Question 1

When Microsoft establishes a distribution center in France, U.S. net capital outflow
A) increases because Microsoft makes a portfolio investment in France.
B) decreases because Microsoft makes a portfolio investment in France.
C) increases because Microsoft makes a direct investment in capital in France.
D) decreases because Microsoft makes a direct investment in capital France.

Accepted Answer

When Microsoft establishes a distribution center in France, it is making a direct investment in capital in France, which means that U.S. net capital outflow increases.

Question 2

When a French vineyard establishes a distribution center in the U.S., U.S. net capital outflow
A) increases because the foreign company makes a portfolio investment in the U.S.
B) declines because the foreign company makes a portfolio investment in the U.S.
C) increases because the foreign company makes a direct investment in capital in the U.S.
D) declines because the foreign company makes a direct investment in capital in the U.S.

Accepted Answer

The answer of When a French vineyard establishes a distribution...

Question 3

When the Sykes Corporation (an American company) buys shares of Audi stock (a German company) for its pension fund, U.S. net capital outflow
A) increases because an American company makes a portfolio investment in Germany.
B) declines because an American company makes a portfolio investment in Germany.
C) increases because an American company makes a direct investment in Germany.
D) declines because an American company makes a direct investment in Germany.

Accepted Answer

When an American company buys shares of a foreign company's stock, it is considered a portfolio investment and increases the U.S. net capital outflow. Therefore, choice A is the correct option. Direct investment, on the other hand, would involve purchasing a controlling interest in a foreign company and actively managing it, which would have a different impact on net capital outflows.

Question 4

Citizens in India buy music from the U.S. To do so they use Indian rupees to purchase U.S. dollars. If U.S. citizens hold these rupees rather than spending them, what happens to U.S. net exports and U.S. net capital outflows?
A) both U.S. net exports and U.S. net capital outflow rise
B) both U.S. net exports and U.S. net capital outflow fall
C) U.S. net exports rise and U.S. net capital outflow fall
D) U.S. net exports fall and U.S. net capita outflow rise

Accepted Answer

The answer of Citizens in India buy music from the...

Question 5

Which of the following is correct?
A) NCO = NX
B) NCO + I = NX
C) NX + NCO = Y
D) Y = NCO - I

Accepted Answer

The answer of Which of the following is correct?
A) NCO...

Question 6

Which of the following equations is correct?
A) Y = C + I + G + NCO
B) NX = NCO
C) NCO = S - I
D) All of the above are correct.

Accepted Answer

Option A represents the expenditure approach to calculating gross domestic product (GDP), where Y represents GDP, C represents consumption, I represents investment, G represents government spending, and NCO represents net exports. 
Option B represents the relationship between net exports (NX) and net capital outflow (NCO), which are equal in an open economy. 
Option C represents the national saving and investment identity, where NCO represents net capital outflow, S represents saving, and I represents investment. Therefore, all the given options are correct.

Question 7

An open economy's GDP is always given by
A) Y = C + I + G.
B) Y = C + I + G + T.
C) Y = C + I + G + S.
D) Y = C + I + G + NX.

Accepted Answer

In an open economy, exports (X) and imports (M) are included in GDP. Therefore, GDP for an open economy is given by Y = C + I + G + (X - M), which can be simplified as Y = C + I + G + NX.

Question 8

A U.S. company uses U.K. pounds it already owned to purchase bonds issued by a company in the U.K. Which of these countries has an increase in net capital outflow?
A) The U.S. and the U.K.
B) The U.S. but not the U.K.
C) The U.K. but not the U.S.
D) Neither the U.S. nor the U.K.

Accepted Answer

The answer of A U.S. company uses U.K. pounds it...

Question 9

If saving is greater than domestic investment, then A) there is a trade deficit and Y > C + I + G. B) there is a trade deficit and Y < C + I + G. C) there is a trade surplus and Y > C + I + G. D) there is a trade surplus and Y < C + I + G.

Accepted Answer

The answer of If saving is greater than domestic investment,...

Question 10

Net capital outflow
A) is always greater than net exports.
B) is always less than net exports.
C) is always equal to net exports.
D) could be any of the above.

Accepted Answer

The answer of Net capital outflow
A) is always greater than...

Question 11

Which of the following equations is always correct in an open economy?
A) I = Y - C
B) I = S
C) I = S - NCO
D) I = S + NX

Accepted Answer

In an open economy, the national savings (S) must equal the sum of domestic investment (I) and net capital outflow (NCO). Therefore, the correct equation is I = S - NCO.

Question 12

If a country has Y > C + I + G, then it has
A) positive net capital outflow and positive net exports.
B) positive net capital outflow and negative net exports.
C) negative net capital outflow and positive net exports.
D) negative net capital outflow and negative net exports.

Accepted Answer

In an open economy, the national income identity is Y = C + I + G + NX, where Y is national income, C is consumption, I is investment, G is government spending, and NX is net exports. If Y > C + I + G, then NX must be positive, indicating positive net exports. Positive net exports imply that a country exports more than it imports, which corresponds to lending to the rest of the world or positive net capital outflow.

