Deck 31: True False

Question 1

Both foreign direct investment and foreign portfolio investment by U.S.residents increase U.S.net capital outflow.

Answer 1

True

Question 2

U.S.exports make up less than 20 percent of GDP.

Answer 2

True

Question 3

Movies are a major export of the U.S.

Answer 3

True

Question 4

Over the past six decades,the U.S.economy has experienced a dramatic increase in the relative importance of international trade and finance.

Question 5

Reduced barriers to trade help explain an increase in U.S.exports and imports relative to GDP since 1950.

Question 6

A country with negative net exports has a trade surplus.

Question 7

When net capital outflow is negative,it means that on net the value of domestic assets purchased by foreigners exceeds the value of foreign assets purchased by domestic residents.

Question 8

By itself,when a Japanese bank purchases a bond issued by a U.S.corporation,U.S.net capital outflow rises.

Question 9

If a country's imports exceed its exports it has a trade surplus.

Question 10

A country must have a positive net outflow of capital if it has a trade deficit.

Question 11

When a company from Germany builds an automobile factory in the United States,the German firm has engaged in foreign direct investment.

Question 12

Reductions in transportation costs help explain the increase in U.S.trade flows.

Question 13

If a U.S.firm buys Chinese toys using previously obtained Chinese currency,then both U.S.net exports and U.S.net capital outflow decrease.

Question 14

If a country's net exports fall,then its net capital outflow falls by the same amount.

Question 15

If a country sells more goods and services abroad than it purchases abroad,it has positive net exports and a trade surplus.

Question 16

For an economy as a whole,net exports must equal minus one times net capital outflow.

Question 17

By itself,if a U.S.firm builds a new factory overseas,U.S.net capital outflow rises.

Question 18

A rational investor will always purchase the bond that pays the highest real interest rate.

Question 19

If purchases of foreign assets by U.S.residents exceed purchases of U.S.assets by foreign residents,then U.S.net capital outflow is positive.

Question 20

Net capital outflow is the purchase of domestic assets by foreign residents minus the purchase of foreign assets by domestic residents.

Question 21

If Walmart buys $50 million worth of consumer goods from China and sells them in the U.S. ,and China uses the $50 million to purchase U.S.bonds,U.S.net exports and U.S.net capital outflow both fall.

Question 22

A Turkish firm exchanges lira (Turkish currency)for dollars.It then uses these dollars to purchase computers from the U.S.These actions decrease U.S.net capital outflow and increase U.S.net exports.

Question 23

The increase in the trade deficit in the 1980's reflected a decrease in national saving that is associated with an increase in the government budget deficit.

Question 24

If a country's trade surplus falls,its net capital outflow rises.

Question 25

When U.S.national saving rises,domestic investment also necessarily rises.

Question 26

If the price of a good in the U.S.is $10,the exchange rate is 2 units of foreign currency per dollar,and the foreign price of the same good is 30 units of foreign currency,then the real exchange rate is 2/3.

Question 27

If a German firm buys goods from a U.S.firm with dollars it obtains by exchanging euros for dollars,both U.S.net exports and U.S.net capital outflow increase.

Question 28

In an open economy national saving equals domestic investment plus net capital outflow.

Question 29

If the exchange rate is 80 yen per dollar,then a hotel room in Tokyo that costs 25,000 yen costs $200.

Question 30

Other things the same,an increase in the nominal exchange rate raises the real exchange rate.

Question 31

If a nation is selling more goods and services to foreigners than it is buying from them,then on net it must be selling assets abroad.

Question 32

To increase domestic investment,a country must increase its saving.

Question 33

It is possible for a country to have domestic investment that exceeds national saving.

Question 34

In an open economy,national saving can be less than investment.

Question 35

The large trade deficits in the U.S.during the 1990's were primarily associated with a rise in domestic investment spending rather than a rise in the budget deficit.

Question 36

If a nation is selling more goods and services to foreigners than it is buying from them,then on net it must be buying assets abroad.

Question 37

From 2008 to 2012 both U.S.saving and U.S.investment fell.

Question 38

A nation with a trade surplus will necessarily have saving that is greater than domestic investment.

Question 39

Other things the same,if U.S.net capital outflow rises,so does U.S.saving.

Question 40

If the exchange rate is 12.5 pesos per U.S.dollar,it is also 1/12.5 U.S.dollars per peso.

Question 41

Jason plans to buy shrimp in Florida and sell them in Manhattan,Kansas where the price is higher.Jason plans to engage in arbitrage.

Question 42

According to purchasing-power parity theory,the nominal exchange rate between the U.S.and another country should equal the U.S.price level divided by the price level in the foreign country.

Question 43

Other things the same,an increase in the foreign price level leads to an increase in the real exchange rate.

Question 44

Purchasing-power parity says that the nominal exchange rate must equal the real exchange rate.

Question 45

Other things the same,an increase in the real exchange rate raises U.S.net exports.

Question 46

If over the next year the inflation rate in the euro area is higher than the inflation rate in Japan,then the euro should depreciate relative to the Japanese yen.

Question 47

According to purchasing power parity,the nominal exchange rate between the U.S.and another country should equal the price level of foreign goods divided by the price level of U.S.goods.

Question 48

If the purchasing power of the dollar is always the same at home and abroad,then the nominal exchange rate defined as units of foreign currency per dollar decreases if the U.S.price level rises more than the price level in foreign countries.

Question 49

Other things the same,an increase in foreign prices raises the real exchange rate.

Question 50

In the 1970s and 1980s the U.S.dollar depreciated against the German mark and appreciated against the Italian lira because U.S.inflation was lower than in Germany but higher than in Italy.

Question 51

Other things the same,an increase in domestic prices raises the real exchange rate.

Question 52

If prices in the U.S.rise faster than prices in the United Kingdom,then according to the doctrine of purchasing-power parity the U.S.nominal exchange rate should rise

Question 53

If U.S.residents purchase $450 billion of foreign assets and foreigners purchase $575 billion of U.S.assets,then the U.S.has net capital outflows of -$125 billion and a trade deficit of $125 billion.

Question 54

If prices in Mexico rise at a higher rate than prices in the U.S. ,then according to purchasing-power parity the U.S.nominal exchange rate with Mexico should rise.

Question 55

Other things the same,an increase in the U.S.real exchange rate makes U.S.goods more expensive relative to foreign goods.

Question 56

The theory of purchasing-power parity states that a unit of a country's currency should be able to buy the same quantity of goods in foreign countries as it does in the domestic economy.

Question 57

When the central bank of some country prints large quantities of money,that county's currency loses value both in terms of the goods and services it buys and in terms of the amount of foreign currencies it can buy.

Question 58

If foreign residents purchase 30 billion pesos of Mexican assets and Mexican residents purchase 25 billion pesos of foreign assets,then Mexico has a net capital outflow of 5 billion pesos.

Question 59

If the U.S.real exchange rate is greater than 1,then there is the possibility of arbitraging by buying foreign goods to sell in the U.S.

Question 60

Many economists believe that the theory of purchasing-power parity describes the forces that determine exchange rates in the long run.

Question 61

Other things the same,if the government reduced its budget deficit,the country's trade balance would rise.

Question 62

If the U.S.real exchange rate with Japan is greater than 1,then U.S.goods are relatively cheap.

Question 63

If a country's saving rises,then either its investment or its net capital outflow rises (or both).