Open Economy Macroeconomics
Final Exam
Course Introduction
Open Economy Macroeconomics explores the behavior of economies when they interact with the rest of the world through trade, investment, and financial markets. The course examines how goods, services, and capital flow across borders, and how these flows influence national income, exchange rates, interest rates, and economic policy. Key topics include balance of payments, foreign exchange markets, determination of exchange rates, the effects of monetary and fiscal policy in an open economy, and international macroeconomic crises. Students will develop analytical tools to understand contemporary issues such as currency crises, global financial stability, and the impacts of globalization on domestic economic policy.
Recommended Textbook
International Economics 11th Edition by Dominick Salvatore
Available Study Resources on Quizplus
21 Chapters
623 Verified Questions
623 Flashcards
Source URL: https://quizplus.com/study-set/1655 Page 2
Chapter 1: Introduction
Available Study Resources on Quizplus for this Chatper
25 Verified Questions
25 Flashcards
Source URL: https://quizplus.com/quiz/32824
Sample Questions
Q1) Which of the following is not the subject matter of international finance?
A)foreign exchange markets
B)the balance of payments
C)the basis and the gains from trade
D)policies to adjust balance of payments disequilibria
Answer: C
Q2) Today,how many people live on less that $1 a day across the globe.
A)Roughly 1 billion
B)Roughly 1 million
C)Roughly 1 trillion
D)Roughly 100 million
Answer: A
Q3) A rough measure of the degree of economic interdependence of a nation is given by:
A)the size of the nations' population
B)the percentage of its population to its GDP
C)the percentage of a nation's imports and exports to its GDP
D)all of the above
Answer: C
To view all questions and flashcards with answers, click on the resource link above.
Page 3
Chapter 2: The Law of Comparative Advantage
Available Study Resources on Quizplus for this Chatper
29 Verified Questions
29 Flashcards
Source URL: https://quizplus.com/quiz/32825
Sample Questions
Q1) The Mercantilists did not advocate:
A)free trade
B)stimulating the nation's exports
C)restricting the nations' imports
D)the accumulation of gold by the nation
Answer: A
Q2) According to Adam Smith,international trade is based on:
A)absolute advantage
B)comparative advantage
C)both absolute and comparative advantage
D)neither absolute nor comparative advantage
Answer: A
Q3) Which of the following statements is true?
A)The combined demand for each commodity by the two nations is negatively sloped
B)the combined supply for each commodity by the two nations is rising stepwise
C)the equilibrium relative commodity price for each commodity with trade is given by the intersection of the demand and supply of each commodity by the two nations
D)All of the above statements are true.
Answer: D
To view all questions and flashcards with answers, click on the resource link above.
Page 4
Chapter 3: The Standard Theory of International Trade
Available Study Resources on Quizplus for this Chatper
30 Verified Questions
30 Flashcards
Source URL: https://quizplus.com/quiz/32826
Sample Questions
Q1) Which of the following is a correct statement about deindustrialization in the United States?
A)Most job loss in manufacturing has been due to changes in productivity.
B)Most job loss in manufacturing has been due to competition from other countries.
C)Most job loss in manufacturing has been due to changes in the legal structure of trade.
D)Most job loss in manufacturing has been due to unfair trade practices.
Answer: A
Q2) With free trade under increasing costs:
A)neither nation will specialize completely in production
B)at least one nation will consume above its production frontier
C)a small nation will always gain from trade
D)all of the above
Answer: D
Q3) What is the marginal rate of transformation (MRT)?
Answer: The MRT of X for Y refers to the amount of Y that a nation must give up to produce each additional unit of X.MRT is another name for opportunity cost.The MRT increases as additional units of X are produced in an environment with increasing opportunity costs.
To view all questions and flashcards with answers, click on the resource link above.
