d.
purchases of foreign assets and sales of domestic assets abroad.
63. If U.S. residents purchase $600 billion worth of foreign assets and foreigners purchase $300 billion worth of U.S.
assets,
a.
U.S. net capital outflow is $300 billion; capital is flowing into the U.S.
b.
U.S. net capital outflow is $300 billion; capital is flowing out of the U.S.
c.
U.S. net capital outflow is –$300 billion; capital is flowing into the U.S.
d.
U.S. net capital outflow is –$300 billion; capital is flowing out of the U.S.
64. If domestic residents of France purchase 1.2 trillion euros of foreign assets and foreigners purchase 1.5 trillion euros
of French assets, then France’s net capital outflow is
a.
b.
c.
d.
65. If domestic residents of other countries purchase $600 billion of U.S. assets and U.S residents purchase $500 billion of
foreign assets, then U.S. net capital outflow is
a.
$100 billion and the U.S. has a trade surplus.
b.
$100 billion and the U.S has a trade deficit.
c.
–$100 billion and the U.S. has a trade surplus.
d.
–$100 billion and the U.S. has a trade deficit.
66. Net exports measures the difference between a country’s
a.
income and expenditures.
b.
sale of goods and services abroad and purchase of foreign goods and services.
c.
sale of domestic assets abroad and purchase of foreign assets.
d.
All of the above are correct.
67. The purchase of U.S. government bonds by Egyptians is an example of
a.
U.S. imports.
b.
U.S. exports.
c.
foreign portfolio investment by Egyptians.
d.
foreign direct investment by Egyptians.
68. Suppose that foreign citizens decide to purchase more U.S. pharmaceuticals and U.S. citizens decide to buy more
stock in foreign corporations. Other things the same, these actions
a.
raise both U.S. net exports and U.S. net capital outflows.
b.
raise U.S. net exports and lower U.S. net capital outflows.
c.
lower both U.S. net exports and U.S. net capital outflows.
d.
lower U.S. net exports and raise U.S. net capital outflows.
69. Suppose that more British decide to vacation in the U.S. and that the British purchase more U.S. Treasury bonds.
Ignoring how payments are made for these purchases,
a.
the first action by itself raises U.S. net exports, the second action by itself raises U.S. net capital outflow.
b.
the first action by itself raises U.S. net exports, the second action by itself lowers U.S. net capital outflow.
c.
the first action by itself lowers U.S. net exports, the second action by itself raises U.S. net capital outflow.
d.
the first action by itself lowers U.S. net exports, the second action by itself lowers U.S. net capital outflow.
70. Jen and Alica are both U.S. citizens. Jen opens a cafe in France. Alicia buys equipment from a company in Canada to
use in her factory. Whose action is an example of U.S. foreign direct investment?
a.
Jen’s and Alica’s
b.
Jen’s but not Alicia’s
c.
Alicia’s but not Jen’s
d.
Neither Anthony’s nor Tom’s.
71. Which of the following is an example of U.S. foreign direct investment?
a.
A Swedish car manufacturer opens a plant in Tennessee.
b.
A Dutch citizen buys shares of stock in a U.S. company.
c.
A U.S. based restaurant chain opens new restaurants in India.
d.
A U.S. citizen buys stock in companies located in Japan.
72. Which of the following is an example of U.S. foreign direct investment?
a.
A Greek company opens a cheese factory in the U.S.
b.
A German mutual fund buys stock issued by a U.S. corporation.
c.
A U.S. beverage company opens a bottling plant in Russia.
d.
A U.S. bank buys bonds issued by an Argentinean company.
73. Which of the following is an example of U.S. foreign direct investment?
a.
A U.S. based mutual fund buys stock in Eastern European companies.
b.
A U.S. citizen builds and operates a coffee shop in the Netherlands.
c.
A Swiss bank buys a U.S. government bond.
d.
A German tractor factory opens a plant in Waterloo, Iowa.
74. Which of the following is an example of U.S. foreign direct investment?
a.
A Chinese company opens a restaurant in the U.S.
b.
An Australian bank buys stocks issued by a U.S. corporation.
c.
A U.S. bank buys bonds issued by an Australian corporation.
d.
A U.S. company opens an auto parts factory in Canada.
75. Which of the following is an example of U.S. foreign portfolio investment?
a.
Disney builds a new amusement park near Barcelona, Spain.
b.
A U.S. citizen buys bonds issued by the British government.
c.
