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 2 🏠 Homepage 📘 Download PDF Books 📕 Premium PDF Books Class 12 Economics (Macro Economics) Chapter 6 Open Economy Macroeconomics Quiz 2 (59 MCQs) Quiz Instructions Select an option to see the correct answer instantly. 1. Suppose that foreign citizens decide to purchase more U.S. pharmaceuticals and U.S. citizens decide to buy more stock in foreign corporations. Other things the same, these actions A) Raise both U.S. net exports and U.S. net capital outflows. B) Raise U.S. net exports and lower U.S. net capital outflows. C) Lower both U.S. net exports and U.S. net capital outflows. D) Lower U.S. net exports and raise U.S. net capital outflows. Show Answer Correct Answer: D) Lower U.S. net exports and raise U.S. net capital outflows. 2. Foreign-produced goods and services that are purchased domestically are called A) Net exports. B) Imports. C) Exports. D) Net imports. Show Answer Correct Answer: B) Imports. 3. A U.S. pharmacy buys drugs from a British company and pays for them with US dollars. This transaction A) Increases British net exports, and increases U.S. net capital outflow. B) Increases British net exports, and decreases U.S. net capital outflow. C) Decreases British net exports, and increases U.S. net capital outflow. D) Decreases British net exports, and decreases U.S. net capital outflow. Show Answer Correct Answer: B) Increases British net exports, and decreases U.S. net capital outflow. 4. If citizens of a country are not saving much, it is better to A) Force citizens to save. B) Reduce investment. C) Have foreigners invest in the domestic economy than no one at all. D) To prevent opportunities for citizens to buy capital assets abroad. Show Answer Correct Answer: C) Have foreigners invest in the domestic economy than no one at all. 5. In an open economy, gross domestic product equals $ 1, 950 billion, government expenditure equals $ 280 billion, investment equals $ 500, and net capital outflow equals $ 280 billion. What is consumption expenditure? A) $ 280 billion. B) $ 1, 170 billion. C) $ 780 billion. D) $ 890 billion. Show Answer Correct Answer: D) $ 890 billion. 6. Catherine, a citizen of Spain, decides to purchase bonds issued by Chile instead of ones issued by the United States even though the Chilean bonds have a higher risk of default. An economic reason for her decision might be that A) She dislikes U.S. foreign policy. B) The Chilean bonds pay a higher rate of interest. C) The U.S. government is more stable than the Chilean government. D) None of the above provide an economic reason for buying the riskier bond. Show Answer Correct Answer: B) The Chilean bonds pay a higher rate of interest. 7. What is the effect of a devaluation on domestic production? A) It increases production. B) It decreases production. C) It has no effect. D) It leads to unemployment. Show Answer Correct Answer: A) It increases production. 8. In the Mundell-Fleming model, regardless of whether the economy has perfect capital mobility or not, an increase in the money supply A) Decreases the trade balance. B) Reduces interest rates . C) Increases income. D) Increases capital inflows. Show Answer Correct Answer: C) Increases income. 9. If the U.S. real exchange rate appreciates relative to the French franc, U.S. exports to France A) Rise, and French exports to the United States fall. B) Fall, and French exports to the United States rise. C) And French exports to the United States rise. D) And French exports to the United States fall. Show Answer Correct Answer: B) Fall, and French exports to the United States rise. 10. Suppose that a ton of coal costs 1500 British pounds in the UK and $ 2000 in the United States. If the nominal exchange rate is .75 British pounds per dollar, the real exchange rate is A) 4/3 tons of British coal per ton of U.S. coal. B) 1 ton of British coal per ton of U.S. coal. C) 4/3 tons of U.S. coal per ton of British coal. D) None of the above are correct. Show Answer Correct Answer: B) 1 ton of British coal per ton of U.S. coal. 11. If U.S. consumers increase their demand for apples from New Zealand, then other things the same New Zealand's A) Imports and net exports rise. B) Imports rise and net exports fall. C) Exports and net exports rise. D) Exports rise and net exports fall. Show Answer Correct Answer: C) Exports and net exports rise. 12. What is the effect of expansionary fiscal policy on the IS curve? A) Keeps it unchanged. B) Makes it vertical. C) Shifts it to the right. D) Shifts it to the left. Show Answer Correct Answer: C) Shifts it to the right. 