Page 5
Chapter 4: Demand and Supply, offer Curves, and the Terms of Trade
Available Study Resources on Quizplus for this Chatper
30 Verified Questions
30 Flashcards
Source URL: https://quizplus.com/quiz/32827
Sample Questions
Q1) Which of the following statements is not correct?
A)The demand for imports is given by the excess demand for the commodity
B)the supply of exports is given by the excess supply of the commodity
C)the supply curve of exports is flatter than the total domestic supply curve of the commodity
D)the supply curve for exports is more inelastic than the total domestic supply curve of the commodity.
Q2) If the nation's tastes for its import commodity increases:
A)the nation's offer curve rotates toward the axis measuring its import commodity
B)the partner's offer curve rotates toward the axis measuring its import commodity
C)the partner's offer curve rotates toward the axis measuring its export commodity
D)the nation's offer curve rotates toward the axis measuring its export commodity
Q3) Explain the effect of changes in petroleum prices on the terms of trade and relative export prices for the United States in recent years.
Q4) Carefully define an offer curve and explain how it is derived.
To view all questions and flashcards with answers, click on the resource link above.
6
Chapter 5: Factor Endowments and the Heckscher-Ohlin
Theory
Available Study Resources on Quizplus for this Chatper
30 Verified Questions
30 Flashcards
Source URL: https://quizplus.com/quiz/32828
Sample Questions
Q1) The H-O model is a general equilibrium model because it deals with:
A)production in both nations
B)consumption in both nations
C)trade between the two nations
D)all of the above
Q2) Define and explain factor intensity reversal
Q3) Which is not an assumption of the H-O model?
A)the same technology in both nations
B)constant returns to scale
C)complete specialization
D)equal tastes in both nations
Q4) Which of the following situations would violate the assumptions of the H-O model?
A)Doubling all inputs doubled the production of all outputs.
B)Nation 1 has technology that is different from Nation 2.
C)Nation 1's trade is balanced.
D)Nation 2 does not completely specialize in either good.
Q5) In the United States,labor unions consistently oppose international trade and support trade barriers.Use the H-O model to explain why.
Q6) List three possible explanations for the Leontief paradox
To view all questions and flashcards with answers, click on the resource link above. Page 7
Chapter 6: Economies of Scale, imperfect Competition, and International Trade
Available Study Resources on Quizplus for this Chatper
30 Verified Questions
30 Flashcards
Source URL: https://quizplus.com/quiz/32829
Sample Questions
Q1) A footloose industry is one in which the product:
A)gains weight in processing
B)loses weight in processing
C)does not change weight in processing
D)could increase,decrease,or have no change in weight in processing.
Q2) Two developed nations are most likely to engage in
A)inter-industry trade based on economies of scale
B)intra-industry trade based on economies of scale
C)inter-industry trade based on comparative advantage
D)intra-industry trade based on comparative advantage
Q3) According to the Environmental Performance Index,the highest ranking country is A)New Zealand.
B)Switzerland.
C)the United States.
D)Germany.
Q4) Outsourcing refers to
A)the purchase of parts and components from overseas to reduce production costs.
B)a firm producing parts in its own plants abroad.
C)importing final consumer goods instead of purchasing them domestically.
D)technology transfer from one country to another.
To view all questions and flashcards with answers, click on the resource link above. Page 8
Chapter 7: Economic Growth and International Trade
Available Study Resources on Quizplus for this Chatper
30 Verified Questions
30 Flashcards
Source URL: https://quizplus.com/quiz/32830
Sample Questions
Q1) In the absence of trade,technical progress
A)tends to increase the nation's welfare.
B)increases the nation's welfare only if it is labor-saving.
C)increases the nation's welfare only if it is capital-saving.
D)tends to decrease the nation's welfare.
Q2) What does it mean for a nation's production to be pro-trade?
Q3) How does a change in tastes that shifts in a nation's offer curve toward the axis measuring its exportable commodity impact the nation?
