This quiz works best with JavaScript enabled. Home > Cbse > Class 12 > Commerce > Economics Macro Economics > Class 12 Economics (Macro Economics) Chapter 6 Open Economy Macroeconomics – Quiz 1 🏠 Homepage 📘 Download PDF Books 📕 Premium PDF Books Class 12 Economics (Macro Economics) Chapter 6 Open Economy Macroeconomics Quiz 1 (60 MCQs) Quiz Instructions Select an option to see the correct answer instantly. 1. Brad, a U.S. resident, builds and operates a boxing gym in Thailand. The purchase represents A) U.S. foreign direct investment and U.S. domestic investment. B) U.S. foreign portfolio investment and U.S. domestic investment. C) Investment for Brad and U.S. foreign direct investment. D) Investment for Brad and U.S. foreign portfolio investment. Show Answer Correct Answer: C) Investment for Brad and U.S. foreign direct investment. 2. Dollarization by a foreign country is another form of: A) Maintaining monetary policy independence. B) Maintaining a balanced government budget. C) Fixing an exchange rate. D) Balancing a country's current account. Show Answer Correct Answer: C) Fixing an exchange rate. 3. If the nominal exchange rate e is foreign currency per dollar, the domestic price is P, and the foreign price is P*, the real exchange rate is defined as A) E(P*/P). B) E(P/P*). C) E + P/P. D) E-P/P*. Show Answer Correct Answer: B) E(P/P*). 4. The value of Peru's exports minus the value of Peru's imports is called A) Peru's foreign portfolio investment. B) Peru's net exports. C) Peru's foreign direct investment. D) Peru's net imports. Show Answer Correct Answer: B) Peru's net exports. 5. What is the significance of the intersection of the EE and YY curves? A) It indicates a budget deficit. B) It indicates external surplus. C) It indicates internal surplus. D) It indicates simultaneous internal and external balance. Show Answer Correct Answer: D) It indicates simultaneous internal and external balance. 6. An open economy's GDP is always given by A) Y = C + I + G + S. B) Y = C + I + G + NX. C) Y = C + I + G + T. D) Y = C + I + G. Show Answer Correct Answer: B) Y = C + I + G + NX. 7. Which of the following statements is true about a country with a trade deficit? A) Net exports are negative. B) Net exports are positive. C) Net capital outflow must be positive. D) Exports exceed imports. Show Answer Correct Answer: A) Net exports are negative. 8. What is the main purpose of direct controls in an economy? A) To stimulate growth. B) To regulate trade and capital flows. C) To increase inflation. D) To reduce government spending. Show Answer Correct Answer: B) To regulate trade and capital flows. 9. What is the primary focus of the BP curve? A) Equilibrium in the money market. B) Equilibrium in the balance of payments. C) Equilibrium in government spending. D) Equilibrium in the goods market. Show Answer Correct Answer: B) Equilibrium in the balance of payments. 10. If a country has a trade deficit A) It has positive net exports and positive net capital outflow. B) It has positive net exports and negative net capital outflow. C) It has negative net exports and positive net capital outflow. D) It has negative net exports and negative net capital outflow. Show Answer Correct Answer: C) It has negative net exports and positive net capital outflow. 11. The nominal exchange rate is the A) Nominal interest rate in one country divided by the nominal interest rate in the other country. B) The real exchange rate minus the inflation rate. C) The ratio of a foreign country's interest rate to the domestic interest rate. D) Rate at which a person can trade the currency of one country for another. Show Answer Correct Answer: D) Rate at which a person can trade the currency of one country for another. 12. Suppose the real exchange rate is 1/2 gallon of Canadian gasoline per gallon of U.S. gasoline, a gallon of U.S. gasoline costs $ 5.00 U.S., and a gallon of Canadian gas costs 8 Canadian dollars. What is the nominal exchange rate? A) .80 Canadian dollars per U.S. dollar. B) 1.25 Canadian dollars per U.S. dollar. C) 1.60 Canadian dollars per U.S. dollar. D) None of the above is correct. Show Answer Correct Answer: B) 1.25 Canadian dollars per U.S. dollar. 