1. A country with negative net exports has a trade surplus.
a.
True
b.
False
2. If a country’s imports exceed its exports it has a trade surplus.
a.
True
b.
False
3. If a country sells more goods and services abroad than it purchases abroad, it has positive net exports and a trade
surplus.
a.
True
b.
False
4. Movies are a major export of the U.S.
a.
True
b.
False
5. Over the past six decades, the U.S. economy has experienced a dramatic increase in the relative importance of
international trade and finance.
a.
True
b.
False
6. Reduced barriers to trade help explain an increase in U.S. exports and imports relative to GDP since 1950.
a.
True
b.
False
7. Reductions in transportation costs help explain the increase in U.S. trade flows.
a.
True
b.
False
8. U.S. exports make up less than 20 percent of GDP.
a.
True
b.
False
9. Net capital outflow is the purchase of domestic assets by foreign residents minus the purchase of foreign assets by
domestic residents.
a.
True
b.
False
10. When net capital outflow is negative, it means that on net the value of domestic assets purchased by foreigners
exceeds the value of foreign assets purchased by domestic residents.
a.
True
b.
False
11. If purchases of foreign assets by U.S. residents exceed purchases of U.S. assets by foreign residents, then U.S. net
capital outflow is positive.
a.
True
b.
False
12. A rational investor will always purchase the bond that pays the highest real interest rate.
a.
True
b.
False
13. When a company from Germany builds an automobile factory in the United States, the German firm has engaged in
foreign direct investment.
a.
True
b.
False
14. Both foreign direct investment and foreign portfolio investment by U.S. residents increase U.S. net capital outflow.
a.
True
b.
False
15. By itself, when a Japanese bank purchases a bond issued by a U.S. corporation, U.S. net capital outflow rises.
a.
True
b.
False
16. By itself, if a U.S. firm builds a new factory overseas, U.S. net capital outflow rises.
a.
True
b.
False
17. For an economy as a whole, net exports must equal minus one times net capital outflow.
a.
True
b.
False
18. A country must have a positive net outflow of capital if it has a trade deficit.
a.
True
b.
False
19. If a country’s net exports fall, then its net capital outflow falls by the same amount.
a.
True
b.
False
20. If a U.S. firm buys Chinese toys using previously obtained Chinese currency, then both U.S. net exports and U.S. net
capital outflow decrease.
a.
True
b.
False
21. If a German firm buys goods from a U.S. firm with dollars it obtains by exchanging euros for dollars, both U.S. net
exports and U.S. net capital outflow increase.
a.
True
b.
False
22. A Turkish firm exchanges lira (Turkish currency) for dollars. It then uses these dollars to purchase computers from the
U.S. These actions decrease U.S. net capital outflow and increase U.S. net exports.
a.
True
b.
False
23. If Walmart buys $50 million worth of consumer goods from China and sells them in the U.S., and China uses the $50
million to purchase U.S. bonds, U.S. net exports and U.S. net capital outflow both fall.
a.
True
b.
False
24. If a nation is selling more goods and services to foreigners than it is buying from them, then on net it must be selling
assets abroad.
a.
True
b.
False
25. If a nation is selling more goods and services to foreigners than it is buying from them, then on net it must be buying
assets abroad.
a.
True
b.
False
26. In an open economy national saving equals domestic investment plus net capital outflow.
a.
True
b.
False
27. It is possible for a country to have domestic investment that exceeds national saving.
a.
True
b.
False
28. When U.S. national saving rises, domestic investment also necessarily rises.
a.
True
b.
False
29. If a country’s trade surplus falls, its net capital outflow rises.
a.
True
b.
False
30. A nation with a trade surplus will necessarily have saving that is greater than domestic investment.
a.
True
b.
False
31. Other things the same, if U.S. net capital outflow rises, so does U.S. saving.
a.
True
b.
False
32. In an open economy, national saving can be less than investment.
a.
True
b.
False
33. To increase domestic investment, a country must increase its saving.
a.
True
b.
False
34. The increase in the trade deficit in the 1980’s reflected a decrease in national saving that is associated with an increase
in the government budget deficit.
a.
True
b.
False
35. The large trade deficits in the U.S. during the 1990’s were primarily associated with a rise in domestic investment
spending rather than a rise in the budget deficit.
a.