A Dutch hotel chain opens a new hotel in the United States.
d.
A citizen of Singapore buys a bond issued by a U.S. corporation.
76. Which of the following is an example of U.S. foreign portfolio investment?
a.
A U.S. legal office opens a branch office in Holland.
b.
Erica, a U.S. resident, buys bonds issued by the Swiss government.
c.
Both A and B are examples of U.S. portfolio investment.
d.
Neither A nor B are examples of U.S. portfolio investment.
77. Which of the following is an example of U.S. foreign portfolio investment?
a.
Albert, a German citizen, buys stock in a U.S. computer company.
b.
Larry, a citizen of Ireland, opens a fish and chips restaurant in the United States.
c.
Nancy, a U.S. citizen, buys bonds issued by a Japanese bank.
d.
Dustin, a U.S. citizen, opens a country-western tavern in New Zealand.
78. Carl and Carly are American residents. Carl buys stock of a corporation in Austria. Carly opens a coffee shop in
Austria. Whose purchase, by itself, decreases Austria’s net capital outflow?
a.
Carl’s
b.
Carly’s
c.
both Carl’s and Carly’s
d.
neither Carl’s nor Carly’s
79. Matt and Melinda are American residents. Matt buys stock issued by a German corporation. Melinda opens a shoe
factory in Panama. Whose purchase, by itself, increases the U.S.’s net capital outflow?
a.
Matt’s
b.
Melinda’s
c.
both Matt’s and Melinda’s
d.
neither Matt’s nor Melinda’s
80. Mark, a U.S. citizen, buys stock in a British Shipping company. This purchase is an example of
a.
investment for Mark and U.S. foreign direct investment.
b.
investment for Mark and U.S. foreign portfolio investment.
c.
saving for Mark and U.S. foreign direct investment.
d.
saving for Mark and U.S. foreign portfolio investment.
81. Susan, a U.S. citizen, builds and operates a kennel in France. This action is an example of
a.
investment for Susan and U.S. foreign direct investment.
b.
investment for Susan and U.S. foreign portfolio investment.
c.
U.S. foreign direct investment and U.S. domestic investment.
d.
U.S. foreign portfolio investment and U.S. domestic investment.
82. John, a U.S. citizen, opens up a Sports bar in Tokyo. This is an example of U.S.
a.
exports.
b.
imports.
c.
foreign portfolio investment.
d.
foreign direct investment.
83. A Swiss watchmaker opens a factory in the United States. This is an example of Swiss
a.
exports.
b.
imports.
c.
foreign portfolio investment.
d.
foreign direct investment.
84. When making investment decisions, investors
a.
compare the real interest rates offered on different bonds.
b.
compare the nominal, but not the real, interest rates offered on different bonds.
c.
purchase the highest-priced bond available.
d.
All of the above are correct.
85. Alfonso, a citizen of Italy, decides to purchase bonds issued by Ireland instead of ones issued by the United States
even though the Irish bonds have a higher risk of default. An economic reason for his decision might be that
a.
he dislikes U.S. foreign policy.
b.
the Irish bonds pay a higher rate of interest.
c.
the U.S. government is more stable than the Irish government.
d.
None of the above provide an economic reason for buying the riskier bond.
86. Suppose that real interest rates in the U.S. rise relative to real interest rates in other countries. This increase would
make foreigners
a.
more willing to purchase U.S. bonds, so U.S. net capital outflow would fall.
b.
more willing to purchase U.S. bonds, so U.S. net capital outflow would rise.
c.
less willing to purchase U.S. bonds, so U.S. net capital outflow would fall.
d.
less willing to purchase U.S. bonds, so U.S. net capital outflow would rise.
87. Other things the same, which of the following would both make foreigners more willing to engage in U.S. portfolio
investment?
a.
U.S. interest rates rise, the default risk of U.S. assets rise
b.
U.S. interest rates rise, the default risk of U.S. assets fall
c.
U.S. interest rates fall, the default risk of U.S. assets rise
d.
U.S. interest rates fall, the default risk of U.S. assets fall
88. Other things the same, which of the following could explain a rise in Sweden’s net capital outflow?
a.
interest rates on Swedish bonds rise
b.
the probability of default on Swedish bonds rises
c.
Sweden enacts a law reducing taxes on income earned by foreign-owned businesses operating in Sweden
d.
None of the above are correct.