13. Other things the same, if a country has a trade deficit and saving rises, A) Net capital outflow rises, so the trade deficit increases. B) Net capital outflow rises, so the trade deficit decreases. C) Net capital outflow falls, so the trade deficit increases. D) Net capital outflow falls, so the trade deficit decreases. Show Answer Correct Answer: B) Net capital outflow rises, so the trade deficit decreases. 14. Which of the following people or firms would be pleased by a depreciation of the dollar? A) An Italian importer of U.S. steel. B) A U.S. importer of Russian vodka. C) A French exporter of wine to the United States. D) A U.S. tourist traveling in Europe. Show Answer Correct Answer: A) An Italian importer of U.S. steel. 15. If the United States saves $ 1, 000 billion and U.S. net capital outflow is-$ 200 billion, U.S.domestic investment is A) $ 800 billion. B) $ 1, 200 billion. C) $ 200 billion. D) -$ 200 billion. Show Answer Correct Answer: B) $ 1, 200 billion. 16. If Germany purchased more goods and services abroad than it sold abroad last year, then it had A) Positive net exports which is a trade deficit. B) Positive net exports which is a trade surplus. C) Negative net exports which is a trade surplus. D) Negative net exports which is a trade deficit. Show Answer Correct Answer: D) Negative net exports which is a trade deficit. 17. Paul, a U.S. citizen, opens a textbook company in Brazil. His expenditures A) Decrease U.S. and Brazilian net foreign investment. B) Increase U.S. and Brazilian net foreign investment. C) Increase U.S. net foreign investment, but decrease Brazilian net foreign investment. D) Decrease U.S. net foreign investment, but increase Brazilian net foreign investment. Show Answer Correct Answer: C) Increase U.S. net foreign investment, but decrease Brazilian net foreign investment. 18. During some year a country had exports of $ 30 billion, imports of $ 40 billion, and domestic investment of $ 60 billion. What was its saving during the year? A) $ 10 billion. B) -$ 10 billion. C) $ 70 billion. D) $ 50 billion. Show Answer Correct Answer: B) -$ 10 billion. 19. In the Mundell-Fleming model, all of the following are true EXCEPT: A) The intersection of the IS and LM curves determine the equilibrium exchange rate. B) The BP curves position is determined by the exchange rate. C) The policy choice between fixed and floating exchange rates shifts the BP curve. D) The extent of capital mobility determines the slope of the BP curve. Show Answer Correct Answer: A) The intersection of the IS and LM curves determine the equilibrium exchange rate. 20. What does the term 'expenditure-switching policies' refer to? A) Policies that alter the exchange rate. B) Policies that increase taxes. C) Policies that change government spending. D) Policies that reduce inflation. Show Answer Correct Answer: A) Policies that alter the exchange rate. 21. The real exchange rate is the nominal exchange rate, defined as foreign currency per dollar, times A) U.S. prices minus foreign prices. B) Prices in the United States divided by foreign prices. C) Foreign prices divided by U.S. prices. D) None of the above is correct. Show Answer Correct Answer: B) Prices in the United States divided by foreign prices. 22. Assuming imperfect capital mobility and a fixed exchange rate, then an expansionary monetary policy A) Results in a balance of payments surplus without a conflict between domestic goals and external balance. B) Results in a balance of payments deficit with a potential conflict between domestic goals and external balance. C) Will shift the LM curve to the left. D) Will have no effect on the balance of payments. Show Answer Correct Answer: B) Results in a balance of payments deficit with a potential conflict between domestic goals and external balance. 23. Other things the same, if the exchange rate changes from 30 Thai bhat per dollar to 25 Thai bhat per dollar, then the dollar has A) Appreciated and so buys more Thai goods. B) Appreciated and so buys fewer Thai goods. C) Depreciated and so buys more Thai goods. D) Depreciated and so buys fewer Thai goods. Show Answer Correct Answer: A) Appreciated and so buys more Thai goods. 