True
b.
False
36. From 2008 to 2012 both U.S. saving and U.S. investment fell.
a.
True
b.
False
37. If the exchange rate is 12.5 pesos per U.S. dollar, it is also 1/12.5 U.S. dollars per peso.
a.
True
b.
False
38. If the exchange rate is 80 yen per dollar, then a hotel room in Tokyo that costs 25,000 yen costs $200.
a.
True
b.
False
39. If the price of a good in the U.S. is $10, the exchange rate is 2 units of foreign currency per dollar, and the foreign
price of the same good is 30 units of foreign currency, then the real exchange rate is 2/3.
a.
True
b.
False
40. Other things the same, an increase in the nominal exchange rate raises the real exchange rate.
a.
True
b.
False
41. Other things the same, an increase in domestic prices raises the real exchange rate.
a.
True
b.
False
42. Other things the same, an increase in foreign prices raises the real exchange rate.
a.
True
b.
False
43. Other things the same, an increase in the real exchange rate raises U.S. net exports.
a.
True
b.
False
44. Other things the same, an increase in the U.S. real exchange rate makes U.S. goods more expensive relative to foreign
goods.
a.
True
b.
False
45. The theory of purchasing-power parity states that a unit of a country’s currency should be able to buy the same
quantity of goods in foreign countries as it does in the domestic economy.
a.
True
b.
False
46. Purchasing-power parity says that the nominal exchange rate must equal the real exchange rate.
a.
True
b.
False
47. Jason plans to buy shrimp in Florida and sell them in Manhattan, Kansas where the price is higher. Jason plans to
engage in arbitrage.
a.
True
b.
False
48. If the U.S. real exchange rate is greater than 1, then there is the possibility of arbitraging by buying foreign goods to
sell in the U.S.
a.
True
b.
False
49. Many economists believe that the theory of purchasing-power parity describes the forces that determine exchange
rates in the long run.
a.
True
b.
False
50. According to purchasing-power parity theory, the nominal exchange rate between the U.S. and another country should
equal the U.S. price level divided by the price level in the foreign country.
a.
True
b.
False
51. According to purchasing power parity, the nominal exchange rate between the U.S. and another country should equal
the price level of foreign goods divided by the price level of U.S. goods.
a.
True
b.
False
52. If the purchasing power of the dollar is always the same at home and abroad, then the nominal exchange rate defined
as units of foreign currency per dollar decreases if the U.S. price level rises more than the price level in foreign countries.
a.
True
b.
False
53. Other things the same, an increase in the foreign price level leads to an increase in the real exchange rate.
a.
True
b.
False
54. If prices in Mexico rise at a higher rate than prices in the U.S., then according to purchasing-power parity the U.S.
nominal exchange rate with Mexico should rise.
a.
True
b.
False
55. If prices in the U.S. rise faster than prices in the United Kingdom, then according to the doctrine of purchasing-power
parity the U.S. nominal exchange rate should rise
a.
True
b.
False
56. If over the next year the inflation rate in the euro area is higher than the inflation rate in Japan, then the euro should
depreciate relative to the Japanese yen.
a.
True
b.
False
57. In the 1970s and 1980s the U.S. dollar depreciated against the German mark and appreciated against the Italian lira
because U.S. inflation was lower than in Germany but higher than in Italy.
a.
True
b.
False
58. When the central bank of some country prints large quantities of money, that county’s currency loses value both in
terms of the goods and services it buys and in terms of the amount of foreign currencies it can buy.
a.
True
b.
False
59. If U.S. residents purchase $450 billion of foreign assets and foreigners purchase $575 billion of U.S. assets, then the
U.S. has net capital outflows of -$125 billion and a trade deficit of $125 billion.
a.
True
b.
False
60. If foreign residents purchase 30 billion pesos of Mexican assets and Mexican residents purchase 25 billion pesos of
foreign assets, then Mexico has a net capital outflow of 5 billion pesos.
a.
True
b.
False
61. If a country’s saving rises, then either its investment or its net capital outflow rises (or both).
a.
True
b.
False
62. Other things the same, if the government reduced its budget deficit, the country’s trade balance would rise.
a.
True
b.
False
63. If the U.S. real exchange rate with Japan is greater than 1, then U.S. goods are relatively cheap.
a.
True
b.
False