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 the exchange rate means that the country's currency has become relatively stronger compared to other currencies. This makes imports cheaper, which leads to an increase in imports. At the same time, exports become relatively more expensive, which reduces the demand for exports and lowers the export revenue. As a result, the balance of trade (exports minus imports) decreases. Therefore, A is the best choice.

Question 2

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 3

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 4

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 5

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 6

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 by subtracting capital inflows from capital outflows in a specific period. Therefore, the statement is true.

Question 7

Why is the balance of payments always zero?

Accepted Answer

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

Question 8

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 9

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 10

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 11

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 12

The United States has a closed economy.

Accepted Answer

The United States has an open economy, meaning it trades with other countries and participates in international trade.

Question 13

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 14

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 you'd be willing to pay, you need to divide the amount you're willing to pay in dollars by the exchange rate (since you want to convert the dollars to euros). So, $125 divided by 0.85 euros per dollar is approximately 106.25 euros. Therefore, the highest price in euros you'd be willing to pay for a camera is 106.25 euros, which is choice B.

Question 15

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 16

The current account balance equals the value of net exports.

Accepted Answer

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

Question 17

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

Accepted Answer

This is known as the balance of payments identity, which states that the current account balance plus the capital account balance must equal zero. Therefore, if there is a current account deficit, there must be a surplus in the capital account.

Question 18

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 19

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 20

Net exports equals the balance of trade surplus.

Accepted Answer

Net exports represent the value of a country's total exports minus its total imports. A balance of trade surplus occurs when a country's total exports exceed its total imports, resulting in a positive net exports value. However, net exports can also be negative if a country imports more than it exports, resulting in a balance of trade deficit.

Quiz 18: Macroeconomics in an Open Economy

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

If the balance on the current account in the United States is $750 billion,which of the following is most likely to be true?