Question 1

Explain why economies with financial account surpluses usually have current account deficits.

Accepted Answer

The answer of Explain why economies with financial account surpluses...

Question 2

The purchase of foreign stocks and bonds by a U.S.brokerage firm is an example of capital inflows to the United States.

Accepted Answer

The purchase of foreign stocks and bonds by a U.S. brokerage firm represents capital outflows from the United States, as it involves the movement of money from the U.S. to foreign markets.

Question 3

You're traveling in Ireland and are thinking about buying a new digital camera.You've decided you'd be willing to pay $125 for a new camera,but cameras in Ireland are all priced in euros.If the exchange rate is 0.85 euros per dollar,what's the highest price in euros you'd be willing to pay for a camera?
A)105 euros
B)106.25 euros
C)110.15 euros
D)147 euros

Accepted Answer

To find the highest price in euros, multiply $125 by the exchange rate of 0.85 euros per dollar: 125 * 0.85 = 106.25 euros.

Question 4

If the balance on the current account in the United States is $750 billion,which of the following is most likely to be true?
A)The balance on the financial account is negative.
B)The trade balance is negative.
C)Net foreign investment is negative.
D)The balance on the capital account is positive.

Accepted Answer

The current account balance is the sum of the trade balance and the financial account balance. If the current account balance is positive, then the trade balance must be positive and the financial account balance must be negative.

Question 5

Table 18-1
 
-Refer to Table 18-1.Use the information in the table to prepare a balance of payments account and find the value of the statistical discrepancy.Assume that the balance on the capital account is zero.

Accepted Answer

The answer of Table 18-1
 
-Refer to Table 18-1.Use the...

Question 6

Why is the balance of payments always zero?

Accepted Answer

The answer of Why is the balance of payments always...

Question 7

Net foreign investment is a measure of net capital outflows,equal to capital outflows minus capital inflows in a given period of accounting.

Accepted Answer

This is the correct definition of net foreign investment.

Question 8

If the nominal exchange rate between the American dollar and the Canadian dollar is 0.89 Canadian dollars per American dollar,how many American dollars are required to buy a product that costs 2.5 Canadian dollars?
A)$1.32
B)$2.23
C)$2.75
D)$2.81

Accepted Answer

The answer of If the nominal exchange rate between the...

Question 9

You're traveling in Ireland and are thinking about buying a new digital camera.You've decided you'd be willing to pay $125 for a new camera,but cameras in Ireland are all priced in euros.If the camera you're looking at costs 115 euros,under which of the following exchange rates would you be willing to purchase the camera? (Assume no taxes or duties are associated with the purchase.)
A)0.56 euros per dollar
B)0.89 euros per dollar
C)0.92 euros per dollar
D)You would purchase the new camera at any of the above exchange rates.

Accepted Answer

To determine if you would purchase the camera, convert $125 to euros using the exchange rate. At 0.92 euros per dollar, $125 equals 115 euros, matching the camera's price.

Question 10

What is the relationship between the balance of trade and the current account balance?

Accepted Answer

The answer of What is the relationship between the balance...

Question 11

What is the relationship among the current account,the financial account,and the balance of payments?

Accepted Answer

The answer of What is the relationship among the current...

Question 12

The United States has a closed economy.

Accepted Answer

The United States has an open economy, as it engages in international trade and investment with other countries.

Question 13

Why is the U.S.trade deficit almost always larger than the U.S.current account deficit?

Accepted Answer

The answer of Why is the U.S.trade deficit almost always...

Question 14

How does an increase in a country's exchange rate affect its balance of trade?
A)An increase in the exchange rate raises imports,reduces exports,and reduces the balance of trade.
B)An increase in the exchange rate reduces imports,raises exports,and reduces the balance of trade.
C)An increase in the exchange rate reduces imports,raises exports,and increases the balance of trade.
D)An increase in the exchange rate raises imports,reduces exports,and increases the balance of trade.

Accepted Answer

An increase in the exchange rate makes the country's currency stronger, which causes imports to be cheaper and exports to be more expensive. Cheaper imports make it more attractive for consumers to buy goods from other countries, reducing demand for domestic goods and thus reducing exports. Therefore, an increase in the exchange rate raises imports, reduces exports, and reduces the balance of trade.

Question 15

In recent decades the United States has incurred overall balance of payments deficits.

Accepted Answer

The answer of In recent decades the United States has...

Question 16

Explain how "net capital flows" are related to "net foreign investment," "net foreign direct investment," and "net foreign portfolio investment."

Accepted Answer

The answer of Explain how "net capital flows" are related...

Question 17

Net exports equals the balance of trade surplus.

Accepted Answer

Net exports refer to the value of a country's exports minus its imports. Balance of trade surplus, on the other hand, refers to the situation where a country exports more goods and services than it imports. While net exports can be positive, negative or zero, a balance of trade surplus is only positive. Therefore, the two terms are not interchangeable.

Question 18

A country which incurs a current account deficit will most likely have a financial or capital account surplus.

Accepted Answer

A current account deficit means that a country is importing more goods and services than it is exporting, leading to an outflow of funds from the country. This outflow of funds may be financed by inflows of capital or financial investments from foreign investors, leading to a surplus in the financial or capital account. Therefore, a current account deficit is often balanced by a financial or capital account surplus.

Question 19

What is the difference between net exports and the current account balance?

Accepted Answer

The answer of What is the difference between net exports...

Question 20

The current account balance equals the value of net exports.

Accepted Answer

The current account balance includes net exports, net income from abroad, and net current transfers, not just net exports.

Quiz 18: Macroeconomics in an Open Economy