Multiple Choice Questions
1. Holding other things constant, an increase in a nation's interest rate reduces
a. National saving and domestic investment.
b. National saving and the net capital outflow.
c. Domestic investment and the net capital outflow.
d. National saving only.
2. Holding other things constant, an appreciation of a nation's currency causes
a. Exports to rise and imports to fall.
b. Exports to fall and imports to rise.
c. Both exports and imports to rise.
d. Both exports and imports to fall.
3. The government in an open economy cuts spending to reduce the budget deficit. As a result, the interest rate __________, leading to a capital __________ and a real exchange rate __________.
a. Falls, outflow, appreciation
b. Falls, outflow, depreciation
c. Falls, inflow, appreciation
d. Rises, inflow, appreciation
4. The nation of Ectenia has long banned the export of its highly prized puka shells. A newly elected president, however, removes the export ban. This change in policy will cause the nation's currency to __________, making the goods Ectenia imports __________ expensive.
a. Appreciate, less
b. Appreciate, more
c. Depreciate, less
d. Depreciate, more
5. A civil war abroad causes foreign investors to seek a safe haven for their funds in the United States, leading to __________ U.S. interest rates and a __________ U.S. dollar.
a. Higher, weaker
b. Higher, stronger
c. Lower, weaker
d. Lower, stronger
6. If business leaders in Great Britain become more confident in their economy, their optimism will induce them to increase investment, causing the British pound to __________ and pushing the British trade balance toward __________ .
a. Appreciate, deficit
b. Appreciate, surplus
c. Depreciate, deficit
d. Depreciate, surplus