Q4) When a nation's growth deteriorates its terms of trade to the point that its welfare drops it is experiencing
A)debilitating growth
B)immiserizing growth
C)population growth
D)GDP per capital growth
Q5) Doubling L with trade in a small L-abundant nation:
A)reduces the welfare of representative citizens.
B)reduces the nation's terms of trade
C)reduces the volume of trade
D)reduces national consumption.
To view all questions and flashcards with answers, click on the resource link above. Page 9
Chapter 8: Economic Growth and International Trade
Available Study Resources on Quizplus for this Chatper
30 Verified Questions
30 Flashcards
Source URL: https://quizplus.com/quiz/32831
Sample Questions
Q1) Using the concept of effective protection,explain how and why tariffs tend to vary with the level of processing of goods (that is,raw materials,intermediate goods,and finished goods).
Q2) A tariff in a small country will benefit
A)domestic consumers.
B)foreign producers.
C)the government imposing the tariff.
D)the world as a whole.
Q3) If a small nation increases the tariff on its import commodity,its:
A)consumption of the commodity increases
B)production of the commodity decreases
C)imports of the commodity increase
D)domestic price of the commodity increases
Q4) Tariffs result in a loss of national social welfare because
A)domestic consumption decreases and domestic production increases.
B)domestic consumption increases and foreign production increases.
C)foreign consumption decreases and domestic production decreases.
D)domestic consumption increases and domestic production decreases.
Q5) Explain the redistribution effects of a tariff.
Q6) Is there such thing as an optimum tariff for a small nation?
Page 10
To view all questions and flashcards with answers, click on the resource link above.
Chapter 9: Nontariff Trade Barriers and the New Protectionism
Available Study Resources on Quizplus for this Chatper
30 Verified Questions
30 Flashcards
Source URL: https://quizplus.com/quiz/32832
Sample Questions
Q1) Adjustment to any shift in the domestic demand or supply of an importable commodity occurs:
A)in domestic price with an import quota
B)in the quantity of imports with a tariff
C)through the market mechanism with an import tariff but not with an import quota
D)all of the above
Q2) Explain why and under what conditions the infant-industry argument for an import tariff is valid.How must this argument be qualified?
Q3) An increase in the demand of the imported commodity subject to a given import quota:
A)reduces the domestic quantity demanded of the commodity
B)increases the domestic production of the commodity
C)reduces the domestic price of the commodity
D)reduces the producers' surplus
Q4) Game theory refers to:
A)a method of choosing the optimal strategy in conflict situations
B)the granting of a subsidy to correct a domestic distortion
C)the theory of tariff protection
D)the theory of comparative advantage
To view all questions and flashcards with answers, click on the resource link above. Page 11
Chapter 10: Economic Integration: Customs Unions and Free Trade Areas
Available Study Resources on Quizplus for this Chatper
30 Verified Questions
30 Flashcards
Source URL: https://quizplus.com/quiz/32833
Sample Questions
Q1) A customs union is more like to lead to trade creation and increased welfare under the following condition
A)lower pre-union trade barriers
B)lower trade barriers with the rest of the world
C)complementary economies
D)a smaller number of members
Q2) Which of the following is not a trading bloc or agreement including some South American countries?
A)MERCOSUR
B)ASEAN
C)FTAA
D)CACM
Q3) Discuss the conditions which are more likely to lead to increased welfare with the formation of a customs union.
Q4) A trade-diverting customs union:
A)increases trade among union members and with nonmember nations
B)reduces trade among union members and with nonmember nations
C)increases trade among members but reduces trade with non-members
D)reduces trade among union members but increases it with nonmembers
Q5) What is the theory of second best?