24. A Mexican firm exchanges Pesos for U.S. dollars and then uses these dollars to purchase corn from the U.S. This transaction A) Increases Mexican net capital outflow, and increases U.S. net exports. B) Increases Mexican net capital outflow, and decreases U.S. net exports. C) Decreases Mexican net capital outflow, and increases U.S. net exports. D) Decreases Mexican net capital outflow, and decreases U.S. net exports. Show Answer Correct Answer: A) Increases Mexican net capital outflow, and increases U.S. net exports. 25. Net capital outflow measures A) Foreign assets held by domestic residents minus domestic assets held by foreign residents. B) The imbalance between the amount of foreign assets bought by domestic residents and the amount of domestic assets bought by foreigners. C) The imbalance between the amount of foreign assets bought by domestic residents and the amount of domestic goods and services sold to foreigners. D) None of the above is correct. Show Answer Correct Answer: B) The imbalance between the amount of foreign assets bought by domestic residents and the amount of domestic assets bought by foreigners. 26. If a country has $ 2.4 billion of net exports and purchases $ 4.8 billion of goods and services from foreign countries, then it has A) $ 7.2 billion of exports and $ 4.8 billion of imports. B) $ 7.2 billion of imports and $ 4.8 billion of exports. C) $ 4.8 billion of exports and $ 2.4 billion of imports. D) $ 4.8 billion of imports and $ 2.4 billion of exports. Show Answer Correct Answer: D) $ 4.8 billion of imports and $ 2.4 billion of exports. 27. If a country had a trade surplus of $ 50 billion and then its exports rose by $ 30 billion and its imports rose by $ 20 billion, its net exports would now be A) $ 0 billion. B) $ 20 billion. C) $ 40 billion. D) $ 60 billion. Show Answer Correct Answer: C) $ 40 billion. 28. If Japan exports more than it imports, A) Japan's net exports are negative. B) Japan's net capital outflow must be positive. C) Japan is running a trade deficit. D) Japan's net capital outflow must be negative. Show Answer Correct Answer: B) Japan's net capital outflow must be positive. 29. Which of the following is a characteristic of the IS curve? A) Vertical. B) Horizontal. C) Negatively inclined. D) Positively inclined. Show Answer Correct Answer: C) Negatively inclined. 30. Which of the following products would likely be the least accurate if used to calculatepurchasing-power parity? A) Gold. B) Diamonds. C) Dental services. D) Automobiles. Show Answer Correct Answer: C) Dental services. 31. Other things the same, if the exchange rate changes from .30 Kuwaiti dinar per dollar to .35 Kuwaiti dinar per dollar, then the dollar has A) Appreciated and so buys more Kuwaiti goods. B) Appreciated and so buys fewer Kuwaiti goods. C) Depreciated and so buys more Kuwaiti goods. D) Depreciated and so buys fewer Kuwaiti goods. Show Answer Correct Answer: A) Appreciated and so buys more Kuwaiti goods. 32. What is the main disadvantage of using direct controls to achieve balance? A) They are easy to implement. B) They require no government intervention. C) They are always effective. D) They can interfere with market mechanisms. Show Answer Correct Answer: D) They can interfere with market mechanisms. 33. Which of the following is an example of foreign direct investment? A) McDonald's builds a restaurant in Moscow. B) General Motors buys stock in Volvo. C) General Motors buys steel from Japan. D) Columbia Pictures sells the rights to a movie to a Russian movie studio. Show Answer Correct Answer: A) McDonald's builds a restaurant in Moscow. 34. What is the relationship between fiscal policy and internal balance? A) Fiscal policy is irrelevant. B) Fiscal policy has no impact on employment. C) Fiscal policy only affects external balance. D) Fiscal policy is used to achieve internal balance. Show Answer Correct Answer: D) Fiscal policy is used to achieve internal balance. 35. International trade is of major importance for understanding A) The nature of inflation. B) The basics of the natural unemployment rate. C) Macroeconomics in closed economies. D) None of the above is correct. Show Answer Correct Answer: D) None of the above is correct. 36. Empirically, there is a close positive relationship between domestic savings and investment. This is consistent with what we should expect to observe in A) A closed economy. B) The Mundell-Flemming model with perfect capital mobility. C) The Mundell-Flemming model with perfect capital mobility and flexible exchange rates. D) The Mundell-Flemming model with perfect capital mobility and fixed exchange rates. E) None of the above. Show Answer Correct Answer: A) A closed economy. 