international economics homework

Econ 335 Homework Set #3 Fall 2015

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. Use the information in the table to answer the following question(s).

Table 9.1

1) Based on Table 9.1, the balance on the current account is 1) _______ A) -200. B) -100. C) 0. D) +200. E) +100. 2) Based on Table 9.1, the balance on the capital account is 2) _______ A) -100. B) +100. C) -200. D) +200. E) 0. 3) If the residents of a country receive income from their foreign investments, it is counted as a 3) _______ A) debit in the current account. B) debit in the capital account. C) credit in the current account. D) debit in either the capital or current account, depending on the type of investment income. E) credit in the capital account. 4) If all government budgets are balanced, and S is greater than I, then 4) _______ A) the net international investment position must be positive. B) the capital account must be negative. C) the net international investment position must be negative. D) the capital account must be positive. E) Both A and B. 5) People sometimes worry that American trade with other countries will lead to large U.S. trade deficits and the movement of massive amounts of American capital out of the country. This worry is unfounded because countries cannot 5) _______ A) spend more than they earn. B) invest more than they save. C) have both current account and capital account deficits at the same time. D) increase savings at the same time that a trade deficit grows. E) increase their trade with other countries without increasing their savings.

Use the following table to answer the next question(s). All values are measured as a percent of GNP.

Table 9.2

Savings by households 5 percent

Savings by businesses 11 percent

Private Investment 16 percent

Net Taxes 11 percent

Government purchases 18 percent

6) Based on Table 9.2, total savings, private plus public, is equal to 6) _______ A) 16 percent of GNP. B) 9 percent of GNP. C) 20 percent of GNP. D) 3 percent of GNP. E) None of the above. 7) Based on Table 9.2, the current account balance is 7) _______ A) +2 percent of GNP. B) -2 percent of GNP. C) +4 percent of GNP. D) -9 percent of GNP. E) None of the above. 8) The Mexican peso crisis of 1994 and 1995 was directly related to 8) _______ A) a large capital account deficit. B) a large current account surplus. C) a large capital account surplus. D) the start of NAFTA. E) an undervalued peso. 9) Which of the following is NOT true about this national income equation: 9) _______ A) A reduction in the trade deficit with one country will simply show up as an increase in a trade deficit with another country. B) For the current account, CA, to improve, we may have to invest less than otherwise would be the case. C) For the current account, CA, to improve, the government may have to run budget surplus. D) For the current account, CA, to improve, we may have to save more to maintain the same amount of investment that includes foreign saving. E) None of the above. 10) One of the problems with excessive debt is that 10) ______ A) if debt service is substantial, schools, health clinics, roads, ports, other infrastructure, and social needs are less likely to be addressed. B) it can intensify and spread a crisis. C) it reduces the quantity of resources available to invest in economic development. D) it worsens the central government's budget position by adding large debt service payments to other budget items. E) All of the above. 11) Suppose the dollar is subject to a floating exchange rate system and that R is the number of dollars per unit of foreign exchange. If R increases, then the dollar 11) ______ A) depreciates. B) is revalued. C) appreciates. D) is devalued. E) Both A and C. 12) All else equal and given the current system of exchange rates, if the United States enters a period of exceptionally strong growth, 12) ______ A) the pressure on the dollar is to revalue. B) the pressure on the dollar is to devalue. C) the pressure on the dollar is to appreciate. D) the pressure on the dollar is to depreciate. E) Both A and D. 13) Suppose that the nominal exchange rate between the U.S. dollar and the Mexican peso is 0.10 dollars per peso. If Mexico's inflation is 10 percent and the United States' inflation is 0 percent, from the U.S. point of view, the real exchange rate 13) ______ A) depreciates to 0.11 dollars per peso. B) appreciates to 0.09 dollars per peso. C) depreciates to 0.09 dollars per peso. D) appreciates to 0.2 dollars per peso. E) appreciates to 0.11 dollars per peso. 14) The Smithsonian Agreement of 1971 was hailed by President Nixon as a fundamental reorganization of the international monetary system. In fact, what it accomplished was 14) ______ A) the revaluation of the dollar. B) the devaluation of the dollar. C) the reduction of the gold content of the dollar. D) the elimination of gold backing for the dollar. E) Both B and C. 15) Which of the following is NOT one of the determinants of the gains of adopting a single currency? 15) ______ A) Widening the common market by allowing other countries to join B) The possibility of factors of production to freely move across borders C) A well-synchronized business cycle involving all member countries D) The willingness and ability of member countries to design policies to address regional imbalances that may develop E) None of the above.

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