13. What is the primary goal of internal balance? A) Full employment. B) Equilibrium in balance of payments. C) Low inflation. D) High economic growth. Show Answer Correct Answer: A) Full employment. 14. You buy a new car built in Sweden. Other things the same, your purchase by itself A) Raises both Vietnam's exports and Vietnam's net exports. B) Raises Vietnam's imports and lowers Vietnam net exports. C) Raises both Vietnam imports and Vietnam net exports. D) Raises Vietnam's imports and Vietnam's U.S. net exports. Show Answer Correct Answer: B) Raises Vietnam's imports and lowers Vietnam net exports. 15. Suppose a cup of coffee is 1.5 Euros in Germany and $ 0.50 in the United States. Ifpurchasing-power parity holds, what is the nominal exchange rate between Euros anddollars? A) 0.75 euro per dollar. B) 1/3 euro per dollar. C) 3 Euros per dollar. D) 1.5 Euros per dollar. Show Answer Correct Answer: C) 3 Euros per dollar. 16. What is the effect of tight monetary policy on the LM curve? A) Makes it horizontal. B) Shifts it to the left. C) Shifts it to the right. D) Keeps it unchanged. Show Answer Correct Answer: B) Shifts it to the left. 17. Assume perfect capital mobility. Under a fixed exchange rate system, expansionary fiscal policy causes income to ..... , while under flexible exchange rates expansionary fiscal policy causes income to ..... A) Remain unchanged; increase. B) Increase; remain unchanged. C) Increase; decrease. D) Increase; increase. Show Answer Correct Answer: B) Increase; remain unchanged. 18. What is the effect of an increase in government expenditures on the IS curve? A) It shifts to the right. B) It shifts to the left. C) It remains unchanged. D) It becomes vertical. Show Answer Correct Answer: A) It shifts to the right. 19. If a resident of the United States buys stock in a Japanese corporation, this is an example of U.S. A) Exports. B) Foreign portfolio investment. C) Foreign direct investment. D) Imports. Show Answer Correct Answer: B) Foreign portfolio investment. 20. What is the effect of a budget surplus on the economy? A) It stimulates growth. B) It reduces government spending. C) It has no effect. D) It increases national debt. Show Answer Correct Answer: A) It stimulates growth. 21. If a country has a trade surplus 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: A) It has positive net exports and positive net capital outflow. 22. U.S. imports account for about what percentage of GDP? A) Over 10 percent. B) Less than 1 percent. C) About 7 percent. D) About 4 percent. Show Answer Correct Answer: A) Over 10 percent. 23. Which of the following factors might make capital mobility less than perfect? A) A. Risks due to exchange rate changes. B) B. Differential risk on the assets of different countries. C) C. Technological progress, which improves the quality of information on foreign assets. D) Both a and b. E) All of the above. Show Answer Correct Answer: E) All of the above. 24. Suppose that purchases of Irish assets by foreigners exceed Irish purchase of foreign assets. Ireland has A) Positive net capital outflow and a trade surplus. B) Positive net capital outflow and a trade deficit. C) Negative net capital outflow and a trade surplus. D) Negative net capital outflow and a trade deficit. Show Answer Correct Answer: B) Positive net capital outflow and a trade deficit. 25. After 1980, U.S. Net Foreign Investment fell dramatically, but the U.S. economy did not experience a similar fall in domestic investment. Hence, saving in the United States must A) Have decreased dramatically. B) Have increased dramatically. C) Have been about unchanged. D) Not necessarily have done any of the above. Show Answer Correct Answer: A) Have decreased dramatically. 