International Trade 4th Edition by Feenstra - Test Bank

International Trade 4th Edition by Feenstra – Test Bank

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Sample Questions Are Posted Below

1.	The Mariel boat lift of Cuban immigrants into Miami caused the:
	A)	population of unskilled workers in Miami to decline.
	B)	population of skilled workers in Miami to decline.
	C)	supply of unskilled labor to increase, but it did not decrease the wages of other unskilled workers in Miami.
	D)	wages of all workers to decline.

2.	The immigration of Russian Jews to Israel:
	A)	increased the population of Israel and caused wages to plummet.
	B)	decreased the native population of Israel.
	C)	increased the population of skilled workers but did not decrease wages.
	D)	caused wages of skilled workers to decrease.

3.	The results of the influx of workers into Miami in 1980 as a consequence of the Mariel boat lift and from Russia to Israel in 1989 after the fall of the Soviet Union:
	A)	included lower wages in Miami but higher wages in Israel.
	B)	included lower wages in Israel but higher wages in Miami.
	C)	surprised most people because there was no reduction in wages in either area.
	D)	included lower wages in both regions, confirming that immigration hurts domestic workers.

4.	Examples from Miami and Israel tell us that labor migration sometimes:
	A)	reduces wages in both the source nation and the destination nation.
	B)	has no negative effect on wages in the destination nation.
	C)	increases labor productivity.
	D)	changes the labor market so that competition for workers rises.

5.	The short-run model that allows labor to move between industries while keeping other factors fixed is called the ____________ model.
	A)	Heckscher–Ohlin
	B)	Ricardian
	C)	specific-factors
	D)	purchasing power parity

6.	To study labor migration using the specific-factors model, we assume ________ and ________ cannot move within the domestic economy, but we allow ________ to move both domestically and internationally.
	A)	land; capital; labor
	B)	labor; land; capital
	C)	land; loanable funds; capital
	D)	labor; capital; land

7.	When we use the specific-factors model to study immigration, we assume that:
	A)	land is immobile internationally but capital and labor are internationally mobile.
	B)	labor is used to move between countries as well as industries, while still keeping capital and land specific to each industry.
	C)	land, labor, and capital are internationally mobile.
	D)	land, labor, and capital are internationally immobile, but capital and land are specific to each industry.

8.	Which model can we use to analyze the short-run effects of migration?
	A)	specific-factors
	B)	Ricardian
	C)	Heckscher–Ohlin
	D)	purchasing power parity

9.	When the supply of labor increases, according to the specific-factors model, which of the following is likely to happen?
	A)	The number of workers employed will decrease.
	B)	The wages for workers will decline.
	C)	The marginal product of labor increases in all industries.
	D)	The overall wage in the economy increases in the short run.

10.	According to the specific-factors model, what happens when the supply of labor increases?
	A)	The number of workers employed will decrease.
	B)	The wages of workers will rise.
	C)	The marginal product of labor will increase.
	D)	The wages of workers will decrease.

11.	The specific-factors model predicts that, after immigration, the equilibrium wage in both industries in the destination nation:
	A)	will rise.
	B)	will fall.
	C)	will remain the same.
	D)	cannot be determined with the information given.

12.	If a person leaves Sweden to work in the United States, she is said to ________from Sweden and __________to the United States.
	A)	immigrate; emigrate
	B)	emigrate; immigrate
	C)	immigrate; immigrate
	D)	emigrate; emigrate

13.	One example of emigration from Europe was during the period between 1870 and 1913. Wages grew rather than declined in the destination nations of the United States, Canada, and Australia. Why?
	A)	The economic theory did not predict well.
	B)	Workers from Europe were highly skilled and raised the equilibrium wage.
	C)	The government stepped in and raised the minimum wage.
	D)	Wages rose due to the industrial revolution and higher levels of capital but grew more slowly because of the immigration.

14.	Large-scale immigration into the New World, between 1870 and 1913 caused real wages to:
	A)	decrease in comparison with Europe.
	B)	increase at a slower pace in comparison with Europe.
	C)	increase at a higher pace in comparison with Europe.
	D)	stay constant.

15.	The large-scale labor migration that occurred during 1870 to 1913 from Europe to America ____ the growth of wages in the destination nations and ____ the growth of wages in the source nations, thus leading to _____ of wages between the regions.
	A)	lowered; raised; convergence
	B)	raised; raised; divergence
	C)	lowered; lowered; divergence
	D)	raised; lowered; convergence

16.	Between 1870 and 1913, labor migration from the “Old World” (Europe) to the “New World” (the United States, Canada, and Australia) caused:
	A)	real wages to rise faster in the New World.
	B)	real wages to fall faster in the Old World.
	C)	real wages to diverge between the New and Old Worlds.
	D)	real wages to converge between the New and Old Worlds.

17.	Between 1870 and 1913, labor migration from the “Old World” (Europe) to the “New World” (the United States, Canada, and Australia):
	A)	decreased the rate of growth of real wages in the New World and increased the rate of growth of real wages in the Old World.
	B)	increased the rate of growth of real wages in the New World and decreased the rate of growth of real wages in the Old World.
	C)	decreased the rate of growth of real wages in both the New and Old Worlds.
	D)	increased the rate of growth of real wages in both the New and Old Worlds.

18.	Emigration and immigration are:
	A)	when workers leave and workers come in.
	B)	two ways of saying workers are coming in.
	C)	when workers come in and workers leave.
	D)	two ways of saying workers leave.

19.	During the 1960s and 1970s, some northern European countries actively recruited migrants mainly from Turkey, the former Yugoslavia, Greece, and Italy. In contrast, today most migrants to Europe come from:
	A)	Iran, India, and Pakistan
	B)	Syria, Iraq, and Afghanistan
	C)	Nigeria, Ghana, and Senegal
	D)	Uzbekistan, Kyrgyzstan, and Tajikistan

20.	In recent years, most immigrants to Europe:
	A)	migrate for economic reasons, that is, to seek higher wages.
	B)	are highly educated.
	C)	enter Europe through Germany.
	D)	are refugees fleeing war-torn countries.

21.	What is the Schengen Area?
	A)	An area consisting of 15 EU countries plus Norway and Switzerland that allows persons to move freely across their borders.
	B)	An area consisting of 12 South American countries that allows persons to move freely across their borders.
	C)	An area consisting of 26 EU countries that allows persons to move freely across their borders.
	D)	An area consisting of Canada, Mexico, and the United States that allows persons to move freely across their borders.

22.	In recent years, most migrants to Europe:
	A)	enter through Germany and France.
	B)	enter through Italy and Greece, then seek employment in northern European countries.
	C)	enter through Belgium and the Netherlands, then seek employment in France, Germany, and the United Kingdom.
	D)	enter through Finland, Norway, and Sweden, then seek employment in Greece, Italy and Spain.

23.	Research by Giovanni Peri and Mette Foged shows that:
	A)	an influx of lower-wage immigrants tends to raise wages for everyone else.
	B)	an influx of lower-wage immigrants tends to lower wages for everyone else.
	C)	an influx of lower-wage immigrants has no effect on wages for everyone else.
	D)	an influx of lower-wage immigrants tends to cause unemployment of other workers.

24.	Proposed European immigration policies are best described as trying to place immigrants:
	A)	proportionately across all EU countries.
	B)	mainly in richer EU countries.
	C)	in select industries.
	D)	mainly in southern EU countries.

25.	In the specific-factors model, migration of labor will cause the wage to:
	A)	rise in the receiving country and the wage to fall in the sending country.
	B)	fall in the receiving country and the wage to rise in the sending country.
	C)	rise in both the receiving and sending countries.
	D)	fall in both the receiving and sending countries.

26.	In the specific-factors model, labor migration from Mexico to the United States will cause _________ in U.S. low-skilled wages and _________ in Mexican low-skilled wages.
	A)	increases; decreases
	B)	increases; increases
	C)	decreases; decreases
	D)	decreases; increases

27.	If capital is specific to manufacturing and land is specific to agriculture, then migration of labor from low-income to high-income countries will cause the wage to:
	A)	rise in the high-income country and the wage to fall in the low-income country.
	B)	fall in the high-income country and the wage to rise in the low-income country.
	C)	rise in both the high-income and low-income countries.
	D)	fall in both the high-income and low-income countries.

28.	In the specific-factors model, emigration causes __________ in the capital–labor ratio and __________ in the return to capital.
	A)	increases; decreases
	B)	increases; increases
	C)	decreases; decreases
	D)	decreases; increases

29.	In the specific-factors model, immigration causes __________ in the capital–labor ratio and __________ in the return to capital.
	A)	increases; decreases
	B)	increases; increases
	C)	decreases; decreases
	D)	decreases; increases

30.	What is the likely attitude of owners of capital and land toward immigration?
	A)	They are likely to support closing the borders to foreign labor.
	B)	They are likely to support more open borders and an influx of workers.
	C)	They are not likely to worry about immigration issues,
	D)	They are likely to reject legislation easing rules on immigration.

31.	In the short run, as immigration occurs and more labor is employed, what will happen to the marginal products of land and capital (fixed resources) in the destination country?
	A)	Neither will be affected.
	B)	Both will rise.
	C)	Both will fall.
	D)	The marginal products of land marginal product of land will rise and the marginal product of capital will fall.

32.	Because immigration raises the marginal products of nonlabor factors of production, in the short-run owners of nonlabor resources often support:
	A)	open borders.
	B)	tighter restrictions on immigration.
	C)	controls on the flow of foreign direct investment (FDI).
	D)	immigration of persons only for humanitarian reasons.

33.	Which legislation would U.S. labor unions support?
	A)	legislation to eliminate all restrictions on immigration
	B)	legislation to eliminate direct foreign investment in the United States
	C)	legislation to heighten restrictions on immigration
	D)	Labor unions would support all of these measures.

34.	In the specific-factors model, immigration causes:
	A)	a rightward shift in the receiving country’s production possibilities frontier.
	B)	a leftward shift in the receiving country’s production possibilities frontier.
	C)	no change in the receiving country’s production possibilities frontier.
	D)	a rightward shift in the sending country’s production possibilities frontier.

