Deck 18: Open-Market Macroeconomics

Question 1

A main trading partner with the U.S. is:

A) South Africa.
B) China.
C) Norway.
D) Saudi Arabia.

Answer 1

China.

Question 2

A country who has a trade deficit:

A) imports less than it exports.
B) has a negative trade balance.
C) sells more goods at home than it sells abroad.
D) requires more trade in order to solve a budgetary deficit.

Answer 2

has a negative trade balance.

Question 3

Countries that typically run a trade surplus are:

A) China, Germany and the US.
B) China, Germany, and Japan.
C) Japan, Germany and the US
D) China, Japan, and the US.

Answer 3

China, Germany, and Japan.

Question 4

The value of exports minus the value of imports is called the:

A) trade value.
B) net budget balance.
C) balance of trade.
D) net trade value.

Question 5

In 2015, exports represented:

A) about 13 percent of U.S. GDP.
B) about 1 percent of U.S. GDP.
C) about 30 percent of U.S. GDP.
D) nearly 20 percent of U.S. GDP.

Question 6

Apple is an American company, but its iPhones are assembled in China. The sale of each iPhone then is counted in China's GDP as:

A) consumption.
B) investment.
C) an import.
D) an export.

Question 7

When a country imports more than it exports, it has a:

A) trade deficit.
B) trade surplus.
C) zero trade balance.
D) policy which forbids exportation.

Question 8

The sale of each iPhone in the U.S. counts as an:

A) import, because they are assembled in China.
B) import, because they are assembled in Mexico.
C) export, because they are assembled in China.
D) export, because they are produced in the U.S.

Question 9

A country that typically runs a trade surplus is:

A) the United States.
B) China.
C) France.
D) Canada.

Question 10

A trade surplus occurs when a country:

A) imports more than it exports.
B) imports less than it exports.
C) has a negative balance of trade.
D) has a zero balance of trade.

Question 11

In 2015, imports represented:

A) about 15 percent of U.S. GDP.
B) about 1 percent of U.S. GDP.
C) about 40 percent of U.S. GDP.
D) nearly 70 percent of U.S. GDP.

Question 12

A main trading partner with the U.S. is:

A) Hungary.
B) Russia.
C) Italy.
D) Canada.

Question 13

A main trading partner with the U.S. is:

A) South Africa.
B) Mexico.
C) Russia.
D) Saudi Arabia.

Question 14

In the U.S. over the last 50 years:

A) imports have grown and exports have fallen.
B) both imports and exports have grown dramatically.
C) both imports and exports have fallen dramatically.
D) the percent of GDP that represents imports and exports has remained fairly steady.

Question 15

Apple is an American company, but its iPhones are assembled in China. The sale of each iPhone then is counted in US GDP as:

A) consumption.
B) investment.
C) an import.
D) an export.

Question 16

A country that has a trade surplus:

A) imports more than it exports.
B) has a negative trade balance.
C) sells more goods abroad than it buys from abroad.
D) buys more goods at home that it buys abroad.

Question 17

A country that typically runs a trade deficit is:

A) the United States.
B) Germany.
C) China.
D) Japan.

Question 18

The balance of trade is the value of:

A) exports minus the value of imports.
B) imports minus the value of exports.
C) total goods purchased by the U.S. from abroad.
D) total goods sold by the U.S. to parties abroad.

Question 19

For nearly every year since 1970, the United States has:

A) imported more than it exported.
B) exported more than it imported.
C) imported about the same as it has exported.
D) held to very isolationist trade policy.

Question 20

China imports ___________ from the U.S. compared to how many goods the U.S. imports from China.

A) less
B) more
C) about the same
D) practically nothing

Question 21

Countries that have a trade surplus have a:

A) positive net capital outflow.
B) positive net capital inflow.
C) negative net capital outflow.
D) positive foreign direct investment.

Question 22

The investment when a firm runs part of its operation abroad or invests in another company abroad is called:

A) portfolio investment.
B) import investment.
C) export investment.
D) foreign direct investment.

Question 23

Champlain College in Vermont runs a satellite campus in Dublin, Ireland. This is an example of:

A) foreign portfolio investment.
B) foreign direct investment.
C) importing.
D) exporting.

