Open-Economy Macroeconomics: Basic Concepts 7593
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.
7594 Open-Economy Macroeconomics: Basic Concepts
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.
Open-Economy Macroeconomics: Basic Concepts 7595
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
7596 Open-Economy Macroeconomics: Basic Concepts
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.
Open-Economy Macroeconomics: Basic Concepts 7597
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.
7598 Open-Economy Macroeconomics: Basic Concepts
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.
Open-Economy Macroeconomics: Basic Concepts 7599
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
7600 Open-Economy Macroeconomics: Basic Concepts
123. Which of the following is correct?
a. NCO + C = NX
b. NCO = NX
c. NX – NCO = S
d. NX + NCO = C
124. Which of the following is always correct?
a. Y – I = NCO
b. NCO = NX
c. NX = I
d. All of the above are correct.
125. 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.
Open-Economy Macroeconomics: Basic Concepts 7601
126. 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.
127. 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.
128. If a country has a trade deficit 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.
7602 Open-Economy Macroeconomics: Basic Concepts
129. 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.
130. If a country has Y > C + I + G, then
a. S > I and it has a trade surplus.
b. S > I and it has a trade deficit.
c. S < I and it has a trade surplus.
d. S < I and it has a trade deficit.
131. Domestic saving must equal domestic investment in
a. both closed and open economies.
b. closed, but not open economies.
c. open, but not closed economies.
d. neither closed nor open economies.
Open-Economy Macroeconomics: Basic Concepts 7603
132. If saving is less 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.
133. If a country has a trade surplus
a. it has positive net exports and positive net capital outflow.
b. it has positive net exports and negative net capital outflow.
c. it has negative net exports and positive net capital outflow.
d. it has negative net exports and negative net capital outflow.
134. If a country has a trade deficit
a. it has positive net exports and positive net capital outflow.
b. it has positive net exports and negative net capital outflow.
c. it has negative net exports and positive net capital outflow.
d. it has negative net exports and negative net capital outflow.
7604 Open-Economy Macroeconomics: Basic Concepts
135. If purchases of French assets by foreigners are less than French purchases of foreign assets,
then France has a
a. positive net capital outflow and a trade surplus.
b. positive net capital outflow and a trade deficit.
c. negative net capital outflow and a trade surplus.
d. negative net capital outflow and a trade deficit.
136. If a country exports more than it imports, then it has
a. positive net exports and positive net capital outflows.
b. positive net exports and negative net capital outflows.
c. negative net exports and positive net capital outflows.
d. negative net exports and negative net capital outflows.
137. If a country’s purchases of foreign assets exceeds foreign purchases of domestic assets, that
country has
a. positive net exports and positive net capital outflows.
b. positive net exports and negative net capital outflows.
c. negative net exports and positive net capital outflows.
d. negative net exports and negative net capital outflows.
Open-Economy Macroeconomics: Basic Concepts 7605
138. If a country has negative net capital outflows, then its net exports are
a. positive and its saving is larger than its domestic investment.
b. positive and its saving is smaller than its domestic investment.
c. negative and its saving is larger than its domestic investment.
d. negative and its saving is smaller than its domestic investment.
139. Which of the following statements is correct for an open economy with a trade surplus?
a. The trade surplus cannot last for very many years.
b. The trade surplus must be offset by negative net capital outflow.
c. The trade surplus implies that the country’s national saving is greater than domestic
investment.
d. None of the above is correct.
140. Which of the following statements is incorrect for an open economy?
a. A country can have a trade deficit, trade surplus, or balanced trade.
b. A country that has a trade deficit has positive net capital outflow.
c. Net exports must equal net capital outflow.
d. National saving equals domestic investment plus net capital outflow.
7606 Open-Economy Macroeconomics: Basic Concepts
141. U.S. exports are $300 billion, U.S. imports are $500 billion. Which of the following are consistent
with the level of net exports?
a. The U.S has a trade surplus. The U.S. purchases $800 billion worth of foreign assets and
foreign countries purchase $600 billion worth of U.S. assets.
b. The U.S. has a trade surplus. The U.S. purchases $600 billion worth of foreign assets and
foreign countries purchase $800 billion worth of U.S. assets.
c. The U.S has a trade deficit. The U.S. purchases $800 billion worth of foreign assets and
foreign countries purchase $600 billion worth of U.S. assets.
d. The U.S. has a trade deficit. The U.S. purchases $600 billion worth of foreign assets and
foreign countries purchase $800 billion worth of U.S. asset.
142. When Ghana sells chocolate to the United States, U.S. net exports
a. increase, and U.S. net capital outflow increases.
b. increase, and U.S. net capital outflow decreases.
c. decrease, and U.S. net capital outflow increases.
d. decrease, and U.S. net capital outflow decreases.
Open-Economy Macroeconomics: Basic Concepts 7607
143. If a U.S. textbook publishing company sells texts overseas, U.S. net exports
a. increase, and U.S. net capital outflow increases.
b. increase, and U.S. net capital outflow decreases.
c. decrease, and U.S. net capital outflow increases.
d. decrease, and U.S. net capital outflow decreases.
144. If a U.S. shirt maker purchases cotton from Egypt, U.S. net exports
a. increase, and U.S. net capital outflow increases.
b. increase, and U.S. net capital outflow decreases.
c. decrease, and U.S. net capital outflow increases.
d. decrease, and U.S. net capital outflow decreases.
