EBK PRINCIPLES OF ECONOMICS
8th Edition
ISBN: 8220103600453
Author: Mankiw
Publisher: CENGAGE L
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Question
Chapter 32, Problem 3CQQ
To determine
The impact of cutting government spending to reduce deficit on interest rate, capital, and real exchange rate.
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If domestic interest rate is higher than foreign countries interest rates, then there will be _____________ ."A) a capital outflow and supply of domestic currency will increase. B)a capital outflow and demand for domestic currency will increase.C) a capital inflow and demand for domestic currency will increase.D) a capital inflow and demand for domestic currency will fall.
If there is a decrease in the desire of foreigners to purchase goods and services from the United States and a lower desire to invest in U.S. banks and businesses, then how would this affect the U.S. foreign exchange market?
A. The equilibrium quantity of foreign currency would decrease and the U.S. dollar would depreciate.
B. The equilibrium quantity of foreign currency would decrease and the U.S. dollar would appreciate.
C. The equilibrium quantity of foreign currency would increase and the U.S. dollar would depreciate.
D. The equilibrium quantity of foreign currency would increase and the U.S. dollar would appreciate.
A net exports deficit will become a surplus if _______.
A.
the country appreciates its currency
B.
the government budget deficit is turned into a surplus and the private sector has a surplus
C.
private saving and government saving exceed private investment
D.
the private sector surplus adjusts to equal the government sector deficit
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- 2arrow_forwardBased on the table below, which of the following is likely to be true? a. From the first period to the second, the U.S. is using an increasing current account surplus to finance consumption. b. From the first period to the second, the U.S. is using an increasing financial account surplus to finance the larger budget deficit. c. From the first period to the second, public saving is increasing. d. From the first period to the second, the U.S. financial account deficit is increasing.arrow_forwardImagine that the economy of Germany finds itself in the following situation: the government budget has a surplus of 1% of Germany’s GDP; private savings is 20% of GDP; and physical investment is 18% of GDP. a. Based on the national saving and investment identity, what is the current account balance? b. If the government budget surplus falls to zero, how will this affect the current account balance?arrow_forward
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- Donald Company, a manufacturing company based in San Juan City, Philippines, purchased raw materials from a foreigncompany denominated in foreign currency. Which of the following is correct? A. If the foreign currency appreciates, Jonald will recognize foreign exchange loss.B. If the foreign currency appreciates, Jonald will recognize foreign exchange gain.C. If the foreign currency depreciates, Jonald will recognize foreign exchange loss. D. Any gain or loss will be deferred until the date of settlement.arrow_forwardThe US typically imports (M) more goods and services than it exports (X). a. Explain what this means for both the US Current Account (CA) and Capital Account (aka the Financial Account) and how the US net International Investment Position (IIP) will be affected. b. Why is a CA deficit referred to as an “excess spending” problem? Who is the US borrowing from when it engages in this “excess spending”? [Hint: use the twin-deficit identity.]arrow_forwardA government uses an expenditure-reducing measure to correct a balance of payments current account deficit. In the short term, what effect would this measure have on consumer expenditure and net exports? Pick a,b,c, or d A) consumer expenditure: increase & net exports: decrease B) consumer expenditure: decrease & net exports: decrease C) consumer expenditure: decrease & net exports: increase D) consumer expenditure: increase & net exports: increasearrow_forward
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