89. If a country changes its corporate tax laws so that foreign businesses build and manage more business in that country,
then the net capital outflow of that country
a.
and the net capital outflow of other countries rise.
b.
rises and the net capital outflow of other countries fall.
c.
falls and the net capital outflow of other countries rise.
d.
None of the above are correct.
90. If a country changes its corporate tax laws so that domestic businesses build and manage more business in other
countries, then the net capital outflow of that country
a.
and the net capital outflow of other countries rise.
b.
rises and the net capital outflow of other countries fall.
c.
falls and the net capital outflow of other countries rise.
d.
None of the above are correct.
91. A U.S. mutual fund buys stocks issued by a Columbian company. This purchase is an example of
a.
U.S. foreign direct investment. It increases Columbia’s net capital outflow.
b.
U.S. foreign direct investment. It decreases Columbia’s net capital outflow.
c.
U.S. foreign portfolio investment. It decreases Columbia’s net capital outflow.
d.
U.S. foreign portfolio investment. It increases Columbia’s net capital outflow.
92. A U.S. firm buys bonds issued by a technology center in India. This purchase is an example of U.S.
a.
foreign portfolio investment. By itself it is an increase in U.S. holdings of foreign bonds and increases U.S. net
capital outflow.
b.
foreign portfolio investment. By itself it is an increase in U.S. holdings of foreign bonds and decreases U.S.
net capital outflow.
c.
foreign direct investment. By itself it is an increase in U.S. holdings of foreign bonds and increases U.S. net
capital outflow.
d.
foreign direct investment. By itself it is an increase in U.S. holdings of foreign bonds and decreases U.S. net
capital outflow.
93. Suppose that the real return from operating factories in Canada rises relative to the real rate of return in the United
States. Other things the same,
a.
this will increases U.S. net capital outflow and decrease Canadian net capital outflow.
b.
this will decreases U.S. net capital outflow and increase Canadian net capital outflow.
c.
this will only increase U.S. net capital outflow.
d.
this will only increase Canadian net capital outflow.
94. A U.S. citizen buys bonds issued by an automobile manufacturer in Japan. Her expenditures are U.S.
a.
foreign direct investment that increase U.S. net capital outflow.
b.
foreign direct investment that decrease U.S. net capital outflow.
c.
foreign portfolio investment that increase U.S. net capital outflow.
d.
foreign portfolio investment that decrease U.S. net capital outflow.
95. Sam, a U.S. citizen, buys bonds issued by a Greek company that bottles olives. Sam’s purchase is
a.
foreign direct investment. By itself it increases U.S. net capital outflow.
b.
foreign direct investment. By itself it decreases U.S. net capital outflow.
c.
foreign portfolio investment. By itself it increases U.S. net capital outflow.
d.
foreign portfolio investment. By itself it decreases U.S. net capital outflow.
96. A U.S. citizen buys bonds issued by a construction equipment manufacturer in Poland. Her expenditures are U.S.
a.
foreign portfolio investment that increase U.S. net capital outflow.
b.
foreign portfolio investment that decrease U.S. net capital outflow.
c.
foreign direct investment that increase U.S. net capital outflow.
d.
foreign direct investment that decrease U.S. net capital outflow.
97. Greg, a U.S. citizen, opens an ice cream store in Bermuda. His expenditures are U.S.
a.
foreign portfolio investment that increase U.S. net capital outflow.
b.
foreign portfolio investment that decrease U.S. net capital outflow.
c.
foreign direct investment that increase U.S. net capital outflow.
d.
foreign direct investment that decrease U.S. net capital outflow.
98. A U.S. corporation builds a restaurant in China. Its expenditures are U.S.
a.
foreign portfolio investment that increase U.S. net capital outflow.
b.
foreign portfolio investment that decrease U.S. net capital outflow.
c.
foreign direct investment that increase U.S. net capital outflow.
d.
foreign direct investment that decrease U.S. net capital outflow.
99. Paul, a U.S. citizen, builds a telescope factory in Israel. His expenditures
a.
increase U.S. and Israeli net capital outflow.
b.
increase U.S. net capital outflow, but decrease Israeli net capital outflow.
c.
decrease U.S. net capital outflow, but increase Israeli net capital outflow.
d.
None of the above is correct.
