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Answerstoquiz 2 Fall 2009

The document contains an economics quiz with multiple choice and fill-in-the-blank questions testing knowledge of topics like exchange rates, trade balances, capital flows, and small open economies. It asks students to define key terms and concepts and apply economic principles in various scenarios.

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19 views2 pages

Answerstoquiz 2 Fall 2009

The document contains an economics quiz with multiple choice and fill-in-the-blank questions testing knowledge of topics like exchange rates, trade balances, capital flows, and small open economies. It asks students to define key terms and concepts and apply economic principles in various scenarios.

Uploaded by

k61.2214520016
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOC, PDF, TXT or read online on Scribd
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Economics 302 Name __________________________________________

Fall 2009
Answers to Quiz #2 TA Name _______________________________________
October 21, 2009 Time of Section __________________________________

(1/2 point for each answer for a total of 5 points) Please fill in the blank for each of the following questions. Make
sure your answer is neatly and legibly written.

1. The ___nominal exchange rate_______ is the relative price of the currency of two countries.

2. __Net capital outflow_____ indicates the amount domestic residents are lending abroad minus the amount
foreigners are lending to us. It is equal to domestic saving minus domestic investment.

3. A ____small open economy____________ is a small part of the world market and thus, by itself, can have
only a negligible effect on the world interest rate.

4. The total expenditure on domestic output is the sum of consumption, investment, and government
purchases, and ____net exports________________.

5. If a country’s exports exceed its imports, it will have a __trade surplus or net capital outflow is positive or
lending to foreigners_________________.

6. The ___real exchange rate________________ is the rate at which one can trade the goods of one country
for the goods of another country. More specifically, it measures the number of foreign goods one can
exchange for one comparable domestic good.

7. If there is free access to world financial markets, investment in all small open economies will depend on
____world real interest rate_______________________.

8. If a country’s exports are less than its imports, then the country’s net capital outflows are
__negative________.

9. An increase in a country’s real exchange rate will make domestically produced goods __relatively more
expensive___ (relatively cheaper, relatively more expensive) than foreign produced goods.

10. When a country lends funds to another country, this implies that its net exports are
___positive________________.

(1 point per question for a total of 5 points) Answer the following multiple choice questions by circling the letter of
your answer.

1. As the real exchange rate of the U.S. dollar increases


a. Foreign goods become cheaper to U.S. citizens.
b. U.S net exports fall.
c. The U.S. trade surplus decreases or the U.S. trade deficit increases.
d. Answers (a), (b), and (c) are all correct answers.

2. The FALSE statement is below:


a. Net capital outflow is the excess of domestic saving over domestic investment.
b. The trade surplus and net capital outflow must both equal zero.
c. According to the national income accounts identity, net capital outflow must equal net exports.
d. According to the national income accounts identity, net capital outflow must equal the trade
surplus (or the trade balance).

3. If domestic investment exceeds domestic saving, one would observe


a. Borrowing from abroad.
b. A government budget deficit.
c. A trade deficit.
d. Answers (a) and (c) are both correct.

4. With a constant world interest rate, full employment, and an initial trade surplus of zero, a tax cut in a small
open economy will result in
a. A trade deficit for the small open economy.
b. A reduction in national saving for the small open economy.
c. Negative net capital outflow for the small open economy.
d. Answers (a), (b) and (c) are all correct answers.

5. Suppose that several large foreign countries decrease government spending, leading to an increase in the
level of world savings. In a small open economy, which of the following is most likely to occur?
a. A decrease in saving.
b. A decrease in investment.
c. An increase in the trade deficit (or a reduction in the trade surplus).
d. An increase in net capital outflow.

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