 billion.

D) $39 billion.

 

42) Suppose output is $440 billion, government purchases are $40 billion, desired consumption is $320 billion, and net exports are $35 billion. Then desired investment equals

A) $20 billion.

B) $30 billion.

C) $35 billion.

D) $45 billion.

 

 

43) Suppose output is $440 billion, government purchases are $40 billion, desired consumption is $320 billion, and net exports are $35 billion. Absorption is equal to

A) $405 billion.

B) $420 billion.

C) $435 billion.

D) $440 billion.

 

44) Suppose output is $35 billion, government purchases are $10 billion, consumption is $15 billion, and net exports are $4 billion. Assume net factor payments equal 0.

(a)  Calculate the equilibrium amount of investment. Show your work.

(b)  Calculate the equilibrium amount of absorption. Show your work.

(c)  Calculate the equilibrium amount of the capital and financial account balance. Show your work.

 

5.3   Saving and Investment in a Small Open Economy

 

1) An economy is considered a small open economy if it

A) is too small to affect the world real interest rate.

B) has GDP less than 1% of world GDP.

C) doesn't trade internationally.

D) has a zero trade balance.

 

2. ) A small open economy has a current account balance of zero. A rise in its investment demand causes

A) a current account surplus.

B) a capital and financial account deficit.

C) income to exceed absorption.

D) net borrowing from abroad.

 

 

3.  When a temporary beneficial supply shock hits a small open economy, it causes the current account to ________ and investment to ________.

A) fall; fall

B) rise; remain unchanged  Y rise

C) fall; remain unchanged

D) rise; fall

 

4. ) When future labor income falls in a small open economy, it causes the current account to ________ and investment to ________.

A) fall; rise

B) rise; remain unchanged

C) fall; remain unchanged

D) rise; rise

 

 

5) If a freeze destroys much of the crop of an agricultural nation, then

A) the desired investment curve would shift to the left.

B) the desired investment curve would shift to the right.

C) net foreign lending would increase.

D) net foreign lending would decrease.

 

 

6) The best weather in a decade has given Australia a bumper wheat crop. Australia is a small open economy. Based on this information alone, you would expect that

A) desired investment would decrease.

B) desired investment would increase.

C) the current account would increase.  Income rise Scurve shift to the right

D) the current account would decrease.

 

 

7) Consider a small open economy with desired national saving of Sd = 200 + 10,000rw and desired investment of Id = 1,000 - 5,000rw. If rw = 0.05, and output = 5,000, then absorption equals

A) 5,100.

B) 5,050.         

C) 4,950.

D) 4,900.

 

 

8) What determines the interest rate in a small open economy?

 

 

 

 

 

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