Chapters 31 and 32 Practice Test

Multiple Choice Identify the choice that best completes the statement or answers the question. ____ 1. A country purchases $3 billion of foreign-produced goods and services and sells $2 billion dollars of domestically produced goods and services to foreign countries. It has a. exports of $3 billion and a trade surplus of $1 billion. b. exports of $3 billion and a trade deficit of $1 billion. c. exports of $2 billion and a trade surplus of $1 billion. d. exports of $2 billion and a trade deficit of $1 billion. 2. A firm in India hires a U.S. firm to provide economic forecasts. By itself this transaction a. increases U.S. exports and so increases the U.S. trade balance. b. increases U.S. exports and so decreases the U.S. trade balance. c. increases U.S. imports and so increases the U.S. trade balance. d. increases U.S. imports and so decreases the U.S. trade balance. 3. 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. 4. Which of the following is always correct? a. Y - I = NCO c. NX = I b. NCO = NX d. All of the above are correct. 5. A U.S. firm exchanges $$ for yen and uses them to buy Japanese goods. 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. 6. A country has $1.5 billion dollars of domestic investment and net exports of $2 billion. What is its saving? a. -$.5 billion b. $5 billion c. $1.5 billion d. $3.5 billion 7. A country has domestic investment of $30 billion and net capital outflows of -$20 billion. What is the countrys saving? a. -$50 billion b. -$10 billion c. $10 billion d. $50 billion 8. Suppose that because of legal and financial reforms in the country of Belats, foreigners find business opportunities there more attractive. We would expect the more attractive opportunities would cause Belats a. net exports and net capital outflows to increase. b. net exports to increase and its net capital outflows to decrease. c. net exports and net capital outflow to decrease. d. net exports to decrease and its net capital outflow to increase. 9. If the exchange rate changes from 135 Kazakhstan tenge per $ to 150 Kazakhstan tenge per $, the $ has a. appreciated. Other things the same, it now takes fewer dollars to buy Kazakhstani goods. b. appreciated. Other things the same, it now takes more dollars to buy Kazakhstani goods. c. depreciated. Other things the same, it now takes fewer dollars to buy Kazakhstani goods. d. depreciated. Other things the same, it now takes more dollars to buy Kazakhstani goods. 10. You are vacationing in France. After a few days the $ depreciates against the euro. This depreciation means a. the dollar buys more euros. It will take fewer dollars to buy a good that costs 50 euros.

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b. the dollar buys more euros. It will take more dollars to buy a good that costs 50 euros. c. the dollar buys fewer euros. It will take fewer dollars to buy a good that costs 50 euros. d. the dollar buys fewer euros. It will take more dollars to buy a good that costs 50 euros. If a bushel of rice costs $10 in the U.S. and the nominal exchange rate is 2 Thai bhat per dollar, what is the price of rice in Thailand if purchasing-power parity holds? a. 20 bhat b. 10 bhat c. 5 bhat d. 2 bhat In the open-economy macroeconomic model, the supply of loanable funds equals a. national saving. The demand for loanable funds comes from domestic investment + net capital outflow. b. national saving. The demand for loanable funds comes only from domestic investment. c. private saving. The demand for loanable funds comes from domestic investment + net capital outflow. d. private saving. The demand for loanable funds comes only from domestic investment. People in the U.S. would want to save more if the real interest rate in the U.S. a. fell. The increased saving would increase the quantity of loanable funds demanded. b. fell. The increased saving would increase the quantity of loanable funds supplied. c. rose. The increased saving would increase the quantity of loanable funds demanded. d. rose. The increased saving would increase the quantity of loanable funds supplied. If the quantity of loanable funds supplied exceeds the quantity of loanable funds demanded, there is a a. surplus and the real interest rate will rise. b. surplus and the real interest rate will fall. c. shortage and the real interest rate will rise. d. shortage and the real interest rate will fall. Other things the same, an increase in the U.S. real interest rate a. raises net capital outflow, so the quantity of loanable funds supplied increases. b. raises net capital outflow, so the quantity of loanable funds demanded increases. c. lowers net capital outflow, so the quantity of loanable funds supplied decreases. d. lowers net capital outflow, so the quantity of loanable funds demanded decreases. If the supply of loanable funds shifts right, then a. the real interest rate and the equilibrium quantity of loanable funds both increase. b. the real interest rate increases and the equilibrium quantity of loanable funds decreases. c. the real interest rate decreases and the equilibrium quantity of loanable funds increases. d. the real interest rate and the equilibrium quantity of loanable funds both decrease. If for some reason foreign citizens want to purchase more U.S. goods and services at each exchange rate, then a. the demand for dollars in the market for foreign-currency exchange shifts right. b. the demand for dollars in the market for foreign-currency exchange shifts left. c. the supply of dollars in the market for foreign-currency exchange shifts right. d. the supply of dollars in the market for foreign-currency exchange shifts left. If the demand for dollars in the market for foreign-currency exchange shifts left, then the exchange rate a. rises and the quantity of dollars exchanged rises. b. rises and the quantity of dollars exchanged does not change. c. falls and the quantity of dollars exchanged falls. d. falls and the quantity of dollars exchanged does not change. In the open-economy macroeconomic model, if net capital outflows increase then a. the demand for dollars in the market for foreign-currency exchange shifts right. b. the demand for dollars in the market for foreign-currency exchange shifts left. c. the supply of dollars in the market for foreign-currency exchange shifts right. d. the supply of dollars in the market for foreign-currency exchange shifts left. In the open-economy macroeconomic model, if a countrys interest rate falls then