35.	Suppose labor and capital are the only two resources used for production. In the short run:
	A)	only capital can move freely between sectors.
	B)	only labor can move freely between sectors.
	C)	both capital and labor can move freely between sectors.
	D)	both resources are restricted in their movement.

36.	Which of the following events will cause the production possibility frontier to shift outward (to the right)?
	A)	a natural disaster that causes widespread damage
	B)	a computer problem that affects all business that rely on computers
	C)	a wave of immigration caused by new, easier rules
	D)	a war that destroys the nation’s infrastructure

37.	Suppose labor and capital are the only two resources used for production. In the long run:
	A)	both capital and labor can move freely between sectors.
	B)	only labor can move between sectors.
	C)	only capital can move between sectors.
	D)	both capital and labor are blocked from moving between sectors.

38.	In order to analyze migration in the long run, it is appropriate to use:
	A)	the specific-factors model with free movement of labor across borders.
	B)	the Heckscher–Ohlin model with free movement of labor across borders.
	C)	the Ricardian model with no movement of labor across borders.
	D)	the PPF modified for three goods, three factors of production (all fixed), and three nations.

39.	In the Heckscher–Ohlin model, how will immigration affect the sending country’s production possibilities frontier?
	A)	It will shift it to the right.
	B)	It will shift it to the left.
	C)	It will not affect its production possibilities curve.
	D)	Immigration will first shift it to the left, then shift it back to its original position.

40.	Which is the best approach to analyzing migration in the long run?
	A)	the specific-factors model with no resource mobility across borders
	B)	the specific-factors model with free movement of labor across borders
	C)	the Heckscher–Ohlin model with free movement of labor across borders
	D)	the Heckscher–Ohlin model with no resource mobility across borders

41.	Consider an economy that only produces steel and shoes; steel is capital intensive and shoes are labor intensive. Which industry has a lower capital–labor ratio?
	A)	steel
	B)	shoes
	C)	neither steel nor shoes
	D)	The capital–labor ratios are identical in steel and shoes.

42.	In the long run, immigration will lead to a rightward shift in the receiving country’s production possibilities frontier. This shift will:
	A)	favor the labor-intensive good.
	B)	favor the capital-intensive good.
	C)	equally favor the labor-intensive and the capital-intensive good.
	D)	cause an increase in the production of the labor-intensive good and a decrease in the capital-intensive good.

43.	In the long run, immigration will shift the sending country’s production possibilities frontier inward. This shift will cause:
	A)	a larger decline in the potential output of the capital-intensive good.
	B)	a larger decline in the potential output of the labor-intensive good.
	C)	equal declines in the potential output of both the labor-intensive and the capital-intensive good.
	D)	a decline in the potential output of the labor-intensive good and an increase in the potential output of the capital-intensive good.

44.	In the Heckscher–Ohlin model, a “box diagram” describes the distribution of:
	A)	output between the two producing sectors in a country.
	B)	output between the two countries of the model.
	C)	labor and capital between the two producing sectors of a country.
	D)	labor between the two countries of the model.

45.	When factors of production are not fixed (as in the long run) and labor immigrates, capital will:
	A)	remain fixed because capital is never mobile.
	B)	increase in the capital-intensive industry.
	C)	move to the higher productivity use in the labor-intensive industry until returns are again equalized.
	D)	become idled as owners of capital seek more profitable opportunities.

46.	Consider a hypothetical economy in which only computers and shoes are produced and in which computer production is capital intensive and shoe production is labor intensive. If two resources are being used, labor and capital, then the capital–labor ratio would be:
	A)	higher in the shoe industry.
	B)	lower in the computer industry.
	C)	the same in both industries.
	D)	higher in the computer industry.

47.	Consider an economy that only produces steel and shoes; steel is capital intensive and shoes are labor intensive. How will emigration of labor from this economy affect the marginal productivity of labor in the long run?
	A)	It will fall.
	B)	It will not change.
	C)	It will rise.
	D)	It will only change in the short run.

48.	In the long run (the Heckscher–Ohlin model), immigration will lead to:
	A)	an increase in the production of both the labor-intensive and the capital-intensive goods in the receiving country.
	B)	an increase in the production of the labor-intensive good and a decrease in the production of the capital-intensive good in the receiving country.
	C)	a decrease in the production of both the labor-intensive and the capital-intensive goods in the receiving country.
	D)	a decrease in the production of the labor-intensive and an increase in the production of the capital-intensive good in the receiving country.

49.	In the long run, when there is immigration of labor and all domestic factors of production are mobile:
	A)	resources move out of the labor-intensive industry into the other sectors of the economy.
	B)	the excess labor cannot be absorbed into the economy, and eventually workers will seek to emigrate.
	C)	the excess labor is absorbed, but it raises the unemployment rate and drives down wages, and the owners of capital are the clear winners.
	D)	the additional labor in the economy is fully employed and the capital–labor ratio in each industry is unchanged

50.	Consider an economy that only produces steel and shoes; steel is capital intensive and shoes are labor intensive. How will emigration of labor from this economy affect production?
	A)	Production of both the labor-intensive and the capital-intensive good will rise.
	B)	Production of both the labor-intensive and capital-intensive good will fall.
	C)	Production of the labor-intensive good will rise and production of the capital-intensive good will fall.
	D)	Production of the labor-intensive good will fall and production of the capital-intensive good will rise.

51.	How will immigration affect the marginal products and returns to factors of production in the long run?
	A)	They will not change.
	B)	They will fall.
	C)	They will rise.
	D)	They will only rise in the short run.

52.	In the long run (the Heckscher–Ohlin model), immigration will lead to:
	A)	an increase in the wages paid to laborers in the receiving country.
	B)	an increase in the rent paid to capital- and land-owners in the receiving country.
	C)	an increase in the rent paid to capital-owners and a decrease in the rent paid to land-owners in the receiving country.
	D)	no change in the either the wages paid to laborers or the rent paid to capital- and land-owners in the receiving country.

53.	What are two major categories of recent U.S. immigrants?
	A)	male and female
	B)	young and middle-aged
	C)	very low-skilled and very highly educated and/or skilled
	D)	middle-income artisans and performance artists

54.	U.S. immigrants from Mexico are mainly _________workers and U.S. immigrants from India are mainly ___________workers.
	A)	low-skilled; highly skilled
	B)	middle-income artisans; performance artists
	C)	male; female
	D)	younger; older

55.	Which group of U.S. citizens is most likely to compete with illegal immigrants in the United States?
	A)	medical doctors
	B)	high school dropouts
	C)	college graduates
	D)	all U.S. citizens

56.	The H1-B visa program is designed:
	A)	to keep out undocumented workers.
	B)	to encourage bright U.S. college students to study abroad.
	C)	to attract scientists and engineers from other nations to help U.S. industry prosper.
	D)	to have a way to force foreign students to go back to their native lands after graduation.

57.	Of the 11% of the U.S. work force with advanced degrees, those who are foreign born make up:
	A)	18% of those with Ph.D.’s.
	B)	less than 10% of those with Master’s degrees and Ph.D.’s.
	C)	40% of those with Ph.D.’s in science and engineering.
	D)	30% of those with Master’s degrees.

58.	The combination of legal and illegal immigrants in the United States creates a U-shaped pattern between the number of immigrants and:
	A)	wages of competing American workers.
	B)	their wages.
	C)	their educational level.
	D)	their jobs.

59.	Foreign-born workers in the United States tend to:
	A)	be poorly educated (high school dropouts) or very highly educated (graduate degrees).
	B)	be mainly very poorly educated.
	C)	be mainly very highly educated.
	D)	have educational levels similar to U.S.-born workers.

60.	In the United States, what percentage of workers with 12 years of education or less are foreign born?
	A)	less than 10%
	B)	15%
	C)	45%
	D)	70%

61.	Illegal immigrants into the United States tend to compete mainly with:
	A)	highly educated American workers.
	B)	poorly educated American workers.
	C)	all American workers.
	D)	one another.

62.	Immigrants into the United States have the strongest effect on the wages of:
	A)	college graduates.
	B)	high school dropouts.
	C)	high school graduates.
	D)	one another.

63.	Because most immigrants into the United States are either highly skilled or unskilled, the majority of workers:
	A)	see very little impact on their wages as a result of immigration.
	B)	have difficulty finding jobs and getting raises because of all the competition from immigrants.
	C)	feel a big hit on wages and unemployment.
	D)	must rely on trade adjustment assistance for help retraining and relocating.

64.	In the long run, which of the following will occur if the U.S. federal government eliminates restrictions on migration of Mexican workers to the United States?
	A)	The United States’ total K/L ratio will rise.
	B)	Mexico’s total K/L ratio will fall.
	C)	Wages of American workers who compete with Mexican workers for jobs will rise.
	D)	The returns to U.S. owners of capital will remain unchanged.

65.	In the long run (the Heckscher–Ohlin model), immigration will lead to:
	A)	an increase in the wage and a decrease in the return to capital in the receiving country.
	B)	an increase in both the wage and the return to capital in the receiving country.
	C)	a decrease in the wage and an increase in the return to capital in the receiving country.
	D)	no change in the wage and the return to capital in the receiving country.

66.	For the sending country, what will be the long-run effects of immigration on wages and the return to capital?
	A)	The wage will increase, and the return to capital will decrease.
	B)	The wage will decrease, and the return to capital will increase.
	C)	Both the wage and the return to capital will increase.
	D)	There will be no change in the wage and the return to capital.

67.	Consider a hypothetical economy in which only computers and shoes are produced and in which computer production is capital intensive compared with shoe production. If two resources are being used, labor and capital, then any increase in immigration in the long run:
	A)	will cause the capital–labor ratio to increase in the computer industry.
	B)	will cause the capital–labor ratio to increase in the shoe industry.
	C)	will cause the capital–labor ratio to increase in both the industries.
	D)	will increase the number of workers employed in the shoe industry.