To view all questions and flashcards with answers, click on the resource link above. Page 12
Chapter 11: International Trade and Economic Development
Available Study Resources on Quizplus for this Chatper
30 Verified Questions
30 Flashcards
Source URL: https://quizplus.com/quiz/32834
Sample Questions
Q1) If the prices of a nation's exports and imports both rise,the nation's commodity terms of trade may:
A)improve
B)deteriorate
C)remain unchanged
D)any of the above
Q2) During the 1950's,1960's and 1970's the predominant growth strategy for developing nations was one of
A)import substitution
B)export orientation
C)communism
D)none of the above
Q3) The nation's commodity terms of trade times the productivity index in its export sector gives the nation's
A)income terms of trade
B)double factoral terms of trade
C)single factoral terms of trade
D)barter terms of trade
Q4) List the current problems facing developing countries?
Q5) What is the difference between import substitution and export orientation?
Page 13
To view all questions and flashcards with answers, click on the resource link above.
Chapter 12: International Resource Movements and Multinational Corporations
Available Study Resources on Quizplus for this Chatper
30 Verified Questions
30 Flashcards
Source URL: https://quizplus.com/quiz/32823
Sample Questions
Q1) Which is not a reason for private foreign direct investments?
A)horizontal and vertical integration
B)to maximize profits and diversify risks
C)to stimulate development
D)to avoid tariffs
Q2) Explain how international capital transfers impact employment in the receiving and investing nation.
Q3) Discuss the changes in the magnitude of foreign investment into the U.S.and U.S.investment overseas over the last fifty years.
Q4) International capital flows
A)increase world social welfare.
B)increase the welfare of the host country but not the investing country.
C)increase the welfare of the investing country but not the host country.
D)decrease world social welfare.
Q5) Two-way international capital flows can be explained by the desire to:
A)earn higher yields abroad
B)avoid tariffs
C)diversify risks
D)all of the above
Q6) Discuss the motives for international labor migration. Page 14
To view all questions and flashcards with answers, click on the resource link above.
Page 15
Chapter 13: Balance of Payments
Available Study Resources on Quizplus for this Chatper
30 Verified Questions
30 Flashcards
Source URL: https://quizplus.com/quiz/32835
Sample Questions
Q1) The international investment position of a nation measures
A)the current account minus the financial account
B)the current account plus the financial account
C)the total assets owned abroad minus the domestic assets owned by foreigners
D)the total assets owned abroad plus the domestic assets owned by foreigners
Q2) When the U.S.ships food aid to a developing nation,the U.S.debits:
A)unilateral transfers
B)services
C)financial account
D)official reserves
Q3) For the following set of international transactions with the United States,indicate in what specific category and account in the United States balance of payments each transaction would be included and whether it is a credit or debit.
A U.S.citizen receives dividends on German stock,and puts the funds into a German bank account.
Q4) Carefully define the balance of payments.
Q5) What is meant by autonomous transactions?
Q6) What is the international investment position and how has it changed for the United States over the last fifty years.
Page 16
To view all questions and flashcards with answers, click on the resource link above.
Chapter 14: Foreign Exchange Markets and Exchange Rates
Available Study Resources on Quizplus for this Chatper
30 Verified Questions
30 Flashcards
Source URL: https://quizplus.com/quiz/32836
Sample Questions
Q1) What is arbitrage and how does it impact the exchange rate across foreign exchange markets?
Q2) The U.S.interest rate is 2%.The U.K.interest rate is 2.25% The spot rate is 2.01 $/£,and the forward rate (for a 12 month contract)is 1.96 $/£ . What do you expect to happen to forward and spot rates? Explain carefully why this must happen.
Q3) (a)If the positive interest rate differential in favor of a foreign monetary center is 3 percent per year and the foreign currency is at a forward discount of 1 percent per year,roughly how much would an interest arbitrageur earn from the purchase of foreign three-month treasury bills if he covers the foreign exchange risk?
(b)How much would an interest arbitrageur earn if the foreign currency were instead at a forward premium of 1 percent per year?
(c)What would happen if the foreign currency were at a forward discount of 3 percent per year?
Q4) How does covered interest arbitrage create efficiency in foreign exchange markets?
Q5) Explain what carry trade is.
