Economics A175 Chapter 18: Economics_A175_Chapter_18

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ceruleanwildebeest294

15 May 2020

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The models studied in this chapter have been in a closed model or simple. Net exports are the value of domestic goods and services sold abroad (exports) minus the value of foreign goods and services sold domestically (imports) Net capital outflow is the acquisition of foreign assets by domestic residents (capital outflow) minus the acquisition of domestic assets by foreigners (capital inflow) Because every international transaction involves an exchange of an asset for a good or service, an economy"s net capital outflow always equals its net exports. An economy"s saving can be used either to finance investment at home or to buy assets abroad. Thus, national saving equals domestic investment plus net capital outflow. The nominal exchange rate is the relative price of the currency of two countries, and the real exchange rate is the relative price of the goods and services of two countries.

Related Questions

An open economy interacts with the rest of the world through its involvement in world markets for goods and services and world financial markets. Although it can often result in an imbalance in these markets, the following identity must remain true:

Net Capital OutflowNet Capital Outflow

= =

Net ExportsNet Exports

In other words, if a transaction directly affects the left side of this equation, then it must also affect the right side. The following problem will help you understand why this identity must hold.

Suppose you are a software engineer living in the United States, and you just sold your latest product to a Russian consumer for RUB 7,000.

Determine the effects of this transaction on exports, imports, and net exports in the U.S. economy, and enter your results in the following table. If the direction of change is "No change," enter "0" in the Magnitude of Change column.

Hint: The magnitude of change should always be positive, regardless of the direction of change.

Increase/no change/decrease

Imports

Increase/no change/decrease

Net Exports

Increase/no change/decrease

Because of the identity equation that relates to net exports, the in U.S. net exports is matched by in U.S. net capital outflow. Which of the following is an example of how the United States might be affected in this scenario? Check all that apply.

You store the rubles in your safety deposit box at home.

You purchase RUB 7,000 worth of stock in a Russian corporation.

You buy RUB 7,000 worth of Russian bonds.

purplehyena626

Q46. An appreciation of the U. S. dollar would
a. encourage foreigners to invest in the United States
b. discourage foreigners from buying U. S. goods
c. discourage the travel abroad of U. S. citizens
d. encourage foreign travel in the United States

Q47. The financial account of the balance of payments includes the purchase and sale of physical assets but not of financial assets.
a. true
b. false

Q48. Special Drawing Rights are issued by the
a. International Monetary Fund
b. Bretton Woods Organization
c. General Agreement on Tariffs and Trade
d. World Bank

Q49. The balance of payments includes
a. only exports, imports, and service transactions
b. the balance on current account, plus all capital transactions and all official transactions and the statistical discrepancy
c. only the official transactions
d. all goods and services produced in a nation's economy during a given year

Q50. A debit item on the U. S. balance of payments is any transaction that
a. results in a loss by U. S. sellers
b. results in a loss by U. S. buyers
c. makes foreigners use up their holdings of U. S. dollars
d. makes U. S. dollars available to foreigners

In the short run, a tighter monetary policy by the U.S. Federal Reserve leads to:

Select one:

a. an increase in the supply of dollars and a dollar depreciation.

b. a decrease in the supply of dollars and a dollar appreciation.

c. an increase in the demand for dollars and a dollar depreciation.

d. a decrease in the demand for dollars and a dollar appreciation.

Which theorem states that exchange rates will adjust until the prices of goods in different countries approximate one another?

Select one:

a. purchasing power parity

b. the law of multiple prices

c. the principle of comparative advantage

d. dollarization

A country's balance of trade is the difference between its:

Select one:

a. nominal and real exchange rates.

b. monetary and fiscal policy.

c. exports and imports.

d. capital inflow and capital outflow.

When a foreign business buys stock in a U.S. company, the U.S. capital account will:

Select one:

a. move in a positive direction.

b. move in a negative direction.

c. remain unchanged.

d. become more volatile.

Saying that the United States is running a large current account deficit is equivalent to saying that:

Select one:

a. exports exceed imports in the United States.

b. the United States is running a large capital account surplus.

c. the balance of payments is negative.

d. the value of the current capital stock in the United States exceeds the value of future capital flows.

10-

An increase in the demand for a country's exports will have what effect on its currency?

Select one:

a. Its value will not change.

b. Its value will increase.

c. Its value will decrease.

d. Its value will depreciate.

11-

When the United States has a current account deficit, the U.S. capital account:

Select one:

a. will have a deficit also.

b. will be balanced.

c. will have a surplus.

d. must be falling.

12-

Which of the following is NOT a way that a country can finance a trade deficit?

Select one:

a. increased borrowing

b. sale of assets

c. decreased exports

d. reduction in cash reserves

13-

A trade deficit occurs when the value of a country's:

Select one:

a. imports exceeds the value of its exports.

b. exports exceeds the value of its imports.

c. inflow of foreign capital exceeds the outflow of domestic capital.

d. outflow of domestic capital exceeds its inflow of foreign capital.

14-

Which of the following is a U.S. current account transaction?

Select one:

a. Selling a computer chip to a resident in Europe.

b. Buying stock shares of a Canadian company.

c. Selling U.S. dollars in exchange for euros.

d. A foreign investor's purchase of a manufacturing plant in the United States.

15-

An exchange rate is:

Select one:

a. a yearly summary of all the economic transactions between residents of one country and residents of the rest of the world.

b. the sum of the balance of trade, net income on capital held abroad, and net transfer payments.

c. the price of one currency in terms of another currency.

d. a currency whose value is not pegged but governments will intervene extensively in the market to keep the value within a certain range.

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Economics A175 Chapter 18: Economics_A175_Chapter_18

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