Question 24

Ford opens a parts manufacturing plant in Haiti, which ships its parts back to the U.S. to be assembled in Detroit. Running the factory in Haiti is an example of:

A) foreign direct investment.
B) foreign portfolio investment.
C) importing.
D) exporting.

Question 25

An advantage of foreign direct investment versus domestic investment for businesses can be to:

A) cut costs of production.
B) reduce overall risk relative to financial investments available at home.
C) increase profit without having to pay taxes on the earnings.
D) encourage the flourishment of 'sweatshops'.

Question 26

Alan bought 20 shares of Labatt's stock for himself to celebrate his favorite foreign beer company in 2000. Alan's purchase is an example of:

A) foreign direct investment.
B) foreign portfolio investment.
C) importing.
D) exporting.

Question 27

One reason the Chinese buy a great deal of U.S. government debt is because:

A) they have dollars left over from the sale of their goods to the U.S. and want to buy something dollar denominated.
B) the risk involved is lower for U.S. government bonds than for any other government bond in the world.
C) the rate of return for U.S. government bonds is higher than any other investment.
D) owning US debt is a sign of economic prosperity for China.

Question 28

IBM buys treasury bonds from the UK as part of its investment portfolio. This is an example of:

A) foreign direct investment.
B) foreign portfolio investment.
C) importing.
D) exporting.

Question 29

Foreign direct investment is when:

A) a firm runs part of its operation abroad or invests in another company abroad.
B) investors buy foreign financial assets like stocks, bonds, or government securities.
C) investment is funded by foreign sources but operated domestically.
D) when a foreign government directly invests into a firm.

Question 30

Portfolio investment can generally travel across borders quickly because it usually involves:

A) transfers between two bank accounts.
B) the shipment of equipment from one place to another.
C) the hiring or firing of foreign workers.
D) two governments agreeing on trade.

Question 31

If a country has a net capital inflow, it means they have:

A) a trade surplus.
B) a trade deficit.
C) more exports than imports.
D) more capital goods flowing into their country than out of it.

Question 32

Josh runs a landscaping business in Vermont and decides to hire two people in India to maintain his bookkeeping for him electronically. Josh can pay them much less than he would pay a bookkeeper in the U.S., and the workers enjoy a higher quality of life in India thanks to their jobs with Josh's company. Josh's actions are an example of:

A) foreign portfolio investment.
B) foreign direct investment.
C) importing.
D) exporting.

Question 33

One of the largest foreign portfolio investments in the U.S. comes from:

A) U.S. purchases of Chinese consumption goods.
B) U.S. purchases of Chinese government debt.
C) Chinese purchases of U.S. government debt.
D) Chinese purchases of U.S. capital goods.

Question 34

Portfolio investment can generally travel across borders _________ foreign direct investment can.

A) not as quickly as
B) just as quickly as
C) more quickly than
D) None of these statements is true.

Question 35

The majority of export in the U.S. come from:

A) capital goods and consumption goods.
B) industrial goods and consumption goods.
C) capital goods and industrial supplies.
D) consumption goods and automotive vehicles.

Question 36

The type of good with the smallest trade deficit in the U.S. based on data from 2016 is:

A) foods, feeds, and beverages.
B) capital goods.
C) industrial goods.
D) automotive goods.

Question 37

The type of good with the largest import in the U.S. is:

A) capital goods.
B) consumer goods.
C) industrial goods.
D) automobiles.

Question 38

Anheuser-Busch purchased the Labatt brewery in Canada and has expanded its market and product offerings. This is an example of:

A) foreign direct investment.
B) foreign portfolio investment.
C) importing.
D) exporting.

Question 39

The net capital outflow is the net flow of:

A) capital goods owned outside a country.
B) funds invested outside of a country.
C) capital goods owned within a country.
D) funds invested within a country.

Question 40

Your Uncle Harry gives you stock in Samsung for your birthday. The stock is an example of:

A) foreign direct investment.
B) foreign portfolio investment.
C) importing.
D) exporting.

Question 41

In general, the accounting of trade in goods and capital is known as the:

A) balance of trade.
B) net capital outflow.
C) balance of payments.
D) trade surplus.