Q6) What is the principle function of foreign exchange markets?
To view all questions and flashcards with answers, click on the resource link above.
Page 17
Chapter 15: Exchange Rate Determination
Available Study Resources on Quizplus for this Chatper
29 Verified Questions
29 Flashcards
Source URL: https://quizplus.com/quiz/32837
Sample Questions
Q1) If the United States rate of inflation is 2% and the German rate of inflation is 5%,what would relative purchasing power parity predict about the value of the euro relative to the dollar,all other things equal?
Q2) Explain absolute and relative purchasing power parity (PPP).
Q3) The relative PPP theory gives better results:
A)in the long run than in the short run
B)when structural changes take place
C)the greater is the level of commodity aggregation
D)in tests including developed and developing countries
Q4) A Big Mac costs 6.60 lira in Turkey and $4.20 in the United States.If the actual exchange rate is 1.85 lire/dollar,the Turkish lira is _________,and U.S.tourists will find that Big Macs are _______ than in the United States.
A)overvalued,more expensive
B)overvalued,less expensive
C)undervalued,more expensive
D)undervalued,less expensive
Q5) Suppose that the price level in the United States is 135 and the price level in Germany is 234.What would absolute purchasing power parity theory predict the dollar/euro exchange rate to be?
To view all questions and flashcards with answers, click on the resource link above. Page 18
Chapter 16: The Price Adjustment Mechanism With Flexible and Fixed Exchange
Available Study Resources on Quizplus for this Chatper
30 Verified Questions
30 Flashcards
Source URL: https://quizplus.com/quiz/32838
Sample Questions
Q1) When a nation's demand curve for exports in terms of the foreign currency is inelastic:
A)the nation's supply curve of the foreign currency is negatively inclined
B)the nation's supply curve of the foreign currency is vertical
C)the nation's demand curve for the foreign currency is negatively inclined
D)the other nation's supply curve of the nation's currency is negatively inclined
Q2) Research on the relationship between elasticities and the current account balance suggests that,for the United States,currency depreciation would result in:
A)a significant improvement in the current account balance.
B)no change in the current account balance.
C)a small improvement in the current account balance.
D)a worsening of the current account balance.
Q3) A depreciation of a nation's currency shifts:
A)down its supply curve of exports in terms of the domestic currency
B)down its supply curve of exports in terms of the foreign currency
C)down its demand curve for exports in terms of the foreign currency
D)up its supply curve of imports in terms of the foreign currency
Q4) Explain why currency pass-through is not likely to be complete.
Page 19
To view all questions and flashcards with answers, click on the resource link above.
Chapter 17: The Income Adjustment Mechanism and Synthesis
of Automatic
Available Study Resources on Quizplus for this Chatper
30 Verified Questions
30 Flashcards
Source URL: https://quizplus.com/quiz/32839
Sample Questions
Q1) The marginal propensity to consume measures:
A)the ratio of imports to income
B)the ratio of income to imports
C)the change in imports over the change in income
D)the change in income over the change in imports
Q2) An autonomous increase in S from a condition of equilibrium in national income and in the trade balance results in the nation's income:
A)rising and its trade balance turning into surplus
B)falling and its trade balance turning into surplus
C)falling and its trade balance turning into deficit
D)rising and its trade balance turning into deficit
Q3) If MPC=0.8 and MPM=0.05,the foreign trade multiplier is:
Q4) In an open economy,the marginal propensity to consumer is 0.75,and the marginal propensity to import is 0.15.Calculate the change in equilibrium GDP if exports fall by $50 billion.
Page 20
To view all questions and flashcards with answers, click on the resource link above.
Chapter 18: Open-Economy Macroeconomics: Adjustment Policies
Available Study Resources on Quizplus for this Chatper
30 Verified Questions
30 Flashcards
Source URL: https://quizplus.com/quiz/32840
Sample Questions
Q1) To correct a balance of payments surplus and unemployment a nation requires a:
A)devaluation and expansionary fiscal and monetary policies
B)devaluation and contractionary fiscal and monetary policies
C)devaluation or revaluation and expansionary fiscal and monetary policies
D)revaluation and either expansionary or contractionary fiscal and monetary policies
Q2) What are direct controls?
