Barro
Chapter 17
TRUE/FALSE
1. With an international sector real GNP is consumption plus gross investment plus government
purchases plus net real asset income from abroad.
2. The balance of trade is net exports or imports less exports.
3. A higher current account deficit is caused by a declining domestic economy.
4. The real current account balance is real national saving less net domestic investment.
5. Tariffs and quotas lead to a higher real GDP growth rate in the country imposing them.
6. The law of one price says that there must be a unique price for a good in each location where it is sold.
7. If the home country has a real GNP which is greater than real domestic expenditure, then the home
country has a current-account deficit.
8. Foreign direct investment occurs when the home country acquires additional ownership of capital
located in the rest of the world.
9. If the home country has negative trade balance, then its real GDP is less than real domestic
expenditure.
10. The equilibrium business-cycle model predicts that the real current-account balance will be
countercyclical.
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MULTIPLE CHOICE
1. The law of one price:
a.
prohibits price discrimination.
c.
is a tax on imports.
b.
is that markets work to ensure that the
same good has the same price in all
locations.
d.
prohibits price increases unless firms can
show their are unusual circumstances.
2. The difference between real GDP in a closed economy and real GNP in a open economy is:
a.
net real asset income from abroad.
c.
net international investment position.
b.
net imports.
d.
the trade balance.
3. Real GNP in an open economy is:
a.
the closed economy real output less net
real asset income from abroad.
c.
the closed economy real output less gross
real asset income from abroad.
b.
the closed economy real output plus gross
real asset income from abroad.
d.
the closed economy real output plus net
real asset income from abroad.
4. Net real asset income from abroad is:
a.
rt-1•Bft-1/P.
c.
(Bft – Bft-1)/P.
b.
Yt – (Ct +It +Gt ).
d.
((Bft – Bft-1)/P) – (rt-1•Bft-1/P).
5. Net real foreign investment is:
a.
rt-1•Bft-1/P.
c.
(Bft – Bft-1)/P.
b.
Yt – (Ct +It +Gt ).
d.
((Bft – Bft-1)/P) – (rt-1•Bft-1/P).
6. The trade balance is:
a.
rt-1•Bft-1/P.
c.
(Bft – Bft-1)/P.
b.
Yt – (Ct +It +Gt ).
d.
((Bft – Bft-1)/P) – (rt-1•Bft-1/P).
7. The balance on the current account:
a.
rt-1•Bft-1/P.
c.
(rt-1•Bft-1/P) + ((Bft – Bft-1)/P).
b.
Yt + (rt-1•Bft-1/P) – (Ct +It +Gt ).
d.
((Bft – Bft-1)/P) – (rt-1•Bft-1/P).
8. The balance on the current account is:
a.
real GNP less net foreign investment
income.
c.
real GNP less the net international
investment position.
b.
real GNP less net foreign investment.
d.
real GNP less real domestic expenditure.
9. The real current-account balance is:
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a.
net real asset income from abroad less
trade balance
c.
trade balance times the net real asset
income from abroad.
b.
trade balance plus the net real asset
income from abroad.
d.
trade balance less the net real income from
abroad.
10. The real current account balance equals:
a.
net foreign investments.
c.
the trade balance plus net real asset
income from abroad.
b.
real GNP less real domestic expenditure.
d.
all of the above.
11. The real current account balance equals:
a.
net foreign investments.
c.
the trade balance.
b.
the net international investment position.
d.
all of the above.
12. The real current account balance equals:
a.
the trade balance.
c.
the net international investment position.
b.
real GNP less real domestic expenditure.
d.
all of the above.
13. The real current account balance equals
a.
the net international investment position.
c.
the trade balance plus net real asset
income from abroad.
b.
the trade balance.
d.
all of the above.
14. The trade balance is:
a.
the difference between exports and
imports.
c.
the real current-account balance less net
real asset income from abroad.
b.
real GDP less real domestic expenditure.
d.
all of the above.
15. The trade balance is:
a.
the difference between exports and
imports.
c.
net foreign investment.
b.
real asset income from abroad.
d.
all of the above.
16. The trade balance is:
a.
the balance on the current account.
c.
net foreign investment.
b.
real GDP less real domestic expenditure.
d.
all of the above.
17. The trade balance is:
a.
net foreign investment.
c.
the real current-account balance less net
real asset income from abroad.
179
b.
the net international investment position.
d.
all of the above.
18. In the market clearing model with world markets for goods and credit, an increase in technology, A, in
the home country causes:
a.
an increase in the MPK.
c.
an increase in borrowing from foreigners.
b.
an increase in home country gross
domestic investment.
d.
all of the above.
19. In the market clearing model with world markets for goods and credit, an increase in technology, A, in
the home country causes:
a.
an increase in the MPK.
c.
an increase in lending to foreigners.
b.
an decrease in home country gross
domestic investment.
d.
all of the above.
20. In the market clearing model with world markets for goods and credit, an increase in technology, A, in
the home country causes:
a.
an decrease in the MPK.
c.
an increase in lending to foreigners.
b.
an increase in home country gross
domestic investment.
d.
all of the above.
