MACRO: International Economics Flashcards
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Read the first 7 MACRO: International Economics flashcards as text
Which of the following transactions would appear in the capital and financial account of the U.S. balance of payments?
Answer: A German investor purchases U.S. Treasury bonds
Purchases of financial assets such as U.S. Treasury bonds by foreign investors are recorded in the capital and financial account as a financial inflow.
When the nominal exchange rate and the price level both change, economists use the real exchange rate to measure:
Answer: The actual purchasing power of one country's goods relative to another's
The real exchange rate adjusts the nominal exchange rate for differences in price levels, reflecting the relative purchasing power of goods across countries.
Which of the following best explains why two countries can both gain from trade even if one is more efficient at producing every good?
Answer: The less efficient country will always have a lower opportunity cost in some goods
Even if one country has an absolute advantage in all goods, each country has a lower opportunity cost in at least one good, creating the basis for mutually beneficial trade.
In the Mundell-Fleming model under fixed exchange rates, which policy is most effective at increasing output in a small open economy?
Answer: Expansionary fiscal policy
Under fixed exchange rates, the central bank must maintain the peg, making monetary policy ineffective, while fiscal policy retains its full multiplier effect on output.
A country's terms of trade improve when:
Answer: The prices of its exports rise relative to the prices of its imports
Terms of trade = export prices / import prices; an increase means each unit of exports buys more imports, improving the country's real purchasing power from trade.
If a government wants to limit imports without using a tariff, which of the following is the most direct alternative tool?
Answer: Imposing a voluntary export restraint (VER) on foreign suppliers
A voluntary export restraint is an agreement where a foreign country limits its own exports, reducing imports into the domestic country without a formal tariff.
Which exchange rate system gives a country the MOST control over its domestic monetary policy?
Answer: A fully flexible (floating) exchange rate system
Under a freely floating exchange rate, the central bank is not obligated to intervene to maintain a peg, leaving it free to adjust the money supply to meet domestic goals.