26. What is the principle of effective market classification? A) Focusing solely on fiscal policy. B) Ignoring market responses. C) Pairing policies with their most effective objectives. D) Using one policy for all objectives. Show Answer Correct Answer: C) Pairing policies with their most effective objectives. 27. A depreciation of the U.S. real exchange rate induces U.S. consumers to buy A) Fewer domestic goods and fewer foreign goods. B) Fewer domestic goods and more foreign goods. C) More domestic goods and fewer foreign goods. D) More domestic goods and more foreign goods. Show Answer Correct Answer: C) More domestic goods and fewer foreign goods. 28. In the Mundell-Fleming model with perfect capital mobility, the domestic interest rates are determined by A) Monetary policy. B) The IS and LM curves. C) Domestic savings and investment. D) Budget deficits. E) None of the above. Show Answer Correct Answer: E) None of the above. 29. What is the primary focus of the Mundell-Fleming model? A) External balance. B) Simultaneous internal and external balance. C) Internal balance. D) Fiscal policy only. Show Answer Correct Answer: B) Simultaneous internal and external balance. 30. Assume perfect capital mobility and a fixed exchange rate system. Then, an increase in government spending would shift the A) BP schedule to the right. B) LM schedule to the left. C) IS schedule to the right. D) BP schedule to the left. Show Answer Correct Answer: C) IS schedule to the right. 31. A country purchases $ 3 billion of foreign-produced goods and services and sells $ 2 billion dollars of domestically produced goods and services to foreign countries. It has A) Exports of $ 3 billion and a trade surplus of $ 1 billion. B) Exports of $ 3 billion and a trade deficit of $ 1 billion. C) Exports of $ 2 billion and a trade surplus of $ 1 billion. D) Exports of $ 2 billion and a trade deficit of $ 1 billion. Show Answer Correct Answer: D) Exports of $ 2 billion and a trade deficit of $ 1 billion. 32. While making investment decisions, investors A) Compare the nominal, but not the real, interest rates offered on different bonds. B) Compare the real interest rates offered on different bonds. C) Purchase the highest-priced bond available. D) All of the above are correct. Show Answer Correct Answer: B) Compare the real interest rates offered on different bonds. 33. What is the relationship between the interest rate and capital flows? A) Interest rates have no effect on capital flows. B) Capital flows are independent of interest rates. C) Higher interest rates lead to capital outflows. D) Higher interest rates lead to capital inflows. Show Answer Correct Answer: D) Higher interest rates lead to capital inflows. 34. When Microsoft establishes a distribution center in France, U.S. net capital outflow A) Decreases because Microsoft makes a direct investment in capital France. B) Increases because Microsoft makes a direct investment in capital in France. C) Increases because Microsoft makes a portfolio investment in France. D) Decreases because Microsoft makes a portfolio investment in France. Show Answer Correct Answer: B) Increases because Microsoft makes a direct investment in capital in France. 35. If a dollar currently purchases 10 pesos and someone forecasts that in a year it will be 11 pesos, then the forecast is given in A) Real terms and implies the dollar will appreciate. B) Real terms and implies the dollar will depreciate. C) Nominal terms and implies the dollar will appreciate. D) Nominal terms and implies the dollar will depreciate. Show Answer Correct Answer: B) Real terms and implies the dollar will depreciate. 36. Within a fixed exchange rate system, the effect of an expansionary fiscal policy action on the balance of payments will be to A) Worsen the balance on the capital account but improve the trade balance. B) Worsen the trade balance but improve the balance on the capital account. C) Worsen both the trade balance and the balance on the capital account. D) Improve both the trade balance and the balance on the capital account. Show Answer Correct Answer: C) Worsen both the trade balance and the balance on the capital account. 