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a. its net capital outflow and its net exports rise. b. its net capital outflow rises and its net exports fall. c. its net capital outflow falls and its net exports rise. d. its net capital outflow and its net exports fall. In the open-economy macroeconomic model, if a countrys interest rate rises, then its a. net exports and real exchange rate rise. b. net exports rise and its real exchange rate falls. c. net exports fall and its real exchange rate rises. d. net exports and real exchange rate fall. In the open-economy macroeconomic model if investment demand for loanable funds shifts right, then a. net exports and the real exchange rate rise. b. net exports rise and the real exchange rate falls. c. net exports fall and the real exchange rate rises. d. net exports and the real exchange rate fall. If a country reduces its budget deficit then its a. net capital outflow and the real exchange rate of its currency both rise. b. net capital outflow rises and the real exchange rate of its currency falls. c. net capital outflow falls and the real exchange rate of its currency rises. d. net capital outflow and the real exchange rate of its currency falls. If a country raises its budget deficit, then in the market for foreign-currency exchange a. the supply of its currency shifts left. b. the supply of its currency shifts right. c. the demand for its currency shifts left. d. the demand for its currency shifts right. If a country institutes policies that lead domestic firms to desire more capital stock a. net capital outflows rise and the real exchange rate rises. b. net capital outflows rise and the real exchange rate falls. c. net capital outflows fall and the real exchange rate rises. d. net capital outflows and the real exchange rate falls. If a country removed an import quota on cotton, then overall that countrys a. exports and imports would rise. b. exports would rise and imports would fall. c. exports would fall and imports would rise. d. exports and imports would fall. If the U.S. imposed an import quota on apples, then which of the following would rise? a. the U.S. real exchange rate and U.S. net exports b. the U.S. real exchange rate but not U.S. net exports c. U.S. net exports but not the U.S. real exchange rate d. neither the U.S. real exchange rate nor U.S. net exports Suppose a country experiences capital flight. Of the demand for loanable funds and the supply of currency in the market for foreign-currency exchange, which shifts right? a. only the demand for loanable funds b. only the supply of its currency in the market for foreign-currency exchange c. both curves shift right d. neither curve shifts right Suppose a country experiences capital flight. Which of the following would rise? a. its real interest rate and its real exchange rate b. its real interest rate but not its real exchange rate c. its real exchange rate but not its real interest rate

d. neither its real interest rate nor its foreign exchange rate ____ 30. When a country experiences capital flight its a. net capital outflow increases and its real exchange rate rises. b. net capital outflow increases and its real exchange rate falls. c. net capital outflow decreases and its real exchange rate rises. d. net capital outflow decreases and its real exchange rate falls.