68.	Consider a hypothetical economy in which only computers and shoes are produced. If two resources are being used, labor and capital, then any increase in immigration in the long run:
	A)	will decrease wages in the shoe industry.
	B)	will decrease wages in the computer industry.
	C)	will increase wages in the shoe industry.
	D)	will keep wages constant because marginal products do not change.

69.	In an economy with two industries, what are the long-run effects of increased immigration upon employment in each industry?
	A)	Employment will increase in both industries.
	B)	There will be no change in employment in either industry.
	C)	Employment will increase in one and decrease in the other.
	D)	Wages will fall in both industries.

70.	In the long run (the Heckscher–Ohlin model), immigration will lead to:
	A)	a rightward shift in the receiving country’s production possibilities frontier.
	B)	a leftward shift in the receiving country’s production possibilities frontier.
	C)	no change in the receiving country’s production possibilities frontier.
	D)	a rightward shift in the sending country’s production possibilities frontier.

71.	What is the long-run effect of immigration on capital use in the receiving country?
	A)	There will be no change because the remaining capital is not mobile.
	B)	Capital will move to the capital-intensive industry.
	C)	The return to capital (rental) will fall.
	D)	Capital will move to the labor-intensive industry.

72.	In the long run, how will immigration affect the labor-intensive industry’s output?
	A)	It will not change.
	B)	It will fall.
	C)	It will rise.
	D)	It will equal zero.

73.	Which of the following is a long-run impact of labor immigration?
	A)	Production of labor-intensive industries will increase.
	B)	Production of capital-intensive industries will increase.
	C)	There will be a shift of labor and capital into capital-intensive industries.
	D)	The PPF will shift inward.

74.	In the Heckscher–Ohlin model with two goods and two factors, an increase in one factor will cause:
	A)	an increase in the production of the good that uses the factor intensively.
	B)	a decrease in the production of the good that use the factor intensively.
	C)	an increase in the production of the good that does not use the factor intensively.
	D)	no change in the production of either good.

75.	What is the long-run effect of immigration?
	A)	Output will decrease.
	B)	Factor prices will increase.
	C)	Factor prices will decrease.
	D)	There will be no change in factor prices.

76.	What is the overall long-run impact of labor immigration on returns to factors of production?
	A)	Returns to labor will increase and returns to capital will decrease.
	B)	Returns to labor and returns to capital will both increase.
	C)	Both relative and absolute returns to factors of production will not change.
	D)	Both relative and absolute returns to factors of production will increase.

77.	What is the name given to the idea that, in a Heckscher–Ohlin model, labor immigration increases output for the labor-intensive industry while reducing output in the capital-intensive industry?
	A)	Stolper–Samuelson theorem
	B)	specific-factors model
	C)	Ricardian model
	D)	Rybczynski theorem

78.	A corollary to the Rybczynski theorem is that, in the long run, prices of factors will not be affected by an increase in labor. This is known as:
	A)	the Friedman corollary.
	B)	the Marshall–Lerner condition.
	C)	the factor price insensitivity result.
	D)	the Stolper–Samuelson prediction.

79.	According to the Rybczynski theorem, immigration will cause:
	A)	an increase in the output of the labor-intensive good and a decrease in the output of the capital-intensive good in the receiving country.
	B)	an increase in the output of both the labor-intensive and the capital-intensive goods in the receiving country.
	C)	a decrease in the output of the labor-intensive good and an increase in the output of the capital-intensive good in the receiving country.
	D)	a decrease in the output of both the labor-intensive and the capital-intensive good in the receiving country.

80.	According to the Rybczynski theorem, how will immigration of unskilled labor from Mexico to the United States affect the Mexican economy?
	A)	Mexico’s production of capital-intensive products will decrease.
	B)	Mexico’s production of labor-intensive products will decrease.
	C)	Wages of Mexican workers will increase.
	D)	Wages of Mexican workers will decrease.

81.	In the Heckscher–Ohlin model with two goods and two factors, an increase in either factor will be absorbed by the economy, changing the outputs of each good but leaving factor prices unaffected. What is the name of this result?
	A)	factor price insensitivity
	B)	factor price equalization
	C)	factor price theorem
	D)	factor price absorption

82.	According to the Rybczynski theorem, how will immigration affect the receiving country’s production of labor-intensive and capital-intensive goods?
	A)	Production of the labor-intensive goods will increase and production of capital-intensive goods will decrease.
	B)	Production of both labor-intensive and the capital-intensive goods will increase.
	C)	Production of labor-intensive goods will decrease and production of capital-intensive goods will increase.
	D)	Production of both labor-intensive and capital-intensive goods will decrease.

83.	In the long run, which of the following will occur if the U.S. federal government eliminates restrictions on migration of Mexican workers to the United States?
	A)	U.S. production of labor-intensive goods will increase.
	B)	U.S. production of both labor-intensive and capital-intensive goods will increase.
	C)	U.S. production of capital-intensive goods will increase.
	D)	Mexican production of labor-intensive goods will increase.

84.	What were the effects of the 1980 Mariel boat lift of Cubans upon the apparel industry in Miami?
	A)	There was an increase in the output of the Miami apparel industry
	B)	There was no change in the output of the Miami apparel industry.
	C)	Output of the Miami apparel industry declined less rapidly than output of apparel elsewhere in the United States.
	D)	Output of the Miami apparel industry declined more rapidly than output of apparel elsewhere in the United States.

85.	The text estimates that the long-run effect of migration from 1996–2006 on wages of all U.S. workers was, on average:
	A)	–3%.
	B)	–1%.
	C)	0.1%.
	D)	0.6%.

86.	The text cites estimates of the long-run effect of migration on wages of all foreign-born workers in the United States that range between:
	A)	0.3 and 0.6.
	B)	–3.0 and –7.8.
	C)	–4.0 and –8.1.
	D)	–25.0 and –10.0.

87.	Ottaviano and Peri estimated that the long-run effect of migration on wages of all U.S. workers ranged between:
	A)	–4.7 and 2.2
	B)	–12.3 and –2.3
	C)	–15.0 and –9.3
	D)	–25.0 and –10.0

88.	A study of the results of the Mariel boat lift on wages in Miami found:
	A)	significant declines in wages for unskilled workers.
	B)	no significant decline in wages for unskilled workers because firms employed low-skilled workers as a substitute for computers.
	C)	ironically, a rise in wages and salaries paid to low-skilled workers because the boat lift immigrants had superior technical skills.
	D)	that wages in the apparel industry collapsed, raising unemployment across the board and lowering wages of all workers in all skill categories.

89.	Skill-biased technological changes benefit:
	A)	educated workers more than uneducated workers.
	B)	all workers equally.
	C)	uneducated workers more than educated workers.
	D)	no workers.

90.	In 2013, what percentage of the U.S. population was foreign-born?
	A)	3.5%
	B)	14.3%
	C)	23.5%
	D)	33.5%

91.	A number of studies of the effect of immigration on U.S. wages have found:
	A)	no effect on the wages of any educational group.
	B)	significant rises in wages for those without a high school diploma and for college graduates but a negative impact for high school graduates and those with some college education.
	C)	significant declines in wages for those without a high school diploma and for college graduates.
	D)	no effect on other groups but significant declines in wages for high school graduates and those with some college.

92.	Foreign direct investment that takes the form of purchasing an existing plant is often called:
	A)	acquisition FDI.
	B)	greenfield FDI.
	C)	requisition FDI.
	D)	brownstone FDI.

93.	During the past 10 to 20 years, a considerable amount of foreign capital has flowed into China. What is an implication of capital flow on the composition of Chinese trade?
	A)	There should be no change in the composition of China’s trade.
	B)	There should be a shift toward the export of more labor-intensive products.
	C)	There should be a shift toward the export of more capital-intensive products.
	D)	There should be a shift toward the import of more capital-intensive products.

94.	Foreign direct investment that takes the form of a new startup facility is called:
	A)	acquisition FDI.
	B)	greenfield FDI.
	C)	intermediary FDI.
	D)	international FDI.

95.	According to the U.S. Department of Commerce, a foreign direct investment inflow to the United States occurs whenever a foreign company acquires ____ or more of a U.S. firm.
	A)	10%
	B)	25%
	C)	51%
	D)	100%

96.	The U.S. Commerce Department defines foreign direct investment as occurring when:
	A)	a U.S. company acquires at least 51% ownership of a foreign company or a foreign company acquires at least 51% ownership of a U.S. company.
	B)	a U.S. foreign company acquires an American company with 10 or more workers or a foreign company acquires a foreign company with 10 or more workers.
	C)	a U.S. company acquires at least 10% ownership of a foreign company or a foreign company acquires at least 10% ownership of a U.S. company.
	D)	there is only investment by foreign governments in American companies.

97.	“Greenfield investment” is defined as:
	A)	a takeover of an existing company.
	B)	the construction of a new factory in a foreign company.
	C)	the hiring of at least 25 workers in a foreign company.
	D)	renting space in an office building.

98.	If we use the short-run (specific-factors) model to model FDI movement from one nation to another, then wages in the recipient nation:
	A)	decline absolutely.
	B)	rise as a result of an increase in the marginal product of labor.
	C)	are not affected.
	D)	decline relatively, as capital competes with labor but not absolutely.

99.	In the short-run (specific-factors) model, foreign direct investment is expected to ________the marginal product of labor and ________wages in the receiving country.
	A)	decrease; decrease
	B)	increase; decrease
	C)	decrease; increase
	D)	increase; increase

100.	According to the short-run (specific-factors) model, how will FDI affect wages in the recipient nation?
	A)	They will rise.
	B)	They will fall.
	C)	They will not affect wages.
	D)	They will fall in comparison to wages in the sending country.

101.	According to the short-run (specific-factors) model, how will FDI affect the marginal productivity of labor in the recipient nation?
	A)	The MPL will rise in the production of both the labor- and capital-intensive goods.
	B)	The MPL will rise only in the production of the labor-intensive good.
	C)	The MPL will rise only in the production of the capital-intensive good.
	D)	The MPL will fall in the production of both the labor- and capital-intensive goods.

