Open-Economy Macroeconomics: Basic Concepts 7573
50. If a country had a trade surplus of $100 billion and then its exports rose by $40 billion and its
imports rose by $30 billion, its net exports would now be
a. $110 billion
b. $90 billion.
c. $70 billion.
d. $60 billion.
51. If a country had a trade deficit of $10 billion and then its exports rose by $20 billion and its imports
rose by $10 billion, its net exports would now be
a. $0
b. $10 billion.
c. –$10 billion.
d. –$20 billion.
52. If a country had a trade deficit of $20 billion and then its exports rose by $7 billion and its imports
fell by $10 billion, its net exports would now be
a. $37 billion
b. $3 billion
c. –$3 billion
d. –$37 billion
7574 Open-Economy Macroeconomics: Basic Concepts
53. Which of the following is correct?
a. U.S. exports as a percentage of GDP have about tripled since 1950. The U.S. currently has a
trade deficit.
b. U.S. exports as a percentage of GDP have about tripled since 1950. The U.S. currently has a
trade surplus.
c. U.S. exports as a percentage of GDP have about doubled since 1950. The U.S. currently has a
trade deficit.
d. U.S. exports as a percentage of GDP have about doubled since 1950. The U.S. currently has a
trade surplus.
54. Which of the following is correct? Since 1950
a. U.S. exports and U.S. imports each about doubled.
b. U.S. exports and U.S. imports each about tripled.
c. U.S. exports about doubled and U.S. imports about tripled.
d. U.S. exports about tripled and U.S. imports about doubled.
Open-Economy Macroeconomics: Basic Concepts 7575
55. Over the past five decades, the U.S. economy has become
a. more closed.
b. more open.
c. less trade-oriented.
d. more self-sufficient.
56. The increase in international trade in the United States is partly due to
a. improvements in transportation.
b. advances in telecommunications.
c. increased trade of goods with a high value per pound.
d. All of the above are correct.
57. U.S. international trade has
a. decreased because of a decrease in the trade of goods with a high value per pound.
b. decreased because of an increase in the trade of goods with a high value per pound.
c. increased because of a decrease in trade of goods with a high value per pound.
d. increased because of an increase in trade of goods with a high value per pound.
7576 Open-Economy Macroeconomics: Basic Concepts
58. Net capital outflow equals
a. the value of domestic assets purchased by foreigners.
b. the value of foreign assets purchased by domestic residents.
c. the value of domestic assets purchased by foreigners – the value of foreign assets purchased by
domestic residents.
d. the value of foreign assets purchased by domestic residents – the value of domestic assets
purchased by foreigners.
59. Net capital outflow is defined as the purchase of
a. foreign assets by domestic residents minus the purchase of domestic assets by foreign
residents.
b. foreign assets by domestic residents minus the purchase of foreign goods and services by
domestic residents.
c. domestic assets by foreign residents minus the purchase of domestic goods and services by
foreign residents.
d. domestic assets by foreign residents minus the purchase of foreign assets by domestic
residents.
Open-Economy Macroeconomics: Basic Concepts 7577
60. Net capital outflow measures the imbalance between the amount of
a. foreign assets held by domestic residents and domestic assets held by foreign residents.
b. foreign assets bought by domestic residents and the amount of domestic assets bought by
foreigners.
c. foreign assets bought by domestic residents and the amount of domestic goods and services
sold to foreigners.
d. None of the above is correct.
61. Net capital outflow equals the purchase of
a. foreign assets by domestic residents.
b. domestic assets by foreign residents.
c. domestic assets by foreign residents – the purchase of foreign assets by domestic residents
d. foreign assets by domestic residents – the purchase of domestic assets by foreign residents
62. Net capital outflow equals the difference between a country’s
a. income and expenditure.
b. investment and saving.
c. purchases of foreign goods and services and sales of goods and services abroad.
d. purchases of foreign assets and sales of domestic assets abroad.
7578 Open-Economy Macroeconomics: Basic Concepts
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. –.3 trillion euros, so it must have a trade deficit.
b. -.3 trillion euros, so it must have a trade surplus.
c. .3 trillion euros, so it must have a trade deficit.
d. .3 trillion euros, so it must have a trade surplus.
Open-Economy Macroeconomics: Basic Concepts 7579
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.
7580 Open-Economy Macroeconomics: Basic Concepts
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.
Open-Economy Macroeconomics: Basic Concepts 7581
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.
7582 Open-Economy Macroeconomics: Basic Concepts
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.
Open-Economy Macroeconomics: Basic Concepts 7583
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.
Open-Economy Macroeconomics: Basic Concepts 7585
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.
7586 Open-Economy Macroeconomics: Basic Concepts
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.
Open-Economy Macroeconomics: Basic Concepts 7587
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.
7588 Open-Economy Macroeconomics: Basic Concepts
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. 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.
92. 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.
Open-Economy Macroeconomics: Basic Concepts 7589
93. 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.
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.
7590 Open-Economy Macroeconomics: Basic Concepts
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.
Open-Economy Macroeconomics: Basic Concepts 7591
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.
7592 Open-Economy Macroeconomics: Basic Concepts
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.