Question 13

Which of the following equations is correct?
A) S = I + C
B) S = I - NX
C) S = I + NCO
D) S = NX - NCO.

Accepted Answer

The answer of Which of the following equations is correct?
A)...

Question 14

A U.S. firm opens a factory that produces camping equipment in Estonia.
A) This increases U.S. net capital outflow and decreases Estonian net capital outflow.
B) This decreases U.S. net capital outflow and increases Estonian net capital outflow.
C) This increases only U.S. net capital outflow.
D) This increases only Estonian net capital outflow.

Accepted Answer

The answer of A U.S. firm opens a factory that...

Question 15

Which of the following is always correct?
A) Y - I = NCO
B) NCO = NX
C) NX = I
D) All of the above are correct.

Accepted Answer

The answer of Which of the following is always correct?
A)...

Question 16

A German company exchanges euros for dollars from U.S. residents and then uses the dollars to buy U.S. products to sell in Germany. U.S. residents who exchanged their dollars for euros use the euros to buy bonds issued by Spanish corporations. At this point
A) both U.S. net exports and U.S. net capital outflows have risen.
B) both U.S. net exports and U.S. net capital outflow have fallen.
C) U.S. net exports have risen and U.S. net capital outflow have fallen.
D) U.S. net exports have fallen and U.S. net capital outflow have risen.

Accepted Answer

The answer of A German company exchanges euros for dollars...

Question 17

If a country has a trade surplus then A) S > I and Y > C + I + G. B) S > I and Y < C + I + G. C) S < I and Y > C + I + G. D) S < I and Y < C + I + G.

Accepted Answer

The answer of If a country has a trade surplus...

Question 18

A U.S. purchase of oil from overseas paid for with foreign currency it already owned
A) increases U.S. net exports, and increases U.S. net capital outflow.
B) increases U.S. net exports, and decreases U.S. net capital outflow.
C) decreases U.S. net exports, and increases U.S. net capital outflow.
D) decreases U.S. net exports, and decreases U.S. net capital outflow.

Accepted Answer

The purchase of oil from overseas decreases U.S. net exports (exports- imports). As the oil is paid for with foreign currency already owned by the U.S., there is no need to sell U.S. currency to purchase the oil, meaning there is no increase in U.S. net capital outflow (purchases of foreign assets- foreign purchases of U.S. assets). In fact, there may even be a decrease in U.S. net capital outflow if the transaction helps to reduce the amount of foreign currency held by the U.S., leading to less need to invest in foreign assets.

Question 19

A U.S. firm buys apples from New Zealand with New Zealand dollars it got in exchange for U.S. dollars. New Zealand residents then use these dollars to purchase oranges from the U.S. Which of the following increases?
A) New Zeland's net capital outflow and New Zeland's net exports
B) only New Zeland's net exports
C) only New Zeland's net capital outflow
D) neither New Zeland's net exports nor New Zeland's capital outflow

Accepted Answer

The answer of A U.S. firm buys apples from New...

Question 20

Which of the following is correct?
A) NCO + C = NX
B) NCO = NX
C) NX - NCO = C
D) NX + NCO = C

Accepted Answer

The answer of Which of the following is correct?
A) NCO...

Quiz 13: Open-Economy Macroeconomic Models

When Microsoft establishes a distribution center in France, U.S. net capital outflow

When a French vineyard establishes a distribution center in the U.S., U.S. net capital outflow

When the Sykes Corporation (an American company) buys shares of Audi stock (a German company) for its pension fund, U.S. net capital outflow

Citizens in India buy music from the U.S. To do so they use Indian rupees to purchase U.S. dollars. If U.S. citizens hold these rupees rather than spending them, what happens to U.S. net exports and U.S. net capital outflows?

Which of the following is correct?

Which of the following equations is correct?

An open economy's GDP is always given by

A U.S. company uses U.K. pounds it already owned to purchase bonds issued by a company in the U.K. Which of these countries has an increase in net capital outflow?

If saving is greater than domestic investment, then

Net capital outflow

Which of the following equations is always correct in an open economy?

If a country has Y > C + I + G, then it has

Which of the following equations is correct?

A U.S. firm opens a factory that produces camping equipment in Estonia.

Which of the following is always correct?

A German company exchanges euros for dollars from U.S. residents and then uses the dollars to buy U.S. products to sell in Germany. U.S. residents who exchanged their dollars for euros use the euros to buy bonds issued by Spanish corporations. At this point

If a country has a trade surplus then

A U.S. purchase of oil from overseas paid for with foreign currency it already owned

A U.S. firm buys apples from New Zealand with New Zealand dollars it got in exchange for U.S. dollars. New Zealand residents then use these dollars to purchase oranges from the U.S. Which of the following increases?

Which of the following is correct?