102.	As FDI flows into a nation, which of the following will happen to the marginal product of labor in the short run?
	A)	It will rise.
	B)	It will fall.
	C)	It will not change.
	D)	It will first fall then rise.

103.	According to the short-run (specific-factors) model, how will FDI affect the return to capital and the return to land in the recipient nation?
	A)	The returns to land and capital will both decrease.
	B)	The return to land will decrease; the return to capital will increase.
	C)	The return to land will increase; the return to capital will decrease.
	D)	The returns to land and capital will both increase.

104.	In the short-run (specific-factors) model, foreign direct investment is expected to cause a(n) ________in the production of the capital-intensive good and a(n) ________in the production of the land-intensive good in the receiving country.
	A)	decrease; decrease
	B)	increase; decrease
	C)	decrease; increase
	D)	increase; increase

105.	In the short-run (specific-factors) model, foreign direct investment is expected to cause a(n) ________in the return to capital and a(n) ________in the return to land in the receiving country.
	A)	decrease; decrease
	B)	increase; decrease
	C)	decrease; increase
	D)	increase; increase

106.	In the short-run (specific-factors) model, an FDI inflow into a country’s manufacturing sector will cause:
	A)	an increase in the output of the agricultural sector.
	B)	an increase in employment in the agricultural sector.
	C)	a decrease in employment in the manufacturing sector.
	D)	an increase in the output of and employment in the manufacturing sector.

107.	In the short-run (specific-factors) model, an FDI inflow into a country’s manufacturing sector will cause its production possibility frontier:
	A)	to shift outward for both sectors.
	B)	to shift inward.
	C)	to shift outward for manufacturing only.
	D)	to stay the same.

108.	In the short-run (specific-factors) model, what will happen to the rental rate on capital and the wage rate when there is an inflow of FDI into the country?
	A)	Both the rental rate on capital and the wage rate will increase.
	B)	Both the rental rate on capital and the wage rate will decrease.
	C)	The rental rate on capital will increase and the wage rate will decrease.
	D)	The rental rate on capital will decrease and the wage rate will increase.

109.	In the short-run (specific factors) model, FDI will cause _______________ in the return to capital and land and _______________ in the return to labor in the recipient country.
	A)	an increase; a decrease
	B)	a decrease; an increase
	C)	no change; an increase
	D)	a decrease; no change

110.	During the past 20 years, there has been substantial FDI in China. What are the expected short-run effects of this FDI upon the rental rate on capital and wages in China?
	A)	The rental rate should increase and wages should decrease.
	B)	The rental rate and wages should both increase.
	C)	The rental rate and wages should both decrease.
	D)	The rental rate should decrease and wages should increase.

111.	According to the long-run (Heckscher–Ohlin) model, when FDI takes place, the investment capital generally moves from:
	A)	southern hemisphere nations to northern hemisphere nations.
	B)	high-wage nations to low-wage nations.
	C)	Eastern Europe to Western Europe.
	D)	privately owned enterprises to government-owned enterprises.

112.	When FDI occurs, what are the long-run effects of FDI on industry output in the recipient nation?
	A)	There is no change in either the output of the capital-intensive or the labor-intensive industry.
	B)	The labor-intensive industry expands; the capital-intensive industry contracts.
	C)	The capital-intensive industry expands; the labor-intensive industry contracts.
	D)	Both capital- and labor-intensive industries expand in the same proportion.

113.	In the long run, an increase in FDI in the manufacturing sector will:
	A)	increase marginal product of labor in the agriculture sector.
	B)	increase marginal product of labor in the manufacturing sector.
	C)	decrease marginal product of labor in the agriculture sector.
	D)	not change the marginal product of labor in either sector.

114.	How can we model the long-run effect of FDI flows on wages and rentals?
	A)	Use a simple supply-and-demand approach.
	B)	Use the Ricardian comparative advantage model.
	C)	Use the Heckscher–Ohlin model with the assumption that capital can migrate.
	D)	Use the Rybczynski theorem.

115.	In the long run, if all resources can move within a nation, an inflow of FDI will:
	A)	increase production in the capital-intensive sectors as capital becomes cheaper.
	B)	increase production in the labor-intensive sector as capital becomes less desirable.
	C)	lower wages.
	D)	decrease the production of capital-intensive goods.

116.	The international movement of factors of production:
	A)	is prohibited by the Geneva Convention.
	B)	is completely free of restrictions everywhere in the world.
	C)	tends to make the prices paid to factors of production among countries diverge over time.
	D)	tends to make the prices paid to the factors of production among countries converge over time.

117.	China has 1,000 units of capital and 3,000 workers. The United States has 3,000 units of capital and 1,000 workers. Clothing production is labor intensive and chemical production is capital intensive. Suppose that the United States eliminates all restrictions on immigration and Chinese workers are free to emigrate from China to the United States. How many Chinese workers must emigrate from China to the United States in order for factor price equalization to occur?
	A)	1,000
	B)	2,000
	C)	3,000
	D)	4,000

118.	In the long run, which of the following explains why there are no changes to returns to capital and wages when FDI or labor immigration occurs?
	A)	World prices of output are unchanged.
	B)	Marginal productivities are unchanged.
	C)	There is no change in the capital–labor ratio in either industry.
	D)	World prices of output and marginal productivities are unchanged.

119.	In the long run, an increase in FDI in the manufacturing sector will __________ the return to capital in the ____________ sector(s).
	A)	decrease; agriculture
	B)	increase; manufacturing
	C)	decrease; manufacturing
	D)	not change; manufacturing or agriculture

120.	Mexico has 2,000 units of capital and 2,000 workers. The United States has 6,000 units of capital and 4,000 workers. Clothing production is labor intensive and chemical production is capital intensive. Suppose that the United States eliminates all restrictions on immigration from Mexico. How many Mexican workers must immigrate to the United States in order for factor price equalization to occur?
	A)	500
	B)	1,000
	C)	1,500
	D)	2,000

121.	Which of the following is a key assumption in factor price insensitivity in response to a fall in FDI?
	A)	Technology is changing in the capital-intensive sector.
	B)	Technology is changing in the labor-intensive sector.
	C)	Prices are changing for the capital-intensive good.
	D)	None of these is a key assumption.

122.	Which of the following BEST describes the short-run effects of FDI inflows to Singapore during the latter part of the twentieth century?
	A)	The effects contradicted the specific-factors model because wages fell, while the rental on capital rose.
	B)	The effects confirmed the specific-factors model because wages rose, while the rental on capital fell.
	C)	FDI did not have any measurable effects on either wages or the rental on capital in Singapore.
	D)	FDI confounded economists because both the rental on capital rose and wages rose in Singapore.

123.	Suppose that FDI has “spillover” benefits for the recipient nation (such as spurring technological innovation, more FDI, or growth in labor productivity). These spillover effects might help explain why:
	A)	in Singapore, wages fell in the short run.
	B)	in Singapore, wages fell and returns to capital rose in the long run.
	C)	in Singapore, wages rose and, depending on the calculation used, returns to capital were close to original levels in the long run, which contradicted the Heckscher–Ohlin model.
	D)	in Singapore, absolutely nothing changed in either the short or the long run.

124.	Without productivity growth, what is the long-run effect of labor migration?
	A)	There will be an increase in production in the sector using labor intensively.
	B)	There will be clear gains to owners of capital versus labor.
	C)	There will be clear gains to labor versus owners of capital.
	D)	There will be a shift of world resources toward the high-income nations.

125.	Without productivity growth, what is the long-run effect of labor migration on the receiving country?
	A)	There will be an increase in production of the labor-intensive good.
	B)	Wages will fall.
	C)	Returns to capital will increase.
	D)	None of these is the long-run effect.

126.	Measuring the effects of labor migration shows:
	A)	that as workers move, they disrupt their families and cause huge costs in the recipient nation.
	B)	that most immigrants spend months trying to find work.
	C)	that immigration benefits the recipient nation by raising the marginal product of capital, expanding labor-intensive production, and lowering prices of labor-intensive goods.
	D)	that immigration is very harmful to the host nation because of a huge increase in the unemployment rate.

127.	In the short run, which of the following will reduce the gains from labor migration to the recipient nation?
	A)	Workers remit less than the value of their marginal products.
	B)	Migrant workers have a declining marginal product so that the equilibrium wage is lower than marginal products of earlier immigrants.
	C)	Immigrants are low cost in terms of adjustment costs such as crime prevention, language assimilation, and few children enrolled in school.
	D)	Workers remit more than the value of their marginal products.

128.	Which of the following would one expect if there were no trade in goods but resources were free to move among countries?
	A)	Labor will emigrate from the capital-abundant country.
	B)	Labor will immigrate to the capital-abundant country.
	C)	Labor will immigrate to the capital-scarce country.
	D)	Labor will emigrate from the labor-scarce country.

129.	Which of the following statements describes the short-run effect(s) of labor immigration?
	A)	The source nation benefits from remittances and a rise in the overall marginal product of labor as some of its workers emigrate.
	B)	Emigrating workers create a “brain drain,” and the marginal product of labor declines in the source nation.
	C)	Emigration of workers usually lowers the real wage of workers left behind in the source nation.
	D)	The source nation experiences a decline in the overall marginal product of labor as some workers emigrate.

130.	According to World Bank estimates, how large were the remittances of migrant workers to their home countries in 2013?
	A)	$5 trillion
	B)	$2.5 trillion
	C)	$480 billion
	D)	$200 million

131.	Which of the following is a key assumption in proving the gains from immigration?
	A)	Immigrants are generally high skilled.
	B)	The productivity of labor rises as the number of workers rises.
	C)	Immigrants are generally low skilled.
	D)	The productivity of labor falls as the number of workers rises.