Chapters 31 and 32 Practice Test Answer Section

MULTIPLE CHOICE 1. ANS: NAT: MSC: 2. ANS: NAT: MSC: 3. ANS: NAT: MSC: 4. ANS: NAT: MSC: 5. ANS: NAT: MSC: 6. ANS: NAT: MSC: 7. ANS: NAT: MSC: 8. ANS: NAT: MSC: 9. ANS: NAT: MSC: 10. ANS: NAT: MSC: 11. ANS: NAT: MSC: 12. ANS: NAT: MSC: 13. ANS: NAT: MSC: 14. ANS: NAT: MSC: 15. ANS: D Analytic Applicative A Analytic Definitional A Analytic Definitional B Analytic Definitional B Analytic Interpretive D Analytic Applicative C Analytic Applicative C Analytic Analytical A Analytic Interpretive D Analytic Interpretive A Analytic Applicative A Analytic Definitional D Analytic Definitional B Analytic Analytical D PTS: 1 DIF: 2 LOC: International trade and finance PTS: 1 DIF: 1 LOC: International trade and finance PTS: 1 DIF: 2 LOC: International trade and finance PTS: 1 DIF: 1 LOC: International trade and finance PTS: 1 DIF: 2 LOC: International trade and finance PTS: 1 DIF: 2 LOC: International trade and finance PTS: 1 DIF: 2 LOC: International trade and finance PTS: 1 DIF: 3 LOC: International trade and finance PTS: 1 DIF: 1 LOC: International trade and finance PTS: 1 DIF: 1 LOC: International trade and finance PTS: 1 DIF: 1 LOC: International trade and finance PTS: 1 DIF: 2 LOC: International trade and finance PTS: 1 DIF: 1 LOC: International trade and finance PTS: 1 DIF: 2 LOC: International trade and finance PTS: 1 DIF: 1 REF: 31-1 TOP: Exports | Imports | Trade balance REF: 31-1 TOP: Exports | Imports | Trade balance REF: 31-1 TOP: Net exports | Net capital outflow REF: 31-1 TOP: Net capital outflow | Net exports REF: 31-1 TOP: Net exports | Net capital outflow REF: 31-1 TOP: Net exports | Saving REF: 31-1 TOP: Net exports | Saving REF: 31-1 TOP: Net exports | Net capital outflow REF: 31-2 TOP: Nominal exchange rates REF: 31-2 TOP: Nominal exchange rates REF: 31-3 TOP: Purchasing-power parity REF: 32-1 TOP: Market for loanable funds REF: 32-1 TOP: Market for loanable funds REF: 32-1 TOP: Market for loanable funds REF: 32-1

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NAT: MSC: ANS: NAT: MSC: ANS: NAT: TOP: ANS: NAT: TOP: ANS: NAT: TOP: ANS: NAT: TOP: ANS: NAT: TOP: ANS: NAT: TOP: ANS: NAT: TOP: ANS: NAT: TOP: ANS: NAT: TOP: ANS: NAT: TOP: ANS: NAT: TOP: ANS: NAT: TOP: ANS: NAT: TOP: ANS: NAT: TOP:

Analytic LOC: International trade and finance Applicative C PTS: 1 DIF: 2 Analytic LOC: International trade and finance Analytical A PTS: 1 DIF: 1 Analytic LOC: International trade and finance Market for foreign currency exchange D PTS: 1 DIF: 2 Analytic LOC: International trade and finance Market for foreign currency exchange C PTS: 1 DIF: 1 Analytic LOC: International trade and finance Market for foreign currency exchange A PTS: 1 DIF: 2 Analytic LOC: International trade and finance Open-economy macroeconomic model C PTS: 1 DIF: 2 Analytic LOC: International trade and finance Open-economy macroeconomic model C PTS: 1 DIF: 2 Analytic LOC: International trade and finance Open-economy macroeconomic model B PTS: 1 DIF: 2 Analytic LOC: International trade and finance Budget deficits | Open-economy macroeconomic model A PTS: 1 DIF: 2 Analytic LOC: International trade and finance Budget deficits | Open-economy macroeconomic model C PTS: 1 DIF: 3 Analytic LOC: International trade and finance Open-economy macroeconomic model A PTS: 1 DIF: 3 Analytic LOC: International trade and finance Open-economy macroeconomic model | Trade policy B PTS: 1 DIF: 2 Analytic LOC: International trade and finance Open-economy macroeconomic model C PTS: 1 DIF: 2 Analytic LOC: International trade and finance Capital flight | Open-economy macroeconomic model B PTS: 1 DIF: 2 Analytic LOC: International trade and finance Capital flight | Open-economy macroeconomic model B PTS: 1 DIF: 2 Analytic LOC: International trade and finance Capital flight | Open-economy macroeconomic model

TOP: Market for loanable funds REF: 32-1 TOP: Market for loanable funds REF: 32-1 MSC: Applicative REF: 32-1 MSC: Applicative REF: 32-1 MSC: Applicative REF: 32-2 MSC: Analytical REF: 32-2 MSC: Analytical REF: 32-2 MSC: Analytical REF: 32-3 MSC: Analytical REF: 32-3 MSC: Applicative REF: 32-3 MSC: Analytical REF: 32-3 MSC: Applicative REF: 32-3 MSC: Applicative REF: 32-3 MSC: Applicative REF: 32-3 MSC: Analytical REF: 32-3 MSC: Analytical