Question 42

The amount of money in an economy that people can invest is equal to:

A) their income.
B) the value of their output.
C) the value of consumption after gains from trade have been made.
D) their savings.

Question 43

When people invest at home, it is called _____, and when they invest abroad it is called _______.

A) I; NCO
B) I; NX
C) S; I
D) S; NCO

Question 44

China's high net exports must be balanced by:

A) low net capital outflows.
B) high net capital outflows.
C) lownet imports.
D) high net capital inflows.

Question 45

When people choose to invest at home it is called ________, and when they invest abroad it is called _______.

A) investment; foreign savings
B) investment; net capital outflow
C) savings; net capital outflow
D) savings; net direct investment

Question 46

The U.S. is able to maintain a large trade deficit because:

A) when the business cycle is in a boom, it will be a trade surplus.
B) it is balanced by a large capital surplus.
C) it is balanced by a large capital deficit.
D) None of these statements is true.

Question 47

People in an open economy who wish to invest can either:

A) invest at home or abroad.
B) buy stocks or bonds.
C) buy financial assets or durable goods.
D) invest in private companies or public companies.

Question 48

The income-expenditure identity for a closed economy is:

A) Y = C + I +G.
B) Im − Ex = C + I.
C) Y = C + I + G + NX.
D) Y + G = C + I − NX.

Question 49

Which of the following is foreign portfolio investment sometimes called?

A) Hot investment
B) Quick sale
C) Hot money
D) Wasteful investment

Question 50

In a closed economy S = I, so in an open economy:

A) S = I − NX.
B) S = I + NX.
C) S + I = NX.
D) S + NX = I.

Question 51

The trade in goods, services, and capital around the world comprises:

A) trillions of dollars.
B) billions of dollars.
C) a small amount in dollar value.
D) millions of dollars.

Question 52

Which of the following can sometimes be referred to as "hot money"?

A) Foreign portfolio investment
B) Foreign direct investment
C) Net capital inflow
D) Net capital outflow

Question 53

Savings for an economy is equal to:

A) private savings − public savings.
B) public savings − private savings.
C) private savings + public savings.
D) investment − net exports.

Question 54

The income-expenditure identity for an open economy is:

A) Im − Ex = C + I.
B) Y = C + I +G
C) Y = C + I + G + NX.
D) Y + G = C + I − NX.

Question 55

The balance of payments is:

A) the accounting of trade in financial assets.
B) the accounting of trade in goods and capital.
C) positive when a country has a trade deficit.
D) negative when a country has a trade surplus.

Question 56

The U.S.'s high trade deficit must be balanced by:

A) net capital inflows.
B) high net capital outflows.
C) low net capital outflows.
D) None of these statements is true.

Question 57

The rapid movement of money across borders can easily overwhelm a country's financial markets when:

A) a country has a heavily leveraged banking system.
B) the required reserves are relatively low.
C) the interest rates are relatively high.
D) a country is small.

Question 58

The balance-of-payments identity is an equation that shows that the value of:

A) net exports equals the net capital outflow.
B) net capital inflow equals the net capital outflow.
C) imports must equal exports.
D) payments from a country exceeds payments to a country.

Question 59

For any given country, the net capital outflows to all other countries equal:

A) net exports to all other countries.
B) net capital inflows from all other countries.
C) national savings.
D) net foreign direct investment to all other countries.

Question 60

Foreign portfolio investment is sometimes called hot money because:

A) it can be withdrawn from a country very quickly.
B) it is very difficult to trace.
C) it is often invested in the assets which yield the highest returns in the world.
D) earnings often go untaxed by the home government.

Question 61

When interest rates in the U.S. decline, we can expect capital:

A) inflows and outflows to decrease.
B) inflows and outflows to increase.
C) inflow to decrease, and outflow to increase.
D) outflow to decrease, and inflow to increase.

Question 62

Net capital outflow (NCO) is:

A) capital inflow − capital outflow.
B) capital outflow − capital inflow.
C) foreign dollars invested domestically.
D) domestic dollars invested internationally.