132.	Which of the following terms is used to describe payments made by foreign resident workers to families in their home nations or in the form of taxes paid to their home nations?
	A)	worker redistribution
	B)	worker earnings
	C)	worker remittances
	D)	worker repayments

133.	Some economists have proposed a “brain drain” tax to be administered though the United Nations. This tax would:
	A)	compensate firms that hire people who need remedial reading and writing skills to be able to function in an advanced economy.
	B)	repay the nations of origin of highly educated immigrants for their losses.
	C)	force immigrants to pay taxes where they work instead of where they live.
	D)	require the national government to pay taxes to states to recover the cost of educating immigrants.

134.	The gains from immigration of labor or capital to the recipient nation can be summarized as:
	A)	the total cost of acquiring new resources versus the cost of using domestic resources.
	B)	the increase in prices minus the increase in the unemployment rate.
	C)	the gain in domestic real GDP minus costs from immigration.
	D)	the impact on the ability of labor unions to attract new members and the ability of domestic firms to retain profits.

135.	Which of the following is nearly always true of highly educated immigrants?
	A)	They impose high costs on the recipient nation.
	B)	They move from high-wage nations to low-wage nations.
	C)	They impose costs on the source nation in terms of lost opportunity and provide benefits to the recipient nation.
	D)	They impose high costs on the recipient nation, and they move from high-wage nations to low-wage nations.

136.	The economic benefit to immigrating workers is:
	A)	political freedom and ideological peace.
	B)	living in a nation where they do not have to pay taxes and receive many free social services.
	C)	the chance to be free from discrimination and poverty.
	D)	the present value of higher wages minus the value of the costs involved with the immigration process.

137.	Economists conclude that the effect on our world’s standard of living as a result of labor and capital migration has been:
	A)	negative overall.
	B)	positive overall as resources move to their highest-valued use.
	C)	positive in some respects but very harmful in the long run to workers.
	D)	so small worldwide that the effect is not worth measuring.

138.	Economist George Borjas has estimated the net benefits (+) or costs (–) to the United States from labor immigration to be approximately:
	A)	+10% of GDP.
	B)	–5% of GDP.
	C)	+0.1% to 0.4% of GDP.
	D)	0.5% capital losses and 0.8% labor gains.

139.	Economists who have studied the impact of immigration on world welfare generally find, after considering impacts on all constituencies, that world GDP has _______ as a result of worker migration.
	A)	decreased
	B)	risen
	C)	remained constant
	D)	decreased sharply

140.	As of 2005, the European Union had:
	A)	5 members.
	B)	15 members.
	C)	25 members.
	D)	40 members.

141.	Estimates of the long-run gains (after 25 years) from enlargement of the European Union range between:
	A)	4.8% and 9.1% of EU GDP.
	B)	0.6% and 1.8% of EU GDP.
	C)	10.0% and 20.0% of EU GDP.
	D)	25.0% and 40.0% of EU GDP

142.	(Figure: Wages in Home and Foreign) Using the graph, what is the value of the gains to the home country if some of its workers are allowed to migrate to the foreign country?
	A)	200 workers
	B)	$300
	C)	$500
	D)	$7,500

143.	(Figure: Wages in Home and Foreign) Which of the following is NOT a potential cost that might offset some of the gains from migration determined above?
	A)	moving costs
	B)	higher living costs
	C)	payments to agents to arrange migration (such as traffickers who arrange illegal migration or lawyers who arrange legal migration)
	D)	remittances made by migrants to their families at home

144.	According to economists, which of the following statements about international capital mobility is correct?
	A)	International resource mobility has had no effect upon world GDP.
	B)	International resource mobility has had a negative effect upon world GDP.
	C)	International resource mobility has had a positive effect upon world GDP.
	D)	International resource mobility has had such a small effect upon world GDP that it is not worth measuring.

145.

Suppose that an economy has 1,500 units of capital and 1,000 workers. This economy produces computers and shoes. Computer production requires four units of capital per worker and shirt production requires one unit of capital per worker.

I. Solve for the amount of labor and capital used in each industry.

Given that:

(1) K_C + K_S= the total capital stock, and L_C + L_S= the total labor force; and

(2) K_C= 4 · L_C, and K_S= 1 · L_S.

II. Suppose that the number of workers increases to 1,250 due to immigration, keeping total capital fixed at 1,500. Solve for the distribution of labor and capital between the two sectors.

146.	Does the European Union allow migration among its member countries?

147.	In which U.S. educational categories were foreign-born workers most highly concentrated in 2013?

148.	What limit per nationality does the U.S. government impose for granting permanent visas?

149.	Discuss the evidence on the impact of immigration on wages of all U.S. workers (including foreign-born) by educational level.

150.

Evidence in the text indicates that the long-run effects of immigration on overall U.S. wages remain nearly constant (0.1%), which is consistent with the long-run (Heckscher–Ohlin) model. However, there are differing effects across workers’ educational levels. What are these differing effects and why might they occur?

151.	In the short run, immigration lowers wages in both sectors because of what feature of production?

152.	Why do owners of capital and land usually support the reduction of restrictions on immigration?

153.	Would you expect the owners of capital and land to support lower barriers on immigration more than lower barriers on imports?

154.

Large numbers of Pakistani, Indian, Bangladeshi, and Philippine labor are working (mainly in low skilled jobs) in Arabian Peninsula countries (e.g., Qatar, Saudi Arabia, United Arab Emirates). Suppose that you are an Indian worker who could earn $1,000 annually at home and $3,000 in Saudi Arabia.

I. Compare the productivity of this worker at home and in Saudi Arabia.

II. Why might these productivities differ?

III. Often, a broker arranges visas for foreigners to work in Saudi Arabia. What is the maximum amount that an Indian worker might be willing to pay a broker to arrange a work visa for Saudi Arabia?

155.

In spring 2010, an explosion on an offshore oil-drilling rig caused 11 deaths and a major oil spill in the Gulf of Mexico. Shortly thereafter, the U.S. government declared a moratorium on oil drilling in U.S. territorial waters in the Gulf of Mexico and a re-examination of offshore drilling regulations. What were the expected short- and long-run effects of these actions on labor in Gulf coastal states?

156.	When Irish immigrants first came to the United States, they were widely discriminated against. A century after a wave of Irish immigration, however, Americans generally look favorably on Irish heritage. How can our models explain this?

157.	According to the Rybczynski theorem, why will labor immigration lead to a long-run increase in output in a labor-intensive industry and a decrease in the output of a capital-intensive industry?

158.	Assume two nations, two products, and two factors of production, labor and capital. Compare the situation of FDI in the short run and the long run regarding wages, returns to capital, industry output, and prices of goods.

159.	In 2013, were remittances from emigrant labor from developing countries more or less important than official foreign aid to these countries?

Answer Key

1.	C
2.	C
3.	C
4.	B
5.	C
6.	A
7.	B
8.	A
9.	B
10.	D
11.	B
12.	B
13.	D
14.	B
15.	A
16.	D
17.	A
18.	A
19.	B
20.	D
21.	C
22.	B
23.	A
24.	A
25.	B
26.	D
27.	B
28.	A
29.	D
30.	B
31.	B
32.	A
33.	C
34.	A
35.	B
36.	C
37.	A
38.	B
39.	B
40.	C
41.	B
42.	A
43.	B
44.	C
45.	C
46.	D
47.	B
48.	B
49.	D
50.	D
51.	A
52.	D
53.	C
54.	A
55.	B
56.	C
57.	C
58.	C
59.	A
60.	C
61.	B
62.	B
63.	A
64.	D
65.	D
66.	D
67.	D
68.	D
69.	C
70.	A
71.	D
72.	C
73.	A
74.	A
75.	D
76.	C
77.	D
78.	C
79.	A
80.	B
81.	A
82.	A
83.	A
84.	C
85.	C
86.	C
87.	A
88.	B
89.	A
90.	B
91.	C
92.	A
93.	C
94.	B
95.	A
96.	C
97.	B
98.	B
99.	D
100.	A
101.	A
102.	A
103.	A
104.	B
105.	C
106.	D
107.	C
108.	D
109.	B
110.	D
111.	B
112.	C
113.	D
114.	C
115.	A
116.	D
117.	B
118.	C
119.	D
120.	A
121.	D
122.	B
123.	C
124.	A
125.	A
126.	C
127.	D
128.	B
129.	A
130.	C
131.	D
132.	C
133.	B
134.	C
135.	C
136.	D
137.	B
138.	C
139.	B
140.	C
141.	B
142.	B
143.	D
144.	C
145.
146.
147.
148.
149.
150.
151.
152.
153.
154.
155.
156.
157.
158.
159.

1.	Tracking and measuring international flows of goods and assets are based on principles of:
	A)	economics.
	B)	statistics.
	C)	historical precedents.
	D)	accounting.

2.	Summaries of international flows of goods and assets are recorded in a nation’s:
	A)	national income and product accounts.
	B)	balances with the IMF.
	C)	balance of payments accounts.
	D)	balance on international indebtedness.

3.	Gross national expenditure in a closed economy is defined as:
	A)	government spending net of taxes.
	B)	personal consumption spending, government spending, and investment spending.
	C)	personal consumption spending, government spending, investment spending, and spending on exports.
	D)	production of consumer goods, government services, and capital goods.

4.	In national accounts data, which is the largest share of GNEs?
	A)	consumption
	B)	investment
	C)	government consumption
	D)	All are roughly equal in size.

5.	In a closed economy, income generated from production is equal to:
	A)	GNE.
	B)	GDP.
	C)	GNI.
	D)	GNE, GDP, and GNI.

6.	In a closed economy in which no international economic activity occurs, which of the following is NOT true?
	A)	Production in the nation must equal total demand (spending on final goods and services).
	B)	Total spending is equal to the sum of consumer spending, business investment, and government purchases.
	C)	Value added in the economy is equal to income paid to factors of production.
	D)	Value added in the economy is equal to the sum of consumer spending, business investment, and government purchases.

7.	The circular flow concept of a closed economy helps to explain why:
	A)	firms are able to earn profits.
	B)	GDP, GNI, and GNE are equal.
	C)	unemployment is not a problem in a closed economy—only in an open economy.
	D)	nominal GDP is always higher than real GDP.