100. If the American company Stryker builds and operates a new factory in France,
a.
it engages in foreign direct investment. By itself this action lowers U.S. net capital outflow.
b.
it engages in foreign direct investment. By itself this action raises U.S. net capital outflow.
c.
it engages in foreign portfolio investment. By itself this action lowers U.S. net capital outflow.
d.
it engages in foreign portfolio investment. By itself this action raises U.S. net capital outflow.
101. An Italian company builds and operates a pasta factory in the United States. This is an example of Italian
a.
foreign direct investment that increases Italian net capital outflow.
b.
foreign direct investment that decreases Italian net capital outflow.
c.
foreign portfolio investment that increases Italian net capital outflow.
d.
foreign portfolio investment that decreases Italian net capital outflow.
102. A Finnish corporation builds a factory the produces ceiling fans in the United States. This is an example of Finish
a.
foreign direct investment that increases Finnish net capital outflow.
b.
foreign direct investment that decreases Finnish net capital outflow.
c.
foreign portfolio investment that increases Finnish net capital outflow.
d.
foreign portfolio investment that decreases Finnish net capital outflow.
103. Bob, a Greek citizen, opens a restaurant in Chicago. His expenditures
a.
increase U.S. net capital outflow and have no affect on Greek net capital outflow.
b.
increase U.S. net capital outflow and increase Greek net capital outflow.
c.
increase U.S. net capital outflow, but decrease Greek net capital outflow.
d.
decrease U.S. net capital outflow, but increase Greek net capital outflow.
104. A Japanese bank buys U.S. government bonds, this purchase
a.
increases U.S. net capital outflow and has no affect on Japanese net capital outflow.
b.
increases U.S. net capital outflow and increases Japanese net capital outflow.
c.
increases U.S. net capital outflow, but decreases Japanese net capital outflow.
d.
decreases U.S. net capital outflow, but increases Japanese net capital outflow.
105. Firms in Saudi Arabia sell oil to the U.S. Other things the same, these oil sales
a.
increase Saudi net exports and net capital outflow.
b.
decrease Saudi net exports and net capital outflow.
c.
increase Saudi net exports and decrease Saudi net capital outflow.
d.
decrease Saudi net exports and increase Saudi net capital outflow.
106. Suppose that U.S. citizens purchase more cars made in Korea, and Koreans purchase more bonds issued by U.S.
corporations. Other things the same, these actions
a.
raise both U.S. net exports and U.S. net capital outflows.
b.
raise U.S. net exports and lower U.S. net capital outflows.
c.
lower both U.S. net exports and U.S. net capital outflows.
d.
lower U.S. net exports and raise U.S. net capital outflows.
107. If Chileans buy more U.S. stocks and bonds and U.S. residents buy more Chilean wine, then
a.
both U.S. net exports and U.S. net capital outflows rise.
b.
U.S. net exports rise and U.S. net capital outflows fall.
c.
U.S. net exports fall and U.S. net capital outflows rise.
d.
both U.S. net exports and U.S. net capital outflows fall.
108. 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 capital outflow rise
109. 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.
110. 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.
111. 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 Zealand’s net capital outflow and New Zealand’s net exports
b.
only New Zealand’s net exports
c.
only New Zealand’s net capital outflow
d.
neither New Zealand’s net exports nor New Zealand’s capital outflow
112. An Italian company exchanges euros for dollars from U.S. residents and then uses the dollars to buy U.S. products to
sell in its stores in Rome. U.S. residents who exchanged their dollars for euros use the euros to buy bonds issued by
French 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.
113. 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.
114. A U.S. firm opens a factory that produces power tools in Korea.
a.
This increases U.S. net capital outflow and decreases Korean net capital outflow.
b.
This decreases U.S. net capital outflow and increases Korean net capital outflow.
c.
This increases only U.S. net capital outflow.
d.
This increases only Korean net capital outflow.
115. 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.
116. When a Japanese auto maker opens a factory 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.
117. 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.
118. 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.
119. Which of the following equations is correct?
a.
S = I + C
b.
S = I – NX
c.
S = I + NCO
d.
S = NX – NCO.
120. 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
121. Which of the following equations is always correct in an open economy?
a.
NX = Y – C – G – I
b.
NX = S – I
c.
NX = NCO
d.
All of the above are correct.
122. Which of the following is correct?
a.
NCO = NX
b.
NCO + I = NX
c.
NX + NCO = Y
d.
Y = NCO – I
123. Which of the following is correct?
a.
NCO + C = NX
b.
NCO = NX
c.
NX – NCO = S
d.
NX + NCO = C