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ECON102 Study Guide - Final Guide: Foreign Portfolio Investment, Exchange Rate, Real Interest Rate

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salmonwasp417
29 Sep 2016
School
University of Alberta
Department
Economics
Course
ECON102
Professor
Andrew Wong

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ECON102 Full Course Notes
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ECON102 Full Course Notes
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Document Summary

Chapter 12: open-economy macroeconomics - basic concepts net exports = value of country"s exports value of country"s imports ! Taste of consumers for domestic and foreign goods ! Prices of goods at home and abroad ! Exchange rates at which people can use domestic currency to foreign currencies! Income of consumers at home and abroad ! Cost of transporting goods from country to country ! Positive - domestic residents buying more foreign assets than foreigners buying domestic purchase of foreign assets by domestic residents! purchase of domestic assets by foreigners ! assets. capital owing out of the country! Negative - domestic residents are buying less foreign assets than foreigners are buying domestic assets. capital owing into the country ! some important variables that in uence net capital out ow:! Real interest rates being paid on domestic assets! Real interest rates being paid on foreign assets ! Perceived economic and political risks of holding assets abroad!

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Related Questions

An open economy interacts with the rest of the world through its involvement in world markets for goods and services and world financial markets. Although it can often result in an imbalance in these markets, the following identity must remain true:

Net Capital OutflowNet Capital Outflow = = Net ExportsNet Exports

In other words, if a transaction directly affects the left side of this equation, then it must also affect the right side. The following problem will help you understand why this identity must hold.

Suppose you are a software engineer living in the United States, and you just sold your latest product to a Russian consumer for RUB 7,000.

Determine the effects of this transaction on exports, imports, and net exports in the U.S. economy, and enter your results in the following table. If the direction of change is "No change," enter "0" in the Magnitude of Change column.

Hint: The magnitude of change should always be positive, regardless of the direction of change.

Direction of Change Magnitude of Change
(Rubles)
Exports
Increase/no change/decrease
Imports
Increase/no change/decrease
Net Exports Increase/no change/decrease

Because of the identity equation that relates to net exports, the in U.S. net exports is matched by in U.S. net capital outflow. Which of the following is an example of how the United States might be affected in this scenario? Check all that apply.

You store the rubles in your safety deposit box at home.

You purchase RUB 7,000 worth of stock in a Russian corporation.

You buy RUB 7,000 worth of Russian bonds.

Since the United States has negative net foreign​ investment, its

A. net capital flow must be negative.

B. domestic saving must be less than its domestic investment.

C. exports must be greater than its imports.

D. domestic investment must be less than its domestic saving.

Expansionary fiscal policy is less effective in an open economy because

A. increases in the money supply will reduce interest rates and lower the value of the​ dollar, reducing aggregate demand.

B. increases in government spending can increase interest​ rates, which increases the value of the dollar and crowds out net exports.

C. increases in government spending will be partly spent on imported​ goods, which do not benefit the domestic economy.

D. increases in taxes reduce​ consumption, which in turn reduces consumption of imports and increases net exports.

When the Federal reserve uses contractionary monetary policy to reduce​ inflation, it

A. sells treasury securities increasing interest​ rates, leading to a stronger dollar that lowers net exports in an open economy.

B. buys treasury securities decreasing interest​ rates, leading to a weaker dollar that lowers consumption of durables in a closed economy.

C. sells treasury securities decreasing interest​ rates, leading to a stronger dollar that lowers domestic investment in a closed economy.

D. buys treasury securities increasing interest​ rates, leading to a weaker dollar that increases net exports in an open economy.

If a country saves more than it invests​ domestically, then its net foreign investment must be (positive, negative, or zero)?

Urgent! I need help with these questions, please.

1- The GDP of Mexico in current US dollars according to the World Bank was the US $0.683 Trillion in 2000 and had grown to the US $1.151 Trillion in 2015. Calculate the GDP percentage change from 2000 to 2015. Show your work.

2- In the expenditure approach to GDP, government purchases include all spending on goods, services, and transfer payments by government agencies.

A- True
B- False

3- The economy is considered at full employment when:
A. the unemployment rate is zero.
B. structural unemployment is zero.
C. cyclical unemployment is zero.
D. frictional unemployment is zero.

4- Which of the following would be considered 'private investment' in GDP?
A. A computer printer purchased by a law firm
B. A computer printer purchased by a student
C. A computer printer purchased by the St. Louis police department
D. All of these

5- Goods that are not sold during the year are included as part of that year's investment in calculating GDP.
A-True
B- False

6- When the nominal GDP has increased in the United States, we know that:

A- the U.S. price level has increased
B- the U.S. price level has decreased.
C- U.S. output of goods and services has increased.
D- Either U.S. output of goods and services or the price level has increased.
E- Both U.S. output of goods and services and the price level have increased.

7- Fill in the blank: GDP is the total value of ________ produced for the marketplace during a given year, within the nation's borders

A- all goods
B- all goods and services
C- all final goods
D- all final goods and services
E- all final and intermediate goods and services

8- Structural unemployment is considered a microeconomic problem.

A- True
B- False

 

9- The unemployment rate in the United States is defined as the number of unemployed divided by _____.
A- the U.S. population
B- the number of employed plus the number of unemployed
C- the U.S. population over the age of 16
D- the number of employed
E- the number of employed minus the number of unemployed

10- If Americans buy $500 billion worth of foreign goods and services, and foreigners buy $200 billion worth of American goods and services, then net exports for the United States are equal to _____.
A. $100 billion
B. $200 billion
C. -$300 billion
D. $500 billion
E. $700 billion

11- Discouraged workers are people who used to work, but no longer want a job.

A- True
B- False

12- In the expenditure approach, GDP is equal to _____.

A. C + I + G + exports - imports

B. C + I + G

C. C + I + G + exports

D. C + I + G + imports

E. C + I + G + exports + imports

13- U.S. GDP measures the production of goods and services by Americans, regardless of which country they reside in when they produce those goods and services.

A- True
B- False