Question 1

For a given amount of SA national saving, an increase in SA net capital outflow decreases SA domestic investment.

Accepted Answer

Net capital outflow refers to the difference between the amount of capital leaving a country and the amount of capital entering it. Domestic investment refers to the amount of money invested in a country's own economy. An increase in net capital outflow means more money is leaving the country, which reduces the amount of money available for domestic investment, leading to a decrease in domestic investment.

Question 2

If SA imports total R100 billion and SA exports total R150 billion, which of the following would be true?
A)SA net exports equal R150 billion.
B)The SA has a trade surplus of R50 billion.
C)The SA has a trade deficit of R100 billion.
D)The SA has a trade deficit of R50 billion.

Accepted Answer

A trade surplus occurs when exports exceed imports. Here, exports (R150 billion) exceed imports (R100 billion) by R50 billion, resulting in a trade surplus of R50 billion.

Question 3

Which of the following is an example of foreign direct investment?
A)General Motors of the USA buys steel from South Korea.
B)General Motors of the USA buys shares in Saab of Sweden.
C)McDonald's builds a restaurant in Moscow.
D)UK publisher Bloomsbury sells the rights to make a film of a Harry Potter book to an American film studio.

Accepted Answer

Foreign direct investment (FDI) refers to the investment made by a company in a foreign country that involves ownership and control over the business. McDonald's building a restaurant in Moscow is an example of FDI as it involves the company investing in setting up a business in a foreign country with ownership and control over the restaurant. Option A is an example of international trade or importing, not FDI. Option B is an example of portfolio investment as it involves buying shares in a foreign company without ownership and control. Option D is an example of licensing, not FDI.

Question 4

If a company based in SA prefers a strong rand (a rand with a high foreign exchange value), then the company probably exports more than it imports.

Accepted Answer

If a company based in SA prefers a strong rand, it means they will have to pay more for their exports in foreign currency, making their exports less competitive in the international market. Therefore, a company that prefers a strong rand is likely to import more than it exports, as it will benefit from cheaper imports due to the stronger purchasing power of the rand.

Question 5

Which of the following is equivalent to the trade deficit?
A)imports ÷ exports
B)net capital inflow
C)exports + imports
D)net exports - imports

Accepted Answer

The answer of Which of the following is equivalent to...

Question 6

If SA's money supply grows faster than Zimbabwe's, the value of the rand should rise relative to the value of the Zimbabwean dollar.

Accepted Answer

If South Africa's money supply grows faster, it could lead to inflation, potentially decreasing the rand's value relative to the Zimbabwean dollar, assuming other factors remain constant.

Question 7

If a bottle of mineral water is priced at R8 in South Africa and 720 yen in Japan, then according to the purchasing power parity theory of exchange rates, the yen/rand exchange rate should be 5,760 yen/rand.

Accepted Answer

According to the purchasing power parity theory, the exchange rate should equalize the price of the same good in different countries. If a bottle costs R8 in South Africa and 720 yen in Japan, the exchange rate should be 720 yen/R8, which is 90 yen/rand, not 5,760 yen/rand.

Question 8

An economy that interacts with other economies is known as
A)an export economy.
B)a friendly economy.
C)an open economy.
D)a balanced trade economy.
E)an import economy.

Accepted Answer

An open economy is one that interacts with other economies through trade, investments, and financial flows. In an open economy, there is free movement of goods, services, and capital across national borders. This is the opposite of a closed economy, where there is limited or no interaction with other economies. Options A, D, and E refer to specific types of trade balances within an economy and do not necessarily indicate interaction with other economies. Option B is not a recognized economic term.

Question 9

If the nominal exchange rate is 20 SA rands per 1 US dollar, and if the price of a Big Mac is $2 in the USA and R60 in SA, then the real exchange rate is 2/3 SA Big Mac per American Big Mac.

Accepted Answer

The real exchange rate is calculated as (nominal exchange rate * domestic price) / foreign price.

Therefore, (20 SA rands / 1 US dollar * $2 / R60) = 2/3 SA Big Mac per American Big Mac.

Question 10

Which of the following would directly increase SA net capital outflow?
A)Rolls Royce sells an aircraft engine to Boeing of the USA.
B)The Japanese financial company Nomura buys shares in Vodacom.
C)SASOL builds a new oil rig in Mauritius.
D)Honda builds a new plant in SA.

Accepted Answer

As SASOL builds a new oil rig in Mauritius, SA's capital outflow will increase as money is leaving the country for investment.

Question 11

If purchasing power parity holds, the real exchange rate is always equal to 1.

Accepted Answer

If purchasing power parity holds, it means that the exchange rate between two currencies adjusts to equalize the prices of a basket of goods and services across countries. In this case, the real exchange rate (adjusted for inflation) would be equal to 1, representing an equal purchasing power between the two currencies.

Question 12

If the rand/euro exchange rate rises, the euro has appreciated.