37. What is the primary focus of monetary policy? A) Adjusting interest rates. B) Controlling inflation directly. C) Implementing tariffs. D) Changing government spending. Show Answer Correct Answer: A) Adjusting interest rates. 38. Peter, a Canadian citizen, sells several hundred cases of smoked salmon to a restaurant chain in the United States. By itself this sale A) Decreases U.S. net exports and has no effect on Canadian net exports. B) Decreases U.S. net exports and increases Canadian net exports. C) Increases U.S. net exports and has no effect on Canadian net exports. D) Increases U.S. net exports and decreases Canadian net exports. Show Answer Correct Answer: B) Decreases U.S. net exports and increases Canadian net exports. 39. An economy that interacts with other economies is known as A) A closed economy. B) An import economy. C) An open economy. D) An export economy. E) A balanced trade economy. Show Answer Correct Answer: C) An open economy. 40. If the exchange rate changes from 30 Thai bhat per dollar to 45 Thai bhat per dollar, the dollar has A) Depreciated and so buys more Thai goods. B) Depreciated and so buys fewer Thai goods. C) Appreciated and so buys fewer Thai goods. D) Appreciated and so buys more Thai goods. Show Answer Correct Answer: D) Appreciated and so buys more Thai goods. 41. If a dollar currently purchases 12.5 pesos and someone forecasts that in a year it will be 14 pesos, then the forecast is given in A) Real terms and implies the dollar will appreciate. B) Real terms and implies the dollar will depreciate. C) Nominal terms and implies the dollar will appreciate. D) Nominal terms and implies the dollar will depreciate. Show Answer Correct Answer: D) Nominal terms and implies the dollar will depreciate. 42. Net capital outflow equals A) The purchase of domestic assets by foreign residents. B) The purchase of foreign assets by domestic residents. C) The purchase of foreign assets by domestic residents-the purchase of domestic assets by foreign residents. D) The purchase of domestic assets by foreign residents-the purchase of foreign assets by domestic residents. Show Answer Correct Answer: C) The purchase of foreign assets by domestic residents-the purchase of domestic assets by foreign residents. 43. In the Mundell-Fleming model with a floating exchange rate and perfect capital mobility, an increase in the money supply does all of the following EXCEPT: A) Increase inflation. B) Increase the IS curve. C) Increase income. D) Increase interest rates. Show Answer Correct Answer: D) Increase interest rates. 44. If the exchange rate were 5 Egyptian pounds per U.S. dollar, a watch that costs $ 25 US dollars would cost A) 125 Egyptian pounds. B) 50 Egyptian pounds. C) 5 Egyptian pounds. D) None of the above is correct. Show Answer Correct Answer: A) 125 Egyptian pounds. 45. If a country changes its corporate tax laws so that foreign businesses build and manage more business in that country, then that net capital outflow of that country A) And the net capital outflow of other countries rise. B) Rises and the net capital outflow of other countries fall. C) Falls and the net capital outflow of other countries rise. D) None of the above are correct. Show Answer Correct Answer: C) Falls and the net capital outflow of other countries rise. 46. When Claudia, a U.S. citizen, purchases a handbag made in France, the purchase is A) Both a U.S. and French import. B) A U.S. export and a French import. C) A U.S. import and a French export. D) Neither an export nor an import for either country. Show Answer Correct Answer: C) A U.S. import and a French export. 47. If you are vacationing in France and the dollar depreciates relative to the euro, then A) The dollar buys more euros. It will take fewer dollars to buy a good that costs 50 euros. B) The dollar buys more euros. It will take more dollars to buy a good that costs 50 euros. C) The dollar buys fewer euros. It will take more dollars to buy a good that costs 50 euros. D) The dollar buys fewer euros. It will take fewer dollars to buy a good that costs 50 euros. Show Answer Correct Answer: C) The dollar buys fewer euros. It will take more dollars to buy a good that costs 50 euros. 