unit 7 macro

Which of the following is recorded in a country’s balance of payments accounts?

Financial capital flows between the country and the rest of the world

Which of the following transactions is recorded as a credit entry in the country’s current account?

Exports of consumer goods

The table shows some of Country X’s balance of payments data for 2018. Which of the following is true about Country X’s current account balance and financial capital flow?

Country X has a current account deficit of $60 million and has net financial capital inflows.

Suppose that the exchange rate between the United States dollar ($) and the Thai currency, baht (฿), is ฿1=$0.05. Leticia wants to buy a ฿600 souvenir from Thailand. What is the souvenir’s price in dollars?

$30

The table shows the exchange rate for the British pound (£) against the dollar ($) and the euro (€) in 2015 and 2018. Which of the following is true?

The British pound has depreciated against the dollar.

The exchange rate for one Qatari riyal was 0.5 Turkish lira in 2012, and it increased to 1.25 Turkish lira in 2018. Which of the following is true about the value of the Turkish lira in 2018 ?

1 Turkish lira = 0.8 Qatari riyal, and the Turkish lira depreciated.

If the current exchange rate for one Swiss franc is 0.84 euro and the equilibrium exchange rate for one Swiss franc is 0.88 euro, which of the following will occur in the flexible exchange market for the Swiss franc?

The Swiss franc will appreciate.

The graph shows the foreign exchange market for the British pound (GBP). If the exchange rate is $1.70, which of the following is true?

The surplus of British pounds will cause the British pound to depreciate.

Assuming the government of a country imposes a tariff on its imports of foreign goods, what is the likely effect on the country’s currency in foreign exchange markets?

The supply of the currency will decrease and the currency will appreciate.

Assume Country X’s economy is experiencing high rates of inflation. Which of the following policies will control the problem of inflation, and what is the consequent effect on the value of Country X’s currency in foreign exchange markets?

A contractionary monetary policy will increase interest rates, which will cause the currency to appreciate.

Assume that a nation’s government uses an expansionary fiscal policy to restore full employment. What effect will the resulting change in the price level have on the supply and demand of the nation’s currency in the foreign exchange market?

The supply will increase and the demand will decrease.

Which of the following will happen to aggregate demand in the United States if the United States dollar appreciates in foreign exchange markets?

Aggregate demand will decrease because net exports will decrease.

Japan and the United States are trading partners with flexible exchange rates. The currency of the United States is the dollar, and the currency of Japan is the yen. Which of the following changes in the United States will most likely increase aggregate demand in Japan?

An appreciation of the United States dollar relative to the yen

Suppose that Angola’s economy is booming, resulting in an increase in the income of domestic residents. How will the increase in income most likely affect Angolan net exports and the foreign exchange value of the Angolan currency, the kwanza?

Net exports will decrease and the kwanza will depreciate.

How will an increase in private savings in the United States most likely affect financial capital flows and the value of the dollar in foreign exchange markets?

The United States will experience financial capital outflows, and the dollar will depreciate.

Which of the following will most likely cause an inflow of financial capital to Canada?

An increase in the Canadian federal budget deficit

Current Account

net exports + net income from abroad + net unilateral transfers

Which of the following transactions is recorded as a credit entry in the country’s current account in the balance of trade?

exports of consumer goods

Real interest rates in the United States rise

\+ in capital account and - in current account

US exports rise dramatically

\- in capital account and + in current account

If the United States has a trade deficit, what must we have, a Net Capital Inflow or Net Capital Outflow?

net capital inflow

If the United States real interest rate drops from 5 % to -3 %, what will happen to Net Capital Outflow?

increase

If the United States real interest rate drops from 5 % to -3 %, what happened to the amount of exports in the US?

increase

All other things equal, if the US real interest rate goes from 1 percent to 5 percent, what would happen to the desire of foreigners to hold dollar denominated assets?

increased desire

What will higher real US interest rates do to domestic investment? Go down

What will higher real US interest rates do to capital stock ? go down

What will higher real US interest rates do to long run growth ?

go down

What will lower real US interest rates do to domestic investment? Go up

What will lower real US interest rates do to capital stock ? go up

What will lower real US interest rates do to long run growth ?

go up

If a country X imposes a tariff on its imports, how will the supply of its currency and its exchange rate be immediately affected in the foreign exchange rate market?

supply decreases and currency appreciates

Which of the following is an example of foreign direct investment?

A US automobile manufacturer building a steel plant in Russia

What happens when foreigners increase their savings in the US?

it will cause real interest rates to fall

Brazil is known for printing too much money for its economy, creating higher inflation. What will this do to the value of the Brazilian Real versus the USD, will it weaken or strengthen the Real’s purchasing power?

weaken

If the current exchange rate for one Swiss franc is 0.84 euro and the equilibrium exchange rate for one swiss franc is 0.88 euro, which of the following will occur in the flexible exchange market for the Swiss franc?

the swiss franc will appreciate

Imports

goods and services purchased from other countries

Capital inflow

the net inflow of funds into a country; the difference between the inflow of foreign funds to the home country and the total outflow of domestic funds to other countries.

Positive net capital inflow

funds borrowed from foreigners to finance domestic investment

Financial account (capital flows)

funds lent to foreigners to finance foreign investment

Exports

goods and services sold to other countries

Current account

a country’s balance of payments on goods and services plus net international transfer payments and factor income

Foreign exchange rate market

market in which currencies are traded

Factors that change foreign exchange rate graphs

capital flows to highest real interest rate, changes in real income, change in inflation/price level, change in tastes and preferences, and speculation

An appreciation of the US dollar on the foreign exchange market could be caused by a decrease in which of the following?

the united states consumer price index (measuring inflation)

Which of the following will cause the United States dollar to depreciate relative to the euro?

an increase in household income in the us

An increase in Japan's demand for United States goods would cause the value of the dollar to.

appreciate because Japan would be buying more United States dollars

Which of the following best explains why many United States economists support free international trade?

The long-run gains to consumers and some producers exceed the losses to other producers.

If the real interest rate in Country X increases relative to the real interest rate in Country Y and there are no trade barriers between the two countries, then for country X which of the following will be true of its capital flow, the value of its currency, and its exports? Capital flow (inflow), currency (appreciation), exports (decrease)

If a country has a current account deficit, which of the following must be true?

It must show a surplus in its capital account

With an increase in investment demand in the United States, the real interest rate rises. In this situation, the most likely change in the capital stock of the United States and in the international value of the dollar would be which of the following? Both will increase