8.	The personal consumption expenditure includes all of the following, EXCEPT spending by private households on:
	A)	final goods and services.
	B)	nondurable goods.
	C)	durable goods.
	D)	capital stock.

9.	Government consumption expenditure includes the following, EXCEPT government spending on:
	A)	national defense.
	B)	public works.
	C)	Social Security.
	D)	civil services.

10.	Income paid to factors is called:
	A)	national income.
	B)	value added.
	C)	net exports.
	D)	the current account.

11.	Which of the following factors is NOT part of the current account of a country?
	A)	exports
	B)	imports
	C)	unilateral transfers
	D)	Social Security contributions

12.	When calculating GDP in an open economy, we adjust GNE by:
	A)	subtracting exports and adding imports.
	B)	subtracting investment from foreigners and adding foreign investment by residents.
	C)	subtracting imports and adding exports.
	D)	subtracting depreciation from GDP.

13.	In the flow diagram representing an open economy, which of the following is true?
	A)	GNE plus the trade balance (TB) are equal to GDP (total domestic production).
	B)	GNE are always less than GDP.
	C)	GDP rises as GNI rises.
	D)	GNE plus imports are equal to GDP.

14.	When calculating gross national disposable income in an open economy, we adjust gross national expenditure by:
	A)	subtracting exports and adding back imports.
	B)	adding in net income earned from foreign sources, plus the trade balance, plus net unilateral transfers from abroad.
	C)	subtracting depreciation, payroll taxes, and indirect business taxes, while adding in subsidies.
	D)	taking out net factor income from abroad and subtracting net unilateral transfers.

15.	The current account of the balance of payments is calculated as:
	A)	the sum of imports, exports, and transfers.
	B)	the sum of national income and national expenditure.
	C)	the sum of the trade balance, net factor income from abroad, and net unilateral transfers.
	D)	the difference between GDP and GNE.

16.	Net factor income from abroad is defined as:
	A)	the difference between foreign GDP and U.S. GDP.
	B)	the difference between what foreign firms pay U.S. factors of production hired to produce foreign GDP and what U.S. firms pay foreign factors of production hired to produce U.S. GDP.
	C)	taxes paid on income earned outside the country.
	D)	the difference between foreign national income and U.S. national income.

17.	The term net unilateral transfers refers to:
	A)	income earned abroad by a nation’s own workers minus income paid to foreign non-resident workers.
	B)	gifts, charitable contributions, and foreign aid.
	C)	gifts, charitable contributions, and aid to foreign residents minus the same types of transfers to residents of the home nation.
	D)	government subsidies to home corporations minus the same government subsidies to international corporations.

18.	The disposable income of a nation is known as gross national disposable income, which can be defined as:
	A)	income earned from production plus net factor income from abroad plus net unilateral transfers.
	B)	income not saved and not spent.
	C)	government transfers to residents plus foreign transfers to residents.
	D)	income that is more than necessary to sustain life.

19.	In an open economy, GNI is equal to:
	A)	exports of goods and services plus imports of goods and services.
	B)	GDP.
	C)	GDP, minus factor services imports, plus factor services exports.
	D)	GDP plus international transfers and gifts to foreigners.

20.	Asset exports occur when domestic entities:
	A)	save internationally by purchasing foreign assets.
	B)	borrow internationally by selling assets to foreigners.
	C)	increase savings and decrease spending both domestically and internationally.
	D)	decrease savings and increase spending on foreign goods.

21.	The difference (balance) between asset exports and asset imports is called:
	A)	the current account.
	B)	the balance of debt.
	C)	capital remainder flows.
	D)	the balance on the financial account.

22.	The total economic activity in a nation is an important measure. There are three approaches that economists use to measure key indicators. Which is a method that economists do NOT use to measure economic activity?
	A)	the accounting approach, using the idea that total private sales have to equal total private production
	B)	the income approach measuring income received by factors of production
	C)	the expenditure approach, using the idea that the total economic activity is equal to the combined purchases of the various sectors
	D)	the product approach, which measures GDP from a production standpoint

23.	An advantage to calculating national income from value added is that it avoids:
	A)	the net present value.
	B)	price changes.
	C)	double counting.
	D)	measurement error.

24.	How do we handle intermediate goods and services when converting from GNE to GDP?
	A)	Intermediate goods are already counted in GNE, so they do not have to be added in to GDP.
	B)	Imported intermediate goods are counted in GNE, so they must be subtracted from GDP to avoid double counting.
	C)	Exported intermediate goods are counted in GNE, so they must be subtracted from GDP to avoid double counting.
	D)	We add (to GNE) the value of imported goods and services and subtract the value of exported goods and services to get GDP.

25.	(Table: Hypothetical U.S. National Income and Product Accounts Data) Using the table, the GNE is:
	A)	$9,300 billion.
	B)	$3,400 billion.
	C)	$10,550 billion.
	D)	$11,400 billion.

26.	(Table: Hypothetical U.S. National Income and Product Accounts Data) Using the table, the trade balance for the economy provided is:
	A)	$1,750 billion.
	B)	–$900 billion.
	C)	$2,650 billion.
	D)	–$850 billion.

27.	(Table: Hypothetical U.S. National Income and Product Accounts Data) The GDP for the economy provided is:
	A)	$11,400 billion.
	B)	$10,575 billion.
	C)	$10,550 billion.
	D)	$10,595 billion.

28.	(Table: Hypothetical Canadian National Income and Product Accounts Data) Using the table, the GNE is:
	A)	$630 billion.
	B)	$550 billion.
	C)	$230 billion.
	D)	$120 billion.

29.	(Table: Hypothetical Canadian National Income and Product Accounts Data) Using the table, the trade balance for the economy provided is:
	A)	–$60 billion.
	B)	–$150 billion.
	C)	$150 billion.
	D)	$270 billion.

30.	(Table: Hypothetical Canadian National Income and Product Accounts Data) Canada is running a:
	A)	trade surplus.
	B)	balance of payments surplus.
	C)	trade deficit.
	D)	balance of payments deficit.

31.	(Table: Hypothetical Canadian National Income and Product Accounts Data) The GDP for the economy provided is:
	A)	$630 billion.
	B)	$780 billion.
	C)	$840 billion.
	D)	$1,025 billion.

32.	(Table: Hypothetical Canadian National Income and Product Accounts Data) The GNI for the economy provided is:
	A)	$10 billion.
	B)	$20 billion.
	C)	$780 billion.
	D)	$790 billion.

33.	(Table: Hypothetical Irish National Income and Product Accounts Data) Using the table, the GNE is:
	A)	$900 billion.
	B)	$550 billion.
	C)	$630 billion.
	D)	$1,800 billion.

34.	(Table: Hypothetical Irish National Income and Product Accounts Data) The trade balance for Ireland is:
	A)	–$100 billion.
	B)	$0 billion.
	C)	$50 billion.
	D)	$150 billion.

35.	(Table: Hypothetical Irish National Income and Product Accounts Data) Ireland is running a:
	A)	trade deficit.
	B)	balance of payments surplus.
	C)	trade surplus.
	D)	balance of payments deficit.

36.	(Table: Hypothetical Irish National Income and Product Accounts Data) The GDP for Ireland is:
	A)	$150 billion.
	B)	$600 billion.
	C)	$780 billion.
	D)	$1,500 billion.

37.	(Table: Hypothetical Irish National Income and Product Accounts Data) The GNDI for Ireland is:
	A)	$680 billion.
	B)	$685 billion.
	C)	$690 billion.
	D)	$615 billion.

38.	Which of the following statements about the relationships between the domestic and international economy is true?
	A)	Domestic sales of goods and services to a foreign nation are always equal to domestic purchases of goods and services from the same nation.
	B)	Total goods and services produced and sold domestically by domestic firms plus imports are equal to the total domestic production plus exports.
	C)	GDP = GNE + (exports – imports).
	D)	Intermediate goods and services purchased by domestic firms from foreign firms are equal to international sales of intermediate goods to foreign firms.

39.	Because of vertically specialized production processes, the volume of intermediate goods trade has risen. In 2010, it was approximately ____ of total world trade.
	A)	15%
	B)	25%
	C)	40%
	D)	60%

40.	NFIA is the same thing as:
	A)	world real GDP.
	B)	sales of factor services to foreigners minus purchases of factor services from foreign nations.
	C)	income paid to domestic workers.
	D)	exactly 20% of domestic GDP.

41.	A firm in one nation may purchase factor services from another nation. Payments for these services to the factors of production are called:
	A)	service income payments.
	B)	net income.
	C)	gross income.
	D)	wage and salary income.

42.	The relationship between GNI and GDP is:
	A)	GNI – GDP = factor income receipts from foreign sources – payments of income to foreign factors (by domestic firms).
	B)	GDP is equal to GNI within the nation.
	C)	GDP is always less than GNI because of domestic transfer payments.
	D)	GNI includes transfers and gifts from the rest of the world; GDP does not.

43.	The difference between gross national income and gross domestic product is:
	A)	total indirect employee costs such as health or retirement insurance.
	B)	income earned in addition to salaries, commissions, and bonuses.
	C)	income earned abroad by residents minus income paid to foreign factors of production.
	D)	income not subject to taxation such as capital gains, illegal earnings, or casual earnings.

44.	GDP is measured by:
	A)	examining how much is spent on demand for final goods and services.
	B)	tracking the amount of income received by different domestic entities.
	C)	the net value of all goods and services produced by the private sector.
	D)	the net value of all goods and services produced by home firms, excluding the value of intermediate goods.

45.	(Table: Hypothetical U.S. National Income and Product Accounts Data) The GNI for the economy provided is:
	A)	$1,900 billion.
	B)	$1,700 billion.
	C)	$2,300 billion.
	D)	$3,300 billion.

46.	The example in the text about Ireland demonstrates that:
	A)	every nation has the power to export and grow its economy through receipt of foreign investment.
	B)	GNI should not be used to measure the income of domestic factors of production.
	C)	a nation’s GDP is not a good measure of income paid to domestic factors when payments to foreign factors are large.
	D)	countries should rely heavily on foreign investment to generate economic growth and increase their GDP.

