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 sim ...

1. 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.

2. 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

3. 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)

4. _______ 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)

5. 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

6. 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.
16)