37. What happens to the BP curve when a nation devalues its currency? A) It shifts up. B) It remains unchanged. C) It becomes vertical. D) It shifts down. Show Answer Correct Answer: D) It shifts down. 38. A U.S. firm buys wool from Australia with U.S. currency. The Australia firm then uses this money to buy electric shears from a U.S. firm. Which of the following increases? A) Australian net capital outflow and Australian net exports. B) Only Australian net exports. C) Only Australian net capital outflow. D) Neither Australian net exports nor Australian capital outflow. Show Answer Correct Answer: A) Australian net capital outflow and Australian net exports. 39. Assuming perfect capital mobility and flexible exchange rates, then A) Monetary policy is ineffective while fiscal policy is highly effective. B) Fiscal policy is completely ineffective while monetary policy is highly effective. C) Both monetary policy and fiscal policy are effective. D) Monetary policy is less effective than fiscal policy. Show Answer Correct Answer: B) Fiscal policy is completely ineffective while monetary policy is highly effective. 40. In Ireland, a pint of beer costs 2.2 Irish pounds. In Australia, a pint of beer costs 4 Australian dollars. If the exchange rate is .5 pounds per Australian dollar, what is the real exchange rate? A) 3.64 pints of Irish beer per pint of Australian beer. B) .91 pints of Irish beer per pint of Australian beer. C) 1.1 pint of Irish beer per pint of Australian beer. D) 4.4 pints of Irish beer per pint of Australian beer. Show Answer Correct Answer: C) 1.1 pint of Irish beer per pint of Australian beer. 41. Refer to Table 31-1. What are Argentina's exports? A) $ 60 billion. B) $ 35 billion. C) $ 10 billion. D) None of the above are correct. Show Answer Correct Answer: A) $ 60 billion. 42. If the nominal exchange rate between British pounds and dollars is 0.5 pound per dollar, howmany dollars can you get for a British pound? A) 2 dollars. B) 0.5 of a dollar. C) 1 dollar. D) 1.5 dollars. Show Answer Correct Answer: A) 2 dollars. 43. In an open economy, gross domestic product equals $ 1, 650 billion, government expenditure equals $ 250 billion, and savings equals $ 550 billion. What is consumption expenditure? A) $ 250 billion. B) $ 550 billion. C) $ 300 billion. D) $ 850 billion. Show Answer Correct Answer: D) $ 850 billion. 44. If P = domestic prices, P* = foreign prices, and e is the exchange rate, which of the following is implied by purchasing-power parity? A) P = e/P*. B) E = P*/P. C) 1 = e/P*. D) None of the above is correct. Show Answer Correct Answer: B) E = P*/P. 45. A Japanese firm buys lumber from the United States and pays for it with yen. Other things the same, Japanese A) Net exports increase, and U.S. net capital outflow increases. B) Net exports increase, and U.S. net capital outflow decreases. C) Net exports decrease, and U.S. net capital outflow increases. D) Net exports decrease, and U.S. net capital outflow decreases. Show Answer Correct Answer: A) Net exports increase, and U.S. net capital outflow increases. 46. When a country's central bank decreases the money supply, its price level A) Rises and its currency depreciates relative to other currencies in the world. B) Falls and its currency depreciates relative to other currencies in the world. C) Rises and its currency appreciates relative to other currencies in the world. D) Falls and its currency appreciates relative to other currencies in the world. Show Answer Correct Answer: D) Falls and its currency appreciates relative to other currencies in the world. 47. Which policy is considered an expenditure-changing policy? A) Quotas. B) Fiscal policy. C) Tariffs. D) Direct controls. Show Answer Correct Answer: B) Fiscal policy. 48. Which of the following is a characteristic of the YY curve? A) Vertical. B) Horizontal. C) Negatively inclined. D) Positively inclined. Show Answer Correct Answer: C) Negatively inclined. 