47.	The Irish example indicates that GDP per capita and GNI per capita:
	A)	are always equal.
	B)	are usually close to each other.
	C)	can be quite different.
	D)	are unrelated.

48.	The difference between Irish GDP per capita and Irish GNI per capita was:
	A)	the result of poor accounting.
	B)	the result of a large trade deficit.
	C)	an outcome from FDI inflows.
	D)	essentially zero.

49.	When measuring GNI in an open economy, one must recognize not only net transfer payments to factors of production but also:
	A)	net profit paid to corporations.
	B)	the increase in asset prices as a result of foreign investment.
	C)	income earned in the underground economy.
	D)	net unilateral transfers, which include official aid and private charitable gifts.

50.	GNDI is a superior measure of a nation’s welfare because it considers net foreign factor earnings and other sources of income available to the population. The GNDI identity equation is as follows:
	A)	Y = GNDI = consumer production + capital goods (business investment) + government + net exports.
	B)	Y = GNDI = GNI + NUT.
	C)	Y = GNDI = wages + profits + interest + rental income + net foreign factor income.
	D)	Y = GNDI = foreign aid + income from outsourcing + returns on foreign investment.

51.	(Table: Hypothetical Canadian National Income and Product Accounts Data) According to the NUTs, economists would say that:
	A)	Canada has given away more foreign aid than it receives.
	B)	Canadians abroad have sent a lot of income home.
	C)	Mexicans in Canada have sent a lot of income home.
	D)	Canada has a balance of payments deficit.

52.	(Table: Hypothetical Canadian National Income and Product Accounts Data) The GNDI for the economy provided is:
	A)	$11,825 billion.
	B)	$10,615 billion.
	C)	$8,625 billion.
	D)	$8,600 billion.

53.	Net transfers of income from foreign sources play a ____ role in the donor countries, but often play a _____ role in the economies of the recipient nations.
	A)	major; minor
	B)	neutral; significant
	C)	minor; major
	D)	significant; neutral

54.	According to the article on the generosity of wealthy nations in helping low-income nations, the United States:
	A)	gave the least in absolute terms, although it had pledged to give the most.
	B)	was the largest single-nation donor, although in percentage of aid based on economic size, it was below most other developed nations.
	C)	was the only nation that could be counted on to help tsunami victims or provide free drugs for AIDS patients in Africa.
	D)	has dramatically raised the level of foreign aid during the past 20 years.

55.	The assistance the United States provides to developing countries is through:
	A)	cash transfers only.
	B)	debt forgiveness only.
	C)	defense spending only.
	D)	cash transfers, debt forgiveness, and defense spending.

56.	(Table: Hypothetical Canadian National Income and Product Accounts Data) What is the current account for Canada?
	A)	$165 billion
	B)	$150 billion
	C)	$15 billion
	D)	$5 billion

57.	(Table: Hypothetical Irish National Income and Product Accounts Data) What is the current account for Ireland?
	A)	$310
	B)	$290
	C)	–$290
	D)	–$410

58.	When a closed economy is compared with an open economy, what situation exists?
	A)	Economic activity is directed entirely by the state in an open economy.
	B)	Exports and imports are monitored and controlled, so there is never a trade imbalance in a closed economy.
	C)	In a closed economy, because there are no exports or imports, no international transfers, and no service payments, GDP, GNE, GNI, and GNDI are all equal.
	D)	GDP is always higher than GNE in an open economy because some goods remain unsold into the next accounting period.

59.	When analyzing economic situations in an open economy instead of a closed economy, one must take into account:
	A)	only the production of final goods and services rather than intermediate goods or services.
	B)	the relationship between domestic investment and the nominal rate of interest.
	C)	the influence of international political relationships, which do not exist in a closed economy.
	D)	the fact that international transactions can create an imbalance in the current account, so that GDP is not necessarily equal to GNI or GNE.

60.	In the United States, during the period 1990 to 2009, the current account deficit greatly ____ because of a(n) ____ in the trade deficit, thus, GDP was lower than GNE.
	A)	increased; increase
	B)	decreased; decrease
	C)	increased; decrease
	D)	decreased; increase

61.	Whenever there is a deficit in the current account GNDI is:
	A)	equal to GNE.
	B)	greater than GNE.
	C)	less than GNE.
	D)	equal to GNE only if there is no domestic investment spending.

62.	The current account represents the difference between gross national disposable income and:
	A)	GDP.
	B)	GNP.
	C)	domestic investment spending.
	D)	GNE.

63.	Net national saving is related to the balance on the current account in the following way:
	A)	domestic investment = net national saving = the balance on the current account – gross domestic product – gross national expenditure.
	B)	net national saving = domestic investment + the balance on the current account.
	C)	net national saving = domestic investment – the balance on the current account.
	D)	net national saving + the balance on the current account + domestic investment = gross domestic product.

64.	Whenever the balance on the current account is negative, it indicates that:
	A)	the trade deficit is shrinking.
	B)	total spending (GNE) in the economy is greater than income and is financed by borrowing from abroad.
	C)	domestic investment cannot be carried out because of a shortage of savings.
	D)	domestic investment is decreasing.

65.	For most countries, the savings trend over the past 30 years has been:
	A)	upward.
	B)	steady.
	C)	downward.
	D)	downward, but less than the decline in investments.

66.	To fund private investment without borrowing from abroad, a nation may have access to:
	A)	private saving (Y – C).
	B)	government saving (G – T).
	C)	private saving (C – Y).
	D)	unilateral transfer outflows.

67.	If investment exceeds national savings, then the current account:
	A)	must be negative.
	B)	must be zero.
	C)	must be positive.
	D)	Not enough information is provided to answer the question.

68.	If investment exceeds private savings, then the current account:
	A)	must be negative.
	B)	must be zero.
	C)	must be positive.
	D)	Not enough information is provided to answer the question.

69.	Government budget deficits and trade deficits tend to move:
	A)	independently from one another.
	B)	together.
	C)	in the opposite directions.
	D)	independently from one another, except in recessions.

70.	(Table: Hypothetical Irish National Income and Product Accounts Data) Are Ireland’s savings greater or smaller than its investment?
	A)	greater
	B)	smaller
	C)	the same size
	D)	Not enough information is provided to answer the question.

71.	If we add the current account balances for every nation, the overall balance will equal:
	A)	the size of world GDP.
	B)	spending minus savings.
	C)	zero.
	D)	the value added in the manufacturing sectors of each nation.

72.	The trend of increasingly older populations in industrialized nations probably has contributed to:
	A)	the “demographic burden” whereby there is decreased total saving.
	B)	a spike in spending on leisure activities.
	C)	an increase in technology and GDP.
	D)	an increase in tax collections.

73.	The term private saving is defined as:
	A)	government saving minus taxes.
	B)	after-tax disposable income minus consumption spending.
	C)	the difference between tax revenue and government purchases.
	D)	the inflow of investment funds from abroad.

74.	The term government saving is defined as:
	A)	government saving minus taxes.
	B)	after-tax disposable income minus consumption spending.
	C)	the difference between tax revenue and government purchases.
	D)	the inflow of investment funds from abroad.

75.	Private savings deficits plus government budget deficits contribute to higher current account deficits. Some economists refer to the Ricardian equivalence theory to assert that:
	A)	the public will offset its future tax liability to some degree by increasing saving.
	B)	the public abhors private and public debt and will demand an end to deficits.
	C)	savings will increase as the population ages, since older people save more.
	D)	the current account deficit is caused by trade and is not influenced by deficit spending.

76.	Private savings deficits plus government budget deficits contribute to higher current account deficits. Some economists refer to the ______ during the 1990s to assert that government deficits are not the major cause of current account deficits.
	A)	savings boom
	B)	investment boom
	C)	baby boom
	D)	housing boom

77.	The balance on the financial account summarizes transactions in:
	A)	real estate, stocks, bonds, investment, and any financial asset.
	B)	goods, services, and bartered items.
	C)	accounting services provided by the big-eight accounting firms.
	D)	government transfers of currency.

78.	In addition to summarizing international flows of goods and services, factor inputs, and transfers, ____ includes financial flows such as deposits, purchases of stocks, bonds investment in plant and equipment, and real estate.
	A)	the financial account
	B)	balance of payments accounting
	C)	the current account
	D)	the capital account

79.	The financial account records international transactions involving:
	A)	high-value items, such as luxury autos, fine art, and jewelry.
	B)	financial assets and “real” assets, including property and structures.
	C)	corporate assets such as equipment, machinery, and other forms of capital.
	D)	goods and services sold on credit.

80.	A deficit in the financial account means the nation has:
	A)	imported more assets than it exported.
	B)	exported more assets than it imported.
	C)	saved more than it invested.
	D)	produced more than it consumed.

81.	The capital account is now used mainly for:
	A)	errors and omissions.
	B)	recording of deeds and trusts.
	C)	investment flows that result in the purchase of new capital.
	D)	debt forgiveness, confiscation of assets, and nonfinancial assets such as copyrights and franchises.

82.	Developing nations may have a rather large capital account surplus compared with developed nations because of:
	A)	excessive borrowing.
	B)	low GDP per capita.
	C)	rapid expansion of the economy.
	D)	nonmarket debt forgiveness.

83.	When a national entity invests abroad, economists call it a(n):
	A)	external asset.
	B)	external liability.
	C)	trade deficit.
	D)	financial surplus.

84.	The balance on the financial account of the balance of payments does NOT equal:
	A)	external assets + external liabilities.
	B)	(exports of home assets – imports of home assets) + (exports of foreign assets – imports of foreign assets).
	C)	the net additions to external liabilities – the additions to external assets.
	D)	exports of home assets + exports of foreign assets.

85.	Which of the following would cause a financial account (FA) surplus?
	A)	the sale of heavy trucks used in construction by a domestic seller to a foreign buyer
	B)	the purchase of stock in a U.S. corporation by a U.S. buyer
	C)	the purchase of stock in a U.S. corporation by a foreign buyer
	D)	the sale of stock in a U.S. corporation held by a foreign owner to a domestic buyer

86.	When a domestic investor buys a foreign asset, the financial account:
	A)	rises.
	B)	stays the same.
	C)	falls.
	D)	Not enough information is provided to answer the question.