Q3) To achieve external balance and correct a recession,a nation will always have to use tight monetary policy if at the full employment level of national income the nation's BP curve is:
A)above the LM curve
B)below the LM curve
C)steeper than the LM curve
D)above the IS curve
Q4) The most important economic objective of industrial nations is:
A)external balance
B)internal balance
C)a reasonable rate of growth
D)an equitable distribution of income
Q5) What is meant by a three market balance equilibrium?
To view all questions and flashcards with answers, click on the resource link above. Page 21
Chapter
Aggregate Demand and Aggregate Supply
Available Study Resources on Quizplus for this Chatper
30 Verified Questions
30 Flashcards
Source URL: https://quizplus.com/quiz/32841
Sample Questions
Q1) The aggregate demand curve (AD)for closed economy is derived from the A)IS curve
B)LM curve
C)FE curve
D)IS and LM curves
Q2) An increase in government expenditures leads to
A)a rightward shift in the IS curve
B)a rightward shift in the AD curve
C)an increase in the level of national income
D)all of the above
Q3) During the last decade the inflation rate in the U.S.has been roughly
A)0%
B)3%
C)5%
D)8%
Q4) Inflation targeting refers to:
A)central banks targeting a precise number for the inflation rate.
B)central banks targeting a range for the inflation rate.
C)fiscal policies that target a precise number for the inflation rate.
D)fiscal policies that target a range for the inflation rate.
To view all questions and flashcards with answers, click on the resource link above. Page 22
Chapter 20: Flexible Versus Fixed Exchange Rates, the European Monetary System, and Macroeconomic Policy
Coordination
Available Study Resources on Quizplus for this Chatper
30 Verified Questions
30 Flashcards
Source URL: https://quizplus.com/quiz/32842
Sample Questions
Q1) The policy of intervention in the foreign exchange market to smooth out short-run fluctuations in exchange rates is called:
A)crawling peg
B)adjustable peg
C)leaning against the wind
D)managed float
Q2) Most economists believe that under "normal conditions" speculation:
A)is stabilizing
B)is destabilizing
C)is neither stabilizing nor destabilizing
D)seldom occurs
Q3) Carefully explain the costs and benefits of a flexible exchange rate regime.
Q4) The following established the conditions under which and European Union member nation could join the currency union:
A)The Treaty of Rome
B)The Single European Act
C)The Maastricht Treaty
D)The Treaty of Paris
Page 23
Q5) Carefully explain the costs and benefits of a flexible exchange rate regime.
Q6) What is a currency board?
To view all questions and flashcards with answers, click on the resource link above.
Page 24
Chapter
Past,present,and Future
Available Study Resources on Quizplus for this Chatper
30 Verified Questions
30 Flashcards
Source URL: https://quizplus.com/quiz/32843
Sample Questions
Q1) The global financial crisis of 2008-2009 began as a
A)subprime mortgage crisis in the U.S.
B)exchange rate crisis in Japan
C)corruption crisis in Russia
D)banking crisis in China
Q2) The fundamental cause for the collapse of the Bretton Woods System was:
A)lack of confidence
B)inadequate liquidity
C)lack of an adequate adjustment mechanism
D)all of the above
Q3) Which of the following was a primary cause of the U.S.balance of payments deficits during the late 1960s?
A)Capital outflows
B)Domestic inflation
C)Increased foreign competition
D)All of the above
Q4) Explain why the establishment of a freely-flexible exchange rate system is unlikely today.
Q5) What is IMF conditionality?
Page 25
Q6) What are the most serious economic problems facing the world today?
To view all questions and flashcards with answers, click on the resource link above. Page 26