Question 63

If Bob in Texas buys bonbons made in France for $25, and the French chocolatier buys stock in IBM for $25, then the French net exports:

A) and net capital outflow are both zero.
B) and net capital outflow both equal $25.
C) is zero and net capital outflow is $25.
D) equals $25 and net capital outflow is zero.

Question 64

If we consider the savings, investment, and net exports in the United States in recent years, the gap between savings and investment is almost exactly:

A) the government deficit.
B) the balance of payments.
C) direct foreign investment.
D) the trade balance.

Question 65

NCO plus domestic investment forms the:

A) demand for loanable funds in an open economy.
B) demand for loanable funds in a closed economy.
C) supply of loanable funds in an open economy.
D) supply of loanable funds in a closed economy.

Question 66

When Kim in Korea buys stock in GE (General Electric), NCO:

A) decreases.
B) is unaffected.
C) increases.
D) is zero.

Question 67

When interest rates in the U.S. decline, we can expect net capital outflow to:

A) increase.
B) decrease.
C) be unaffected.
D) be zero.

Question 68

When Pierre in Paris, France buys stock in Disney, Inc., he is contributing to:

A) capital outflow from the U.S.
B) capital inflow to the U.S.
C) domestic investment in the U.S.
D) private savings in the U.S.

Question 69

If Wes in Wisconsin buys $200 worth of stock in Toshiba, and the Japanese use the $200 to buy a wheel of cheese from Wes, then the U.S. net exports:

A) and net capital outflow are both zero.
B) and net capital outflow both equal $200.
C) is zero and net capital outflow is $200.
D) equals $200 and net capital outflow is zero.

Question 70

When Dave in Detroit, MI buys stock in Ford Motor Co., NCO:

A) increases.
B) is unaffected.
C) decreases.
D) is zero.

Question 71

If Allan lives in Boston and decides to buy a pair of hockey skates from Canada for $100, and the Canadian he bought them from buys a baseball hat and jersey for $100 from Boston, then the U.S. next exports:

A) and net capital outflow are both zero.
B) and net capital outflow both equal −$100.
C) is zero and net capital outflow is −$100.
D) equals −$100 and net capital outflow is zero.

Question 72

In the market for loanable funds in an open economy, international investment captures all of the following sources except:

A) capital outflow.
B) capital inflow.
C) money invested outside its originating country.
D) national savings.

Question 73

One reason that we might observe a rise in net capital outflow could be interest rates in the:

A) rest of the world are declining, relative to the U.S.
B) U.S. are declining, relative to the rest of the world.
C) U.S. and the world are all declining.
D) U.S. and the world are all increasing.

Question 74

When Sam in San Francisco buys stock in Fuji Film, he is contributing to:

A) capital outflow from Japan.
B) capital inflow to the U.S.
C) domestic investment in the U.S.
D) capital outflow from the U.S.

Question 75

When Wilma in Wisconsin buys stock in BMW in Germany, NCO:

A) decreases.
B) is unaffected.
C) increases.
D) is zero.

Question 76

In the market for loanable funds in an open economy, the demand for loanable funds:

A) can be demanded for domestic investment or international investment.
B) is equal to national income.
C) is equal to private investment.
D) is equal to public investment.

Question 77

If Rhoda in Hungary buys candy from Matt in Maine for $20, and Matt buys foodin his favorite goulash restaurant in Hungary for $20, then the U.S. net exports:

A) and net capital outflow are both zero.
B) and net capital outflow both equal $20.
C) is zero and net capital outflow is $20.
D) equals $20 and net capital outflow is zero.

Question 78

When Natalie in New York buys stock in Hyundai in Korea, NCO:

A) decreases.
B) is unaffected.
C) increases.
D) is zero.

Question 79

In the market for loanable funds in an open economy, the supply of loanable funds:

A) can come from domestic savers or savers abroad.
B) is equal to national savings.
C) is equal to private savings.
D) is equal to public savings.

Question 80

When Pam from Pennsylvania buys stock in Ford Motor Co., she is contributing to:

A) domestic portfolio investment in the U.S.
B) capital outflow for the U.S.
C) capital inflow for the U.S.
D) foreign direct investment for the U.S.