Question 1

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 a country's exchange rate makes its currency stronger and more expensive compared to other countries. This makes imports cheaper and exports more expensive, leading to an increase in imports and a decrease in exports. As a result, the balance of trade (the difference between a country's exports and imports) is reduced.

Question 2

Net exports equals the balance of trade surplus.

Accepted Answer

Net exports refer to the difference between a country's exports and imports, while the balance of trade refers to the difference between a country's exports and imports of goods. The balance of trade can be either a surplus or deficit, depending on whether exports exceed imports or vice versa. Therefore, net exports do not always equal the balance of trade surplus.

Question 3

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 4

The current account balance equals the value of net exports.

Accepted Answer

The answer of The current account balance equals the value...

Question 5

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, which results in a net outflow of money from the country. This means that there is a high demand for foreign currency, which is usually met by a financial or capital account surplus as foreign investors pour money into the country to take advantage of high interest rates, favorable exchange rates, or attractive investment opportunities.

Question 6

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 7

Why is the balance of payments always zero?

Accepted Answer

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

Question 8

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 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

The answer of You're traveling in Ireland and are thinking...

Question 10

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

Net foreign investment is calculated as capital outflows (money leaving a country) minus capital inflows (money coming into a country) during a specific period of time, usually a year. Therefore, the statement is true.

Question 11

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 12

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 13

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

The answer of You're traveling in Ireland and are thinking...

Question 14

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 15

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 16

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 17

The United States has a closed economy.

Accepted Answer

The United States has an open economy that engages in international trade and commerce with other countries.

Question 18

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 answer of If the balance on the current account...

Question 19

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 20

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

Accepted Answer

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

Quiz 18: Macroeconomics in an Open Economy

How does an increase in a country's exchange rate affect its balance of trade?