145. A U.S. firm buys sardines from Morocco and pays for them with U.S. dollars. Other things the
same, U.S. net exports
a. increase, and U.S. net capital outflow increases.
b. increase, and U.S. net capital outflow decreases.
c. decrease, and U.S. net capital outflow increases.
d. decrease, and U.S. net capital outflow decreases.
7608 Open-Economy Macroeconomics: Basic Concepts
146. A Chinese company exchanges yuan (Chinese currency) for dollars. It uses these dollars to
purchase scrap metal from a U.S. company. As a result of these transactions, Chinese
a. net exports increase, and U.S. net capital outflow increases.
b. net exports increase, and U.S. net capital outflow decreases.
c. net exports decrease, and U.S. net capital outflow increases.
d. net exports decrease, and U.S. net capital outflow decreases.
147. A Japanese flour mill buys wheat from the United States and pays for it with yen. Other things
the same, Japanese
a. net exports increase, and U.S. net capital outflow increases.
b. net exports increase, and U.S. net capital outflow decreases.
c. net exports decrease, and U.S. net capital outflow increases.
d. net exports decrease, and U.S. net capital outflow decreases.
148. A British grocery chain uses previously obtained U.S. dollars to purchase oranges from the
United States. This transaction
a. increases British net capital outflow, and increases U.S. net exports.
b. increases British net capital outflow, and decreases U.S. net exports.
c. decreases British net capital outflow, and increases U.S. net exports.
d. decreases British net capital outflow, and decreases U.S. net exports.
Open-Economy Macroeconomics: Basic Concepts 7609
149. An American brewery sells dollars to obtain euros. It then uses the euros to buy brewing
equipment from a German company. These transactions
a. increase U.S. net capital outflow because Germans obtain U.S. assets.
b. decrease U.S. net capital outflow because Germans obtain U.S. assets.
c. increase U.S. net capital outflow because the U.S. buys capital goods.
d. decrease U.S. net capital outflow because the U.S. buys capital goods.
150. U.S.-based John Deere sells machinery to residents of South Africa who pay with South
African currency (the rand).
a. This increases U.S. net capital outflow because the U.S. acquires foreign assets.
b. This decreases U.S. net capital outflow because the U.S. acquires foreign assets.
c. This increases U.S. net capital outflow because the U.S. sells capital goods.
d. This decreases U.S. net capital outflow because the U.S. sells capital goods.
151. U.S- based Dell sells computers to an Irish company that pays with previously obtained U.S.
currency. This exchange
a. increases U.S. net capital outflow because the U.S. acquires foreign-owned assets.
b. decreases U.S. net capital outflow because the U.S. acquires foreign-owned assets.
c. increases U.S. net capital outflow because the U.S. sells capital goods.
d. decreases U.S. net capital outflow because the U.S. sells capital goods.
7610 Open-Economy Macroeconomics: Basic Concepts
152. An American retailer sells dollars to obtain euros. It then uses the euros to buy ready-to–
assemble furniture from Sweden. These transactions
a. increase U.S. net capital outflow because foreigners obtain U.S. assets.
b. decrease U.S. net capital outflow because foreigners obtain U.S. assets.
c. increase U.S. net capital outflow because the U.S. buys capital goods.
d. decrease U.S. net capital outflow because the U.S. buys capital goods.
153. A U.S. firm exchanges dollars for yen and then uses them to buy Japanese goods. Overall as a
result of these transactions
a. both U.S. net capital outflow and U.S. net exports rise.
b. both U.S. net capital outflow and U.S. net exports fall.
c. U.S. net capital outflow rises and U.S. net exports fall.
d. U.S. net capital outflow falls and U.S. net exports rise.
Open-Economy Macroeconomics: Basic Concepts 7611
154. A U.S. grocery chain buys bananas from Honduras and pays for them with U.S. dollars.
a. The purchase of the bananas increases U.S. net exports and the payment with dollars
increases U.S. net capital outflow.
b. The purchase of bananas increases U.S. net exports and the payment with dollars decreases
U.S. net capital outflow.
c. The purchase of bananas decreases U.S. net exports and the payment with dollars increases
U.S. net capital outflow.
d. The purchase of bananas decreases U.S. net exports and the payment with dollars decreases
U.S. net capital outflow.
155. A U.S. bakery buys wheat from Canada and pays for it with US dollars. This transaction
a. increases Canadian net exports, and increases U.S. net capital outflow.
b. increases Canadian net exports, and decreases U.S. net capital outflow.
c. decreases Canadian net exports, and increases U.S. net capital outflow.
d. decreases Canadian net exports, and decreases U.S. net capital outflow.
7612 Open-Economy Macroeconomics: Basic Concepts
156. A U.S. fast food restaurant chain sells dollars for Argentinean pesos and then uses the pesos to
buy Argentinean beef. Which of the following do these transactions increase?
a. Argentinean net capital outflow and Argentinean net exports
b. only Argentinean net exports
c. only Argentinean net capital outflow
d. neither Argentinean net exports nor Argentinean capital outflow
157. A U.S. retailer buys shoes from an Italian company. The Italian firm then uses all of the
revenues to buy leather from the U.S. These transactions
a. increase both U.S. net exports and U.S. net capital outflow.
b. decrease both U.S. net exports and U.S. net capital outflow.
c. increase U.S. net exports and do not affect U.S. net capital outflow.
d. None of the above is correct.