1. If a nation is selling more goods and services to foreigners than it is buying from them, then on net it must be buying assets abroad.
a. True
b. False

2. If saving is greater than domestic investment, then:
a. there is a trade deficit and Y > C + I + G.
b. there is a trade deficit and Y < C + I + G.
c. there is a trade surplus and Y > C + I + G.
d. there is a trade surplus and Y < C + I + G.

3. If interest rates rose more in Germany than in the U.S. and other things remained the same, then:
a. U.S. citizens would buy more German bonds and German citizens would buy more U.S. bonds.
b. U.S. citizens would buy more German bonds and German citizens would buy fewer U.S. bonds.
c. U.S. citizens would buy fewer German bonds and German citizens would buy more U.S. bonds.
d. U.S. citizens would buy fewer German bonds and German citizens would buy fewer U.S. bonds.

4. Although trade policies do not affect a country's overall trade balance, they do affect specific firms and industries.
a. True
b. False

5. Trade policies:
a. alter the trade balance because they alter imports of the country that implemented them.
b. alter the trade balance because they alter net capital outflow of the country that implemented them.
c. do not alter the trade balance because they cannot alter the national saving or domestic investment of the country that implements them.
d. do not alter the trade balance because they cannot alter the real exchange rate of the currency of the country that implements them.

6. Clear Brooke Farms, a U.S. manufacturer of frozen vegetarian entrees, sells cases of its product to stores overseas. Its sales:
a. decrease U.S. exports, but increase U.S. net exports.
b. decrease both U.S. exports and U.S. net exports.
c. increase both U.S. exports and U.S. net exports.
d. increase U.S. exports, but decrease U.S. net exports.

7. Because a government budget deficit represents:
a. negative public saving, it increases national saving.
b. negative public saving, it decreases national saving.
c. positive public saving, it increases national saving.
d. positive public saving, it decreases national saving.

8. If it took as many dollars to buy goods in the United States as it did to buy enough currency to buy the same goods in India, the real exchange rate would be computed as how many Indian goods per U.S. goods?
a. One
b. The number of dollars needed to buy U.S. goods divided by the number of rupees needed to buy Indian goods.
c. The number of rupees needed to buy Indian goods divided by the number of dollars needed to buy U.S. goods.
d. None of the choices apply.

9. Both foreign direct investment and foreign portfolio investment by U.S. residents increase U.S. net capital outflow.
a. True
b. False

10. In an open economy, the demand for loanable funds comes from both domestic investment and net capital outflow.
a. True
b. False

11. If the risk of buying U.S. assets rises because it is discovered that lending institutions had not carefully evaluated borrowers prior to lending them funds, then:
a. net capital outflow and the real exchange rate will rise.
b. net capital outflow will rise and the real exchange rate will fall.
c. net capital outflow will fall and the real exchange rate will rise.
d. net capital outflow and the exchange rate will fall.

12. In the open-economy macroeconomic model, the quantity of dollars demanded in the market for foreign-currency exchange:
a. depends on the real exchange rate. The quantity of dollars supplied in the foreign-exchange market depends on the real interest rate.
b. depends on the real exchange rate. The quantity of dollars supplied in the foreign-exchange market depends on the real interest rate.
c. and the quantity of dollars supplied in the market for foreign-currency exchange depend on the real exchange rate.
d. and the quantity of dollars supplied in the market for foreign-currency exchange depend on the real interest rate.

13. In which of the following situations must national saving rise?
a. Both domestic investment and net capital outflow increase.
b. Domestic investment increases and net capital outflow decreases.
c. Domestic investment decreases and net capital outflow increases.
d. Both domestic investment and net capital outflow decrease.

14. What are Argentina's imports?
a. $60 billion
b. $35 billion
c. $40 billion
d. None of the choices apply.

15. When net capital outflow is negative, it means that on net the value of domestic assets purchased by foreigners exceeds the value of foreign assets purchased by domestic residents.
a. True
b. False

16. Jason plans to buy shrimp in Florida and sell them in Ames, Iowa where the price is higher. Jason plans to engage in arbitrage.
a. True
b. False

17. If Japan's national saving exceeds its domestic investment, then Japan has:
a. positive net capital outflows and negative net exports.
b. positive net capital outflows and positive exports.
c. negative net capital outflows and negative net exports.
d. negative net capital outflows and positive net exports.

18. According to the open-economy macroeconomic model, if the United States moved from a government budget deficit to a government budget surplus, U.S. real interest rates would increase and the real exchange rate of the U.S. dollar would appreciate.
a. True
b. False

19. Purchasing-power parity says that the nominal exchange rate must equal the real exchange rate.
a. True
b. False

20. When a country imposes an import quota, its:
a. net exports rise and its real exchange rate appreciates.
b. net exports rise and its real exchange rate depreciates.
c. net exports fall and its real exchange rate depreciates.
d. None of the choices apply.