Question 1

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.

Accepted Answer

When a nation has a trade surplus (exports > imports), it earns more money from selling goods and services to foreigners than it spends on buying goods and services from them. This means it has a net inflow of foreign currency, which can be used to buy assets abroad such as foreign stocks, bonds, real estate, or businesses.

Question 2

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

Accepted Answer

The answer of For an economy as a whole, net...

Question 3

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

Accepted Answer

When a Japanese bank purchases a bond issued by a U.S. corporation, it is considered a capital inflow for the U.S., as foreign money is coming into the country to buy the bond, not outflow.

Question 4

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

Accepted Answer

When a U.S. firm builds a new factory overseas, it is increasing its investment abroad, which causes an increase in U.S. net capital outflow.

Question 5

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

Accepted Answer

The answer of If a country's net exports fall, then...

Question 6

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

Accepted Answer

A rational investor will not solely focus on the real interest rate when making investment decisions. Other factors such as credit rating, maturity date, and liquidity must also be considered. Additionally, an investor's risk tolerance and investment goals may impact their decision to sacrifice a slightly lower real interest rate for a more secure investment.

Question 7

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

Accepted Answer

The reduction of barriers to trade, such as tariffs and quotas, has led to an increase in international trade and, as a result, an increase in U.S. exports and imports relative to GDP since 1950. This trend is known as globalization.

Question 8

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

Accepted Answer

Reductions in transportation costs have made it cheaper and easier for companies to trade goods across borders, leading to an increase in U.S. trade flows.

Question 9

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

Accepted Answer

The statement is not necessarily true. A positive net outflow of capital means that a country is investing more in other countries than it is receiving in return. A trade deficit means that a country is importing more goods than it is exporting. While the two may be related, it is possible for a country to have a trade deficit but a negative net outflow of capital if it is receiving more investment from other countries than it is investing abroad.

Question 10

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.

Accepted Answer

If a nation is selling more goods and services to foreigners than it is buying from them, it has a trade surplus, not necessarily selling assets abroad. This means it is earning more from exports than it spends on imports, which can increase its foreign reserves or be invested in foreign assets, but doesn't imply a net sale of domestic assets to foreigners.

Question 11

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.

Accepted Answer

When a German firm buys goods from a U.S. firm, it must pay in dollars. To obtain dollars, the German firm must exchange euros for dollars, which increases the U.S. net capital outflow. Additionally, the goods purchased by the German firm count as U.S. net exports. Therefore, both U.S. net exports and U.S. net capital outflow increase in this scenario.

Question 12

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.

Accepted Answer

Net capital outflow measures the difference between domestic purchases of foreign assets and foreign purchases of domestic assets. A negative net capital outflow means that domestic residents are buying more foreign assets than foreigners are buying domestic assets, indicating an outflow of capital from the domestic economy.

Question 13

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

Accepted Answer

Foreign direct investment refers to a company investing in and managing operations in a foreign country, which is exactly what the German firm is doing by building an automobile factory in the United States.

Question 14

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.

Accepted Answer

This is because net capital outflow is defined as the difference between purchases of foreign assets by domestic residents and purchases of domestic assets by foreign residents. If purchases of foreign assets exceed purchases of domestic assets, then more money is flowing out of the domestic economy than is flowing in, resulting in a positive net capital outflow.

Question 15

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

Accepted Answer

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

Question 16

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

Accepted Answer

According to the World Bank, in 2020, U.S. exports accounted for approximately 11.7% of GDP.

Question 17

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.

Accepted Answer

The answer of If Walmart buys $50 million worth of...

Question 18

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.

Accepted Answer

The exchange of lira for dollars and subsequent purchase of computers from the U.S. would increase U.S. net exports due to the sale of goods abroad, but it would not affect U.S. net capital outflow, which pertains to U.S. investments abroad minus foreign investments in the U.S.

Question 19

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

Accepted Answer

Both foreign direct investment and foreign portfolio investment involve sending money from the U.S. to other countries, which increases U.S. net capital outflow.

Question 20

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.

Accepted Answer

The answer of If a U.S. firm buys Chinese toys...

Quiz 31: Open-Economy Macroeconomics: Basic Concepts