48. When people take advantage of differences in prices for the same good by buying it where itis cheap and selling it where it is expensive, it is known as A) Arbitrage. B) Currency appreciation. C) Net capital outflow. D) Purchasing-power parity. Show Answer Correct Answer: A) Arbitrage. 49. One year a country has negative net exports. The next year it still has negative net exports and imports have risen more than exports. A) Its trade surplus rose. B) Its trade deficit rose. C) Its trade deficit fell. D) Its trade surplus fell. Show Answer Correct Answer: B) Its trade deficit rose. 50. Net exports of a country are the value of goods A) Exported minus the value of goods imported. B) Imported minus the value of goods exported. C) And services imported minus the value of goods and services exported. D) And services exported minus the value of goods and services imported. Show Answer Correct Answer: D) And services exported minus the value of goods and services imported. 51. If the exchange rate changes from 3 Brazilian real per dollar to 4 reals per dollar, A) The dollar has depreciated. B) The dollar could have appreciated or depreciated depending on what happened to relativeprices in Brazil and the United States. C) The dollar has appreciated. D) None of the above is true. Show Answer Correct Answer: C) The dollar has appreciated. 52. In the context of the chapter, what does external balance refer to? A) Equilibrium in the balance of payments. B) Full employment. C) Low inflation. D) High economic growth. Show Answer Correct Answer: A) Equilibrium in the balance of payments. 53. Who is worse-off when countries trade? A) Both the exporting and importing county. B) Only the exporting country. C) Only the importing country. D) Neither the exporting nor importing country. Show Answer Correct Answer: D) Neither the exporting nor importing country. 54. Other things the same, if the dollar appreciates 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. 55. What is the main objective of using tariffs in trade policy? A) To stabilize currency. B) To decrease exports. C) To protect domestic industries. D) To increase imports. Show Answer Correct Answer: C) To protect domestic industries. 56. According to purchasing power parity, if the same basket of goods costs $ 100 in the U.S. and 50 pounds in Britain, then what is the nominal exchange rate? A) 2 pounds per dollar. B) 1 pound per dollar. C) 1/2 pound per dollar. D) None of the above is correct. Show Answer Correct Answer: A) 2 pounds per dollar. 57. Jill, a U.S. citizen, uses some euros to purchase a bond issued by a French vineyard. This exchange A) Does not change U.S. net capital outflow. B) Decreases U.S. net capital outflow. C) Increases U.S. net capital outflow by the value of the bond. D) Increases U.S. net capital outflow by more than the value of the bond. Show Answer Correct Answer: C) Increases U.S. net capital outflow by the value of the bond. 58. What does the LM curve represent? A) Equilibrium in the money market. B) Equilibrium in the goods market. C) Equilibrium in the balance of payments. D) Equilibrium in government spending. Show Answer Correct Answer: A) Equilibrium in the money market. 59. Which of the following would directly increase U.S. net capital outflow? A) Toyota buys stock in AT&T. B) Honda builds a new plant in Ohio. C) General Electric sells an aircraft engine to Airbus in Great Britain. D) Microsoft builds a new distribution facility in Sweden. Show Answer Correct Answer: D) Microsoft builds a new distribution facility in Sweden. ← PreviousRelated QuizzesCommerce QuizzesClass 12 QuizzesClass 12 Economics (Macro Economics) Chapter 6 Open Economy Macroeconomics Quiz 1Class 12 Economics (Macro Economics) Chapter 1 Introduction QuizClass 12 Economics (Macro Economics) Chapter 2 National Income Accounting QuizClass 12 Economics (Macro Economics) Chapter 3 Money And Banking QuizClass 12 Economics (Macro Economics) Chapter 4 Determination Of Income And Employment QuizClass 12 Economics (Macro Economics) Chapter 5 Government Budget And The Economy Quiz 🏠 Back to Homepage 📘 Download PDF Books 📕 Premium PDF Books