21. In the market clearing model with world markets for goods and credit, an increase in technology, A, in
the home country causes:
a.
a decrease in the MPK.
c.
an increase in borrowing from foreigners.
b.
a decrease in gross domestic investment.
d.
all of the above.
22. In the market clearing model with world markets for goods and credit, an increase in technology, A, in
the home country causes:
a.
a larger current account deficit.
c.
a lower MPK.
b.
a smaller current account deficit.
d.
lower domestic gross investment.
23. In the market clearing model with world markets for goods and credit, a decrease in technology, A, in
the home country causes:
a.
a larger current account deficit.
c.
a higher MPK.
b.
a smaller current account deficit.
d.
higher domestic gross investment.
24. The open economy equilibrium business-cycle model predicts that the real current account balance
will be:
a.
acyclical.
c.
countercyclical.
b.
procyclical.
d.
exogenous.
25. The open economy equilibrium business-cycle model predicts that the real current account balance
will be:
a.
the same in expansions and recession.
c.
high in expansions and low in recessions.
b.
low in expansions and high in recessions.
d.
invariant with the business cycle.
26. In US data the real current account balance is:
a.
procyclical when the model predicts it
will be countercyclical.
c.
countercyclical when the model predicts it
will be procyclical.
b.
procyclical as the model predicts.
d.
countercyclical as the model predicts.
27. In US data the real current account balance is:
a.
procyclical.
c.
countercyclical.
b.
weakly procyclical.
d.
weakly countercyclical.
28. While according to the model the current account balance will be countercyclical, the balance can also
decline due to:
a.
a temporary negative shock like a harvest
failure.
c.
a temporary increase in government
purchases as in war time.
b.
a less developed country having a low
capital stock.
d.
all of the above.
29. While according to the model the current account balance will be countercyclical, the balance can also
decline due to:
a.
a temporary negative shock like a harvest
failure.
c.
a permanent decrease in government
purchases.
b.
a less developed country having poor
institutions for growth.
d.
all of the above.
30. While according to the model the current account balance will be countercyclical, the balance can also
decline due to:
a.
a temporary positive shock like a good
harvest.
c.
a permanent decrease in government
purchases.
b.
a less developed country having a low
capital stock.
d.
all of the above.
31. While according to the model the current account balance will be countercyclical, the balance can also
decline due to:
a.
a temporary positive shock like a positive
harvest
c.
a temporary increase in government
purchases as in war time.
b.
a less developed country having a high
capital stock.
d.
all of the above.
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32. In the Ricardian case, if the government budget deficit is increased, then the trade balance:
a.
moves toward a deficit too.
c.
is unaffected.
b.
moves toward a surplus.
d.
is exogenous.
33. The terms of trade are:
a.
($ per home good)/($ per foreign good).
c.
foreign good per home good.
b.
the number of units of foreign goods that
can be imported for each unit of home
goods exported.
d.
all of the above.
34. The terms of trade are:
a.
($ per home good)/($ per foreign good).
c.
home good per foreign good.
b.
the number of units of home goods that
can be exported for each unit of foreign
goods imported.
d.
all of the above.
35. The terms of trade are:
a.
($ per foreign good)/($ per home good).
c.
home good per foreign good.
b.
the number of units of foreign goods that
can be imported for each unit of home
goods exported.
d.
all of the above.
36. The terms of trade are:
a.
($ per home foreign/($ per home good).
c.
foreign good per home good.
b.
the number of units of home goods that
can be exported for each unit of foreign
goods imported.
d.
all of the above.
37. An increase in the terms of trade:
a.
raises real GDP.
c.
increases real national saving if the change
in terms of trade is less than fully
permanent.
b.
increases consumption.
d.
all of the above.
38. An increase in the terms of trade:
a.
raises real GDP.
c.
lowers real national saving.
b.
decreases consumption.
d.
all of the above.
39. An increase in the terms of trade:
a.
reduces real GDP.
c.
lowers real national saving.
b.
increases consumption.
d.
all of the above.
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40. An increase in the terms of trade:
a.
reduces real GDP.
c.
increases real national saving if the change
in terms of trade is less than fully
permanent.
b.
decreases consumption.
d.
all of the above.
41. A decrease in the terms of trade:
a.
reduces real GDP.
c.
decreases real national saving if the
change in terms of trade is less than fully
permanent.
b.
decreases consumption.
d.
all of the above.
42. A decrease in the terms of trade:
a.
reduces real GDP.
c.
increases real national saving if the change
in terms of trade is less than fully
permanent.
b.
increases consumption.
d.
all of the above.
43. If the government reduces tariffs or quotas on imports, then:
a.
real GDP will increase.
c.
net domestic investment will rise.
b.
the real current account balance falls.
d.
all of the above.
44. If the government reduces tariffs or quotas on imports, then:
a.
real GDP will increase.
c.
net domestic investment will fall.
b.
the real current account balance rises.
d.
all of the above.