49. Each of the following is a reason why the U.S. economy continues to engage in greateramounts of international trade except which one? A) There are larger cargo ships and airplanes. B) High-technology goods are more valuable per pound and, thus, more likely to be traded. C) There have been improvements in technology that have improved telecommunicationsbetween countries. D) NAFTA imposes requirements for increased trade between countries in North America. Show Answer Correct Answer: D) NAFTA imposes requirements for increased trade between countries in North America. 50. A country's trade balance A) Must be zero. B) Is greater than zero only if exports are greater than imports. C) Is greater than zero only if imports are greater than exports. D) Must be greater than zero. Show Answer Correct Answer: B) Is greater than zero only if exports are greater than imports. 51. Which of the following statements is (are) correct? The Mundell-Fleming model is A) A. a new closed-economy model. B) B. implicitly assumes a fixed domestic price level. C) C. is an open-economy version of the IS-LM model. D) Both b and c. Show Answer Correct Answer: D) Both b and c. 52. Other things the same, if the dollar depreciates relative to the Japanese yen, then A) The exchange rate falls. It will cost fewer yen to travel in the U.S. B) The exchange rate falls. It will cost more yen to travel in the U.S. C) The exchange rate rises. It will cost fewer yen to travel in the U.S. D) The exchange rate rises. It will cost more yen to travel in the U.S. Show Answer Correct Answer: C) The exchange rate rises. It will cost fewer yen to travel in the U.S. 53. Which of the following equations is always correct in an open economy? A) I = S + NX. B) I = S-NCO. C) I = Y-C. D) I = S. Show Answer Correct Answer: A) I = S + NX. 54. A country has a trade deficit. Its A) Net capital outflow must be positive, and saving is larger than investment. B) Net capital outflow must be positive and saving is smaller than investment. C) Net capital outflow must be negative and saving is larger than investment. D) Net capital outflow must be negative and saving is smaller than investment. Show Answer Correct Answer: B) Net capital outflow must be positive and saving is smaller than investment. 55. What does the EE curve in the Swan diagram represent? A) Private-sector balance. B) Government expenditure. C) Internal balance. D) External balance. Show Answer Correct Answer: D) External balance. 56. What is the effect of a tight monetary policy on interest rates? A) It raises interest rates. B) It has no effect. C) It lowers interest rates. D) It makes interest rates volatile. Show Answer Correct Answer: A) It raises interest rates. 57. Suppose a U.S. resident buys a Jaguar automobile from Great Britain and the British exporteruses the receipts to buy stock in General Electric. Which of the following statements is truefrom the perspective of the United States? A) Net exports rise, and net capital outflow falls. B) Net exports fall, and net capital outflow falls. C) Net exports rise, and net capital outflow rises. D) Net exports fall, and net capital outflow rises. Show Answer Correct Answer: B) Net exports fall, and net capital outflow falls. 58. Suppose the money supply in Mexico grows more quickly than the money supply in theUnited States. We would expect that A) The peso should depreciate relative to the dollar. B) The peso should appreciate relative to the dollar. C) The peso should maintain a constant exchange rate with the dollar because of purchasing-power parity. D) None of the above is true. Show Answer Correct Answer: A) The peso should depreciate relative to the dollar. 59. A fall in the demand for U.S. exports would result in a rise in the exchange rate when A) A. there is no capital mobility and exchange rates are allowed to float. B) B. there is capital mobility. C) C. exchange rates are allowed to float. D) D. the country has a balance of payments surplus. E) Both c and d. Show Answer Correct Answer: C) C. exchange rates are allowed to float. 60. If a U.S. shirt maker purchases cotton from Egypt, U.S. net exports A) Increase, and U.S. net capital outflow increases. B) Increase, and U.S. net capital outflow decreases. C) Decrease, and U.S. net capital outflow increases. D) Decrease, and U.S. net capital outflow decreases. Show Answer Correct Answer: C) Decrease, and U.S. net capital outflow increases. 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