# University of Lethbridge Department of Economics ECON 1012 Introduction to Macroeconomics Instructor: Michael G. Lanyi

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11 55) The exchange rate is volatile because A) government policy promotes interest rate fluctuation. B) the demand curve for foreign exchange is very flat. C) the demand curve for foreign exchange is very steep. D) the supply curve of dollars is vertical. E) the supply of dollars and demand for dollars are influenced by similar events. 56) The demand curve for dollars shifts rightward if A) the Canadian exchange rate falls. B) the price of Canadian goods and services increases. C) Canadian interest rates rise. D) foreign interest rates rise. E) the expected future value of the dollar falls. 57) The supply curve of dollars shifts rightward if A) the Canadian exchange rate rises. B) the price of Canadian goods and services decreases. C) Canadian interest rates rise. D) foreign interest rates rise. E) none of the above. 58) If the current account is in surplus and the capital account is also in surplus, then the official settlements account balance is A) negative. B) positive. C) probably close to zero, but could be either negative or positive. D) zero. E) equal to the sum of the current account and the capital account. 59) If the current account is in deficit and the capital account is also in deficit, then the official settlements account balance is A) negative. B) positive. C) probably close to zero, but could be either negative or positive. D) zero. E) equal to the sum of the current account and the capital account. 60)NX = A)C + I + G. B)(S + I) - (NT + G). C)(G - T) + (I - S). D)(S - I) + (G - T). E)(T - G) + (S - I). 11

13 65) Refer to Fact What is the current account balance for Ecoland, given the value of net interest income plus net transfers is +3 billion turkies? A) -3 billion turkies B) -6 billion turkies C) +3 billion turkies D) +1 billion turkies E) zero 66) Refer to Fact What is the net exports? A) -2 billion turkies B) -1 billion turkies C) 3 billion turkies D) -3 billion turkies E) 1 billion turkies 67) Refer to Fact What is the imports? A) 13 billion turkies B) 7 billion turkies C) 11 billion turkies D) 9 billion turkies E) 12 billion turkies 68) Refer to Fact What is the amount of saving by the people of Ecoland? A) 8 billion turkies B) 10 billion turkies C) 20 billion turkies D) 6 billion turkies E) 12 billion turkies 69) Refer to Fact What is the amount of net taxes? A) 10 billion turkies B) 12 billion turkies C) 2 billion turkies D) 8 billion turkies E) 14 billion turkies 70) A debtor nation is one that during its entire history has A) lent more to the rest of the world than it has borrowed. B) borrowed more from the rest of the world than it has lent. C) invested more in the rest of the world than has been invested in it. D) a public sector deficit that is larger than its net exports. E) had a government debt. 13

14 71) If Northland is currently a net lender and a debtor nation, A) it has loaned more than it borrowed from the rest of the world this year, but borrowed more than it loaned during its history. B) it has borrowed more from the rest of the world than it loaned this year and also borrowed more than it loaned during its history. C) it has loaned more than it borrowed from the rest of the world this year and has loaned more than it borrowed during its history. D) its accounting system must be in error if it shows the nation to be a net lender and a debtor nation at the same time. E) its debts must be currently growing. 72) Suppose that a country's government expenditures are \$500 billion, net taxes are \$400 billion, saving is \$200 billion, and investment is \$250 billion. The country has a government budget A) surplus and a private sector surplus. B) surplus and a private sector deficit. C) deficit and a private sector surplus. D) deficit and a private sector deficit. E) surplus and a private sector balance. 73) Suppose that a country's government expenditures are \$500 billion, net taxes are \$400 billion, saving is \$200 billion, and investment is \$250 billion. Net exports are a A) surplus of \$150 billion. B) surplus of \$50 billion. C) deficit of \$150 billion. D) deficit of \$50 billion. E) deficit of \$250 billion. 74) Suppose that a country's government expenditures are \$400 billion, net taxes are \$300 billion, saving is \$300 billion, and investment is \$250 billion. There is a private sector A) surplus of \$150 billion. B) surplus of \$50 billion. C) deficit of \$150 billion. D) deficit of \$50 billion. E) deficit of \$250 billion. 75) Suppose that a country's government expenditures are \$400 billion, net taxes are \$300 billion, saving is \$300 billion, and investment is \$250 billion. This country has a government budget A) surplus and a private sector surplus. B) surplus and a private sector deficit. C) deficit and a private sector surplus. D) deficit and a private sector deficit. E) surplus and a private sector balance. 14

15 76) Suppose that a country's government expenditures are \$400 billion, net taxes are \$300 billion, saving is \$300 billion, and investment is \$250 billion. Net exports are in a A) surplus of \$150 billion. B) surplus of \$50 billion. C) deficit of \$150 billion. D) deficit of \$50 billion. E) deficit of \$250 billion. Use the table below to answer the following questions. Table Year Borrowed from Rest of World (billions of dollars) Loaned to Rest of World (billions of dollars) ) Refer to Table If Mengia's official settlement balance was in balance every year, for which year or years can you say for sure there was a current account surplus? A) year 4 only B) year 2 only C) years 2 and 3 D) years 1 and 2 E) years 3 and 4 78) Refer to Table If Mengia's official settlement balance was in surplus every year, for which year or years can you say for sure there was a current account deficit? A) year 1 only B) year 2 only C) years 2 and 3 D) years 1 and 2 E) years 3 and 4 79) Refer to Table If Mengia's official settlement balance was in deficit every year, for which year or years can you say for sure there was a current account surplus? A) year 1 only B) year 2 only C) years 2 and 3 D) years 1 and 2 E) years 3 and 4 80) Refer to Table The country Mengia came into existence at the beginning of year 1. Given the information, in year 4 Mengia is a A) net lender and a creditor nation. B) net lender and a debtor nation. C) net borrower and a creditor nation. D) net borrower and a debtor nation. E) net lender and neither a creditor nor a debtor nation. 15

