Question 1

A net borrower country must also be a debtor nation.

Accepted Answer

A net borrower country borrows more than it lends internationally, but it doesn't necessarily mean it has a negative net international investment position, which defines a debtor nation.

Question 2

Currently, the United States is both a net borrower and a debtor nation.

Accepted Answer

The United States is considered a net borrower because it imports more goods and services than it exports, leading to a trade deficit. It borrows funds to finance this deficit, making it also a debtor nation as it owes more to foreign creditors than it has in foreign investments.

Question 3

In the market for international loans, most countries, including the United States, are net borrowers.

Accepted Answer

Most countries, including the United States, participate in the international loan market both as borrowers and lenders, but the United States, for example, has consistently been a net borrower for many years, reflecting its status of running trade deficits and requiring capital inflows to finance these deficits.

Question 4

The price of a computer in the United States is $1,000. The price of a car in Germany is 10,000 euros. The current exchange rate is 0.9 euros per dollar.
a) If a computer is exported from the United States to Germany with no barriers to trade, what will be the price of the computer in Germany?
b) If a car is imported to the United States from Germany with no barriers to trade, what will be the price of the car in the United States?
c) Suppose the dollar appreciates by 10 percent against the euro. How will the price of a computer exported from the United States change in Germany?
d) Suppose the dollar appreciates by 10 percent against the euro. How will the price of a car imported to the United States from Germany change in the United States?

Accepted Answer

The answer of The price of a computer in the...

Question 5

The United States is a creditor nation.

Accepted Answer

The United States is considered a debtor nation because it has more liabilities to foreign creditors than assets held by American investors in foreign countries.

Question 6

If net exports increases, but neither government expenditure nor net taxes change, saving must increase.

Accepted Answer

If net exports increase, it means that exports have increased more than imports. This means that there is more money flowing into the country than flowing out. If government expenditure and net taxes do not change, then the only way for this to happen is if saving increases.

Question 7

-The table above shows some data for Wiland, a country whose currency is the bont. The official settlement balance, net interest income, and net transfers from abroad are zero.
a) What is Wiland's imports of goods and services?
b) What is Wiland's current account balance?
c) What is Wiland's capital account balance?
d) What is Wiland's net taxes?
e) What is Wiland's private sector balance?

Accepted Answer

The answer of 
-The table above shows some data for...

Question 8

Suppose that the price of a Big Mac is a good approximation of the price level in the country. A Big Mac costs £2 in London and $3 in New York.
a) If purchasing power parity holds, what is the exchange rate between the U.S. dollar and the British pound?
b) If the current exchange rate is $1.6 per pound, what is the dollar price of a Big Mac in London? What do you predict will happen to the exchange rate? Explain.
c) The exchange rate between the U.S. dollar and the Russian ruble is 30 rubles per dollar. If purchasing power parity holds, what is the price of a Big Mac in Moscow?

Accepted Answer

The answer of Suppose that the price of a Big...

Question 9

-The citizens of Exland, whose currency is the bun, conduct the transactions outlined in the table above.
a) What is Exland's current account balance?
b) What is Exland's capital account balance?
c) What is Exland's official settlement balance?
d) What is Exland's net foreign borrowing?

Accepted Answer

The answer of 
-The citizens of Exland, whose currency is...

Quiz 9: The Exchange Rate and the Balance of Payments

A net borrower country must also be a debtor nation.

Currently, the United States is both a net borrower and a debtor nation.

In the market for international loans, most countries, including the United States, are net borrowers.

The United States is a creditor nation.

If net exports increases, but neither government expenditure nor net taxes change, saving must increase.

-The citizens of Exland, whose currency is the bun, conduct the transactions outlined in the table above. a) What is Exland's current account balance? b) What is Exland's capital account balance? c) What is Exland's official settlement balance? d) What is Exland's net foreign borrowing?