Quiz #3

Circle the correct answer for each of the following statements.

1. In a small open economy when spending is greater than production the economy will run a
a. Trade deficit.
b. Trade surplus.

2. If a small open economy runs a trade deficit then it is also
a. Lending funds to foreign economies.
b. Borrowing funds from foreign economies.

3. In a small open economy, net exports is equal to
a. Investment minus saving.
b. Saving minus investment.

4. When a small open economy runs a trade deficit
a. Investment is greater than saving.
b. Saving is greater than investment.

5. Suppose a small open economy's real interest rate initially equals the world's real interest rate. Then, if the world real interest rate rises relative to this economy's real interest rate then this economy will have a
a. Positive capital outflow.
b. Negative capital outflow.

6. A small open economy initially operates with balanced trade. Holding everything else constant, if this economy decreases government spending then this will result in
a. A trade surplus.
b. A trade deficit.

7. A country's real exchange rate increases. Holding everything else constant, this implies that this country
a. Will export more goods and import fewer goods.
b. Will import more goods and export fewer goods.

8. Suppose the goal of policy makers in an economy is to reduce the NAIRU. Which policy is most likely to achieve this outcome?
a. Policy makers effectively reduce the rate of job finding in the economy.
b. Policy makers effectively reduce the rate of job separation in the economy.

9. Unemployment that is due to wage rigidity is best described as
a. Frictional Unemployment.
b. Structural Unemployment.

10. If the rate of job separation increases holding everything else constant, this will result in
a. A decrease in the unemployment rate.
b. An increase in the unemployment rate.