16 81) Suppose initially Canada has all its international payments accounts in balance (no surplus or deficit). Then Canadian firms increase the amount they export to Japan, and the Japanese finance the increase by borrowing from Canada. In Canada everything else remaining the same there will now be a A) current account surplus and capital account surplus. B) current account surplus and capital account deficit. C) current account deficit and capital account surplus. D) current account deficit and capital account deficit. E) current account deficit and capital account balance. 82) Suppose initially Canada has all its international payments accounts in balance (no surplus or deficit). Then Canadian firms increase the amount they import from Japan, financing that increase by borrowing from Japan. Everything else remaining the same there will now be a current account A) surplus and a capital account surplus. B) surplus and a capital account deficit. C) deficit and a capital account surplus. D) deficit and a capital account deficit. E) surplus and a capital account balance. 83) Which one of the following is a balance of payments account? A) capital account B) foreign exchange account C) saving account D) trade account E) all of the above 84) Which one of the following is a balance of payments account? A) current account B) borrowing account C) official lending account D) net interest account E) public account 85) Since 2000, Canada has been A) a net borrower from the rest of the world. B) a net lender to the rest of the world. C) neither a borrower nor a lender to the rest of the world. D) borrowing and lending in equal amounts with the rest of the world. E) a creditor nation. 86) A creditor nation is a country A) that has contributed money for the advancement of health care in less developed countries. B) that does not borrow money from foreign nations. C) that during its entire history has invested more in the rest of the world than other countries have invested in it. D) that has active monetary policy to ensure adequate loans for housing of the poor. E) whose official settlements account is rising in value. 16

17 87) The change in official Canadian reserves is recorded in the A) current account. B) capital account. C) consumption expenditure account. D) international investment account. E) official settlements account. 88) The current account records A) net exports, net interest income and net transfers. B) net value of Canadian investments and foreign investments. C) current government expenditure. D) current consumption expenditure. E) current investment. 89) The official settlements account measures the A) value of Canadian merchandise purchased by foreigners. B) net value of foreign goods officially purchased by Canada. C) net value of Canadian official exports of services. D) change in the country's holdings of foreign currency. E) change in Canada's net exports. 90) The largest item in the current account is A) exports. B) imports. C) net interest income. D) net transfers. E) foreign investment in Canada. 91) Canada's balance of payments accounts are the A) current account, capital account, and net interest account. B) capital account, official settlements account, and merchandise trade account. C) current account, capital account, and official settlements account. D) official settlements account, current account, and net interest account. E) capital account, current account, and merchandise trade account. 92) The world's largest net borrower and debtor nation,, which borrows to finance. A) the United States; consumption B) the United States; private and public investment C) China; consumption D) China; private and public investment E) Japan; consumption 17

20 103) If a nation's central bank increased domestic interest rates, the nation's exchange rate would change if the country's exchange rate was A) a flexible exchange rate. B) a fixed exchange rate. C) a crawling peg. D) a nominally fixed exchange rate. E) none of the above. 104) China has used a fixed yuan exchange rate and a crawling peg exchange rate. In both cases, China pegs its currency to the A) U.S. dollar. B) Japanese yen. C) euro. D) Mexican peso. E) Russian ruble. 105) If a country's central bank does not intervene in the foreign exchange market, the country has A) a crawling peg exchange rate policy. B) a fixed exchange rate policy. C) a flexible exchange rate policy. D) no exchange rate policy. E) a responsible exchange rate policy. 106) If a country's currency appreciates and its official holdings of foreign currency increase. The central bank is foreign currency to limit the appreciation, and the official settlements account balance is. A) buying; negative B) selling negative C) buying; positive D) selling; positive E) buying; zero 107) One consequence of China operating a crawling peg is that China. A) is accumulating U.S. dollar reserves B) will eventually run out of foreign reserves, and the yuan will depreciate C) will eventually run out of foreign reserves, and the yuan will appreciate D) will become more competitive in the long run E) none of the above 20

21 Answer Key Testname: LAB - CH 25 - FULL SET 1) C 2) D 3) B 4) D 5) E 6) D 7) C 8) D 9) B 10) C 11) A 12) B 13) D 14) C 15) D 16) B 17) D 18) B 19) C 20) A 21) B 22) E 23) D 24) D 25) B 26) C 27) D 28) C 29) A 30) A 31) E 32) A 33) C 34) C 35) B 36) D 37) D 38) C 39) D 40) C 41) D 42) E 43) A 44) E 45) E 46) B 47) C 48) E 49) D 50) D 51) E 52) A 53) E 54) C 55) E 56) C 57) D 58) A 59) B 60) E 61) E 62) E 63) C 64) E 65) E 66) D 67) A 68) B 69) A 70) B 71) A 72) D 73) C 74) B 75) C 76) D 77) A 78) D 79) E 80) B 81) B 82) C 83) A 84) A 85) B 86) C 87) E 88) A 89) D 90) A 91) C 92) B 93) B 94) D 95) A 96) A 97) B 98) B 99) D 100) A 101) B 102) D 103) A 104) A 105) C 106) A 107) A 21

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