45. If the government reduces tariffs or quotas on imports, then:
a.
real GDP will decrease.
c.
net domestic investment will fall.
b.
the real current account balance falls.
d.
all of the above.
46. If the government reduces tariffs or quotas on imports, then:
a.
real GDP will decrease.
c.
net domestic investment will rise.
b.
the real current account balance rises.
d.
all of the above.
47. If the government imposes or increases tariffs or quotas on imports, then:
a.
real GDP will decrease.
c.
net domestic investment will fall.
b.
the real current account balance rises.
d.
all of the above.
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48. If the government imposes or increases tariffs or quotas on imports, then:
a.
real GDP will decrease.
c.
net domestic investment will rise.
b.
the real current account balance falls.
d.
all of the above.
49. If the government imposes or increases tariffs or quotas on imports, then:
a.
real GDP will increase.
c.
net domestic investment will rise.
b.
the real current account balance rises.
d.
all of the above.
50. If the government reduces tariffs or quotas on imports, then:
a.
real GDP will increase.
c.
net domestic investment will fall.
b.
the real current account balance falls.
d.
all of the above.
51. If we observe that the price of a good is higher in one location than in another location, this
observation
a.
violates the law of one price.
c.
violates the law of one GDP.
b.
validates the law of one price.
d.
validates the law of one GDP.
52. Foreign direct investment is
a.
the home country’s additional supply of
labor to the rest of the world.
c.
the home country’s additional demand for
labor from the rest of the world.
b.
the home country’s additional ownership
of capital in the rest of the world.
d.
the foreign country’s additional demand
for labor in the home country.
53. When the home country acquires additional ownership of capital located in the rest of the world, it has
is
a.
reduced foreign indirect investment.
c.
acquired foreign direct investment.
b.
acquired foreign divested investment.
d.
reduced foreign direct intervention.
54. Real gross national product in an open economy includes
a.
real GDP.
c.
net real labor costs from abroad.
b.
net real asset income from abroad.
d.
(a) and (b).
55. If the home country has a real GNP which is greater than real domestic expenditure, then the home
country has
a.
a current-account suplus.
c.
balance on the current account.
b.
a current-account deficit.
d.
none of the above.
56. If the home country has a real GNP which is less than real domestic expenditure, then the home
country has
a.
a current-account suplus.
c.
balance on the current account.
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b.
a current-account deficit.
d.
none of the above.
57. If the home country has a real GNP which is equal to real domestic expenditure, then the home country
has
a.
a current-account suplus.
c.
balance on the current account.
b.
a current-account deficit.
d.
none of the above.
58. If the home country has a real GNP which is greater than net foreign investment, then the home
country has
a.
a current-account suplus.
c.
balance on the current account.
b.
a current-account deficit.
d.
none of the above.
59. If the home country has a real GDP which is greater than real domestic expenditure, then the home
country has
a.
a trade balance that is positive.
c.
a trade balance that is zero.
b.
a trade balance that is negative.
d.
none of the above.
60. If the home country has a real GDP which is less than real domestic expenditure, then the home
country has
a.
a trade balance that is positive.
c.
a trade balance that is zero.
b.
a trade balance that is negative.
d.
none of the above.
61. Historical data on the U.S. current account balance show
a.
a deficit from the turn of the twentieth
century through the mid-1970s.
c.
a surplus for the twentieth century through
the mid-1970s.
b.
a surplus in most of the past two decades.
d.
a zero current account balance for most of
the twentieth century.
62. Historical data on the U.S. current account balance show that one of the largest ratios for the current-
account balance relative to GDP occurred
a.
as a surplus, in the early 1970s.
c.
as a surplus, in the early 2000s.
b.
as a deficit, in the early 1990s.
d.
as a deficit, in the early 2000s.
63. Historical data on the ratio of U.S. nominal exports and imports to GDP show
a.
a generally rising ratio since 1950.
c.
a generally positive but steady ratio since
1950.
b.
a generally falling ratio since 1950.
d.
a ratio hovering around zero since 1950.
64. Historical data on the ratio of U.S. net international investment to GDP show
a.
a steady increase in the ratio since 1980.
c.
a steady ratio since 1980.
b.
a steady decline in the ratio since 1980.
d.
no discernable pattern in the ratio since
1980.
65. Historical data on the ratio of U.S. net factor income from abroad to GDP show
a.
a steady increase in the ratio since 1980.
c.
a peak in the ratio around 1980, followed
by a decline through 1987.
b.
a steady decline in the ratio since 1960.
d.
no discernable pattern in the ratio since
1980.
66. A developing country with good prospects means that the country’s current-account balance would
likely be
a.
negative.
c.
zero.
b.
positive.
d.
impossible to determine.
SHORT ANSWER
1. What is the real current account balance?
2. What are the effects of a permanent increase in technology in the open market clearing model?
3. What does the open market clearing model predict about the association of the real current account
balance and real GDP growth and what do the data on the US show?
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4. Does a government budget deficit lead to a real current-account deficit?
5. What are the effects of reducing tariffs and quotas in the open market clearing model?