Accepted Answer

An increase in the rand/euro exchange rate means that one euro now buys more rand than before, indicating that the euro has become more valuable or appreciated relative to the rand.

Question 13

Arbitrage is the process of taking advantage of differences in prices of the same good by buying where the good is cheap and selling where it is expensive.

Accepted Answer

This is the definition of arbitrage.

Question 14

Each of the following is a reason why international trade has expanded in recent decades except which one?
A)Technological improvements have meant that countries have become more similar in terms of the goods they can produce.
B)Many new high technology goods have been introduced for which the cost of transport relative to the value of the product is low.
C)There have been improvements in technology that have improved telecommunications between countries.
D)Policy makers have promoted policies to increase international trade, such as the General Agreement on Tariffs and Trade, and subsequently established the World Trade Organization.
E)Larger cargo ships and aeroplanes have reduced the cost of transporting goods.

Accepted Answer

Technological improvements have made countries more different in terms of the goods they can produce, so this is not a reason why international trade has expanded in recent decades. The other options, including the introduction of new high technology goods, improvements in telecommunications, policy maker promotion of international trade, and reduction in transportation costs due to larger cargo ships and airplanes, are all important factors contributing to the expansion of international trade in recent decades.

Question 15

For any country, net exports are always equal to net capital outflow because every international transaction involves an exchange of an equal value of some combination of goods and assets.

Accepted Answer

The answer of For any country, net exports are always...

Question 16

Which of the following would be recorded as a SA merchandise export?
A)A SA tourist spends 10,000 euros on vacation in the south of France.
B)A machine shop in Durban purchases a grinder made in Italy.
C)A SA resident receives a R500 dividend on shares she owns in a business in Germany.
D)A French car hire firm purchases a fleet of new Honda cars built at Honda's factory in SA.

Accepted Answer

A SA merchandise export refers to goods produced in SA and sold to other countries. The purchase of Honda cars built at Honda's factory in SA by a French car hire firm qualifies as a SA merchandise export.

Question 17

Which of the following statements is true about a country with a trade deficit?
A)Net exports are negative.
B)Net capital outflow must be positive.
C)Exports exceed imports.
D)Net exports are positive.
E)None of these answers.

Accepted Answer

A trade deficit means that a country's imports exceed its exports. Therefore, net exports (exports minus imports) are negative.

Question 18

If SA has a positive capital inflow, what does this signify?
A)Nothing.
B)That the government is running a budget deficit.
C)That more funds were invested in SA by foreigners than SA invested abroad.
D)That SA is running a trade surplus.

Accepted Answer

A positive capital inflow means that more funds were invested in SA by foreigners than SA invested abroad. This can indicate confidence in the country's economy and investment opportunities. It is not necessarily related to the government budget deficit or trade surplus.

Question 19

A country that exports more than it imports is said to have a trade deficit.

Accepted Answer

A country that exports more than it imports is said to have a trade surplus, while a country that imports more than it exports is said to have a trade deficit.

Question 20

A country's trade balance is positive when
A)exports exceed imports.
B)exports plus investment exceed imports plus domestic saving.
C)imports exceed exports.
D)imports plus domestic saving exceed exports plus investment.

Accepted Answer

A positive trade balance means that a country's exports exceed its imports, indicating a surplus in trade.

Quiz 11: Open-Economy Macroeconomics: Basic Concepts

For a given amount of SA national saving, an increase in SA net capital outflow decreases SA domestic investment.

If SA imports total R100 billion and SA exports total R150 billion, which of the following would be true?

Which of the following is an example of foreign direct investment?

If a company based in SA prefers a strong rand (a rand with a high foreign exchange value), then the company probably exports more than it imports.

Which of the following is equivalent to the trade deficit?

If SA's money supply grows faster than Zimbabwe's, the value of the rand should rise relative to the value of the Zimbabwean dollar.

If a bottle of mineral water is priced at R8 in South Africa and 720 yen in Japan, then according to the purchasing power parity theory of exchange rates, the yen/rand exchange rate should be 5,760 yen/rand.

An economy that interacts with other economies is known as

If the nominal exchange rate is 20 SA rands per 1 US dollar, and if the price of a Big Mac is $2 in the USA and R60 in SA, then the real exchange rate is 2/3 SA Big Mac per American Big Mac.

Which of the following would directly increase SA net capital outflow?

If purchasing power parity holds, the real exchange rate is always equal to 1.

If the rand/euro exchange rate rises, the euro has appreciated.

Arbitrage is the process of taking advantage of differences in prices of the same good by buying where the good is cheap and selling where it is expensive.

Each of the following is a reason why international trade has expanded in recent decades except which one?

For any country, net exports are always equal to net capital outflow because every international transaction involves an exchange of an equal value of some combination of goods and assets.

Which of the following would be recorded as a SA merchandise export?

Which of the following statements is true about a country with a trade deficit?

If SA has a positive capital inflow, what does this signify?

A country that exports more than it imports is said to have a trade deficit.

A country's trade balance is positive when