87.	When a domestic investor sells a foreign asset to a foreigner, the financial account:
	A)	rises.
	B)	stays the same.
	C)	falls.
	D)	Not enough information is provided to answer the question.

88.	When a domestic investor sells a domestic asset to a foreigner, the financial account:
	A)	rises.
	B)	stays the same.
	C)	falls.
	D)	Not enough information is provided to answer the question.

89.	When a domestic investor buys a domestic asset from another domestic investor, the financial account:
	A)	rises.
	B)	stays the same.
	C)	falls.
	D)	Not enough information is provided to answer the question.

90.	Gross national disposable income represents the gross national expenditure plus net foreign expenditure. To calculate total resources available in the economy for expenditure purposes, we must add:
	A)	depreciation.
	B)	net foreign factor income.
	C)	net income from asset trades (FA + KA).
	D)	net income from asset trades and net foreign factor income.

91.	The balance on the current account equals the negative of the balance on the financial account, plus:
	A)	the trade balance.
	B)	net factor income from abroad.
	C)	net unilateral transfers.
	D)	the negative of the balance on the capital account.

92.	When calculating the balance of payments, credit (or [+] entries) are made, EXCEPT whenever which of the following occurs?
	A)	a domestic firm signs a contract to buy half of a foreign company headquartered overseas
	B)	there is a trade surplus
	C)	a domestic firm sells bonds to a foreign firm
	D)	other nations come to the aid of starving residents by gifts of cash, food, and medicine

93.	A transaction that results in an increase (+) in its account is known as a(n):
	A)	BOP debit.
	B)	capital flow.
	C)	BOP credit.
	D)	asset accretion.

94.	A transaction that results in a decrease (–) in its account is known as a(n):
	A)	BOP debit.
	B)	capital flow.
	C)	BOP credit.
	D)	asset accretion.

95.	Double-entry accounting dictates that:
	A)	transactions be entered twice into the same account and then reversed.
	B)	transactions are categorized into two offsetting accounts that reflect the two sides of every transaction.
	C)	for transactions that are missed, we compensate by doubling at least one other entry.
	D)	balances be double-checked by another employee and an auditor.

96.	Whenever there is an outflow of funds from any of the balance of payments (BOP) accounts, it is recorded as a ____, and called a _____.
	A)	minus; unilateral transfer
	B)	minus; BOP debit
	C)	plus; BOP credit
	D)	plus; current account surplus

97.	The balance of payments for any nation will always:
	A)	be in deficit because nations can spend more than they produce.
	B)	be in surplus because overall every nation has some wealth.
	C)	balance to zero because with a double-entry accounting system any transaction always generates an equal transaction with the opposite sign.
	D)	be unbalanced because at any point in time money has to be collected or goods could be in transit.

98.	If George purchases shoes from a Japanese firm for $100, and pays for them by borrowing $100 on his Japanese credit card, the two accounts that are affected are:
	A)	imports of goods with a minus (debit) and exports of goods with a plus (credit).
	B)	imports of goods with a minus (debit) and exports of financial assets with a plus (credit).
	C)	exports of goods with a minus (debit) and imports of financial assets with a plus (credit).
	D)	exports of goods with a plus (credit) and imports of financial assets with a minus (debit).

99.	Assuming all transactions are recorded, if the United States has an overall deficit (–) in its current account, what is the implication for the balances of the other accounts (capital and financial)?
	A)	Added (FA + KA), they must be in surplus (+) by exactly the same amount.
	B)	Their difference (FA – KA) is equal to the deficit (–) in the current account.
	C)	Added (FA + KA), they will be in deficit by exactly the same amount.
	D)	Their difference (FA – KA) must be equal to zero.

100.	Suppose that an American buys a car from Germany with cash. For the United States, this counts as a:
	A)	current account credit, financial account debit.
	B)	current account debit, financial account credit.
	C)	current account debit, capital account credit.
	D)	current account credit, financial account credit.

101.	Suppose that an Austrian buys a car from Germany with cash. For Germany, this counts as a:
	A)	current account credit, financial account debit.
	B)	current account debit, financial account credit.
	C)	current account debit, capital account credit.
	D)	current account credit, financial account credit

102.	Suppose that a German trades a mug of beer for a glass of wine from a Frenchman. For France, this counts as a:
	A)	current account credit, current account debit.
	B)	financial account debit, financial account credit.
	C)	capital account debit, capital account credit.
	D)	financial account debit, current account debit.

103.	Suppose that a Japanese investor buys a Korean stock with cash. For Korea, this counts as a:
	A)	current account credit, current account debit.
	B)	financial account debit, financial account credit.
	C)	capital account debit, capital account credit.
	D)	financial account debit, current account debit.

104.	If you get cash for your birthday, you have experienced a:
	A)	current account surplus.
	B)	capital account surplus.
	C)	financial account surplus.
	D)	financial account and capital account surplus.

105.	Barter shows up:
	A)	only in current account transactions.
	B)	only in financial account transactions.
	C)	only in capital account transactions.
	D)	in both current account and financial account transactions.

106.	The three balances that determine the current account balance are:
	A)	the external balance, the internal balance, and the global balance.
	B)	the trade balance, the balance on income from factor services, and the balance on net unilateral transfers.
	C)	the credit balance, the debit balance, and the balance of external indebtedness.
	D)	the balance on investment, the balance on asset transfers, and the balance on forgiveness of debt.

107.	By the rules of double-entry accounting applied to international transactions, which of the following statements is NOT true?
	A)	Every transfer of goods internationally must be paid for by an opposite transfer of goods, services, or unilateral transfers, or a transfer of assets.
	B)	Every debit transaction must be offset somewhere in the accounts by an equal credit transaction.
	C)	Deficits in any accounts are matched exactly by surpluses in an account at a parallel level.
	D)	Every debit transaction must be offset by a transfer of assets.

108.	A nation that has a surplus in its current account:
	A)	also has a surplus in both the financial and capital accounts.
	B)	must have exported home assets (borrowed from abroad) or reduced its holding of foreign assets.
	C)	must have imported foreign assets (lent or invested abroad) or decreased the quantity of home assets held by foreigners (paid back loans or deposits).
	D)	must have paid back loans or deposits.

109.	During the period in which a nation has a current account surplus, it is a net ____, and whenever it has a current account deficit, it is a net ____.
	A)	supplier; user
	B)	lender; borrower
	C)	borrower; lender
	D)	debtor; creditor

110.	In the financial account, when there is a current account surplus, there must be a(n) _____ in either the capital or the financial account balance.
	A)	deficit (outflow of funds)
	B)	surplus (inflow of funds)
	C)	balance (no net flow)
	D)	equal change (no net flow)

111.	The balance on the financial account consists of:
	A)	the inverse of the balance on the current account.
	B)	the difference between external wealth and internal wealth.
	C)	the change in external liabilities minus the change in external assets.
	D)	the change in external wealth plus the change in internal wealth.

112.	The balance on intervention and other government-initiated asset trades is recorded in the:
	A)	nonreserve financial account.
	B)	reserve financial account.
	C)	U.S. Treasury international reserve account.
	D)	official settlements balance.

113.	The balance on the balance of payments is equal to:
	A)	the balance on the current account.
	B)	the balance on the financial account.
	C)	zero.
	D)	the sum of the balances on the financial account plus the capital account.

114.	For the past 50 years, the U.S. BOP has:
	A)	risen
	B)	held constant.
	C)	fallen.
	D)	fluctuated.

115.	The current account deficit run by the United States during the past 20 years has been accompanied by:
	A)	higher real GDP and lower unemployment.
	B)	exports of assets to the rest of the world.
	C)	an increase in corporate profits.
	D)	an increase in the U.S. savings rate.

116.	From 1970–2008, the U.S. current account moved further into _______, and it was accompanied by a corresponding _____ in the financial account.
	A)	surplus; deficit
	B)	deficit; surplus
	C)	surplus; shortfall
	D)	balance; surplus

117.	The U.S. current account deficit, which has persisted for over 20 years, has resulted in a(n):
	A)	financial account deficit.
	B)	capital account deficit.
	C)	financial account surplus.
	D)	overall balance of payments deficit.

118.	A nation that runs a current account deficit will also:
	A)	be a net importer of assets.
	B)	be a net exporter of assets.
	C)	suffer a lack of capital resources.
	D)	increase its external wealth.

119.	Current account is the difference between:
	A)	gross national disposable income and gross national expenditure.
	B)	national income and net factor income from abroad.
	C)	gross national income and gross national expenditure.
	D)	consumption expenditure and savings.

120.	Which of the following is FALSE?
	A)	Gross national disposable income is less than gross national expenditure, if and only if current account is positive or in surplus.
	B)	Gross national disposable income is less than gross national expenditure, if and only if current account is negative or in deficit.
	C)	Savings is greater than investment if and only if current account is positive or in surplus.
	D)	Savings is less than investment if and only if current account is negative or in deficit.

121.	A nation’s external wealth is defined as:
	A)	rest of the world (ROW) assets owned by the home nation minus home assets owned by foreigners.
	B)	home assets owned by foreigners minus ROW assets owned by the home nation.
	C)	home assets owned by foreigners plus ROW assets owned by the home nation.
	D)	home assets owned by foreigners, minus home assets owned by domestic entities, minus liabilities owned by domestic entities.

122.	A nation’s external wealth is the same thing as its:
	A)	balance with the IMF.
	B)	holdings of accounts in foreign banks.
	C)	total bonds issued.
	D)	net international investment position.

123.	When the total value of foreign assets owned by the home nation is less than the total value of home assets owned by foreigners, we say a nation is:
	A)	a net creditor to the rest of the world.
	B)	a net debtor to the rest of the world.
	C)	close to financial collapse.
	D)	under pressure to get help from the IMF.

124.	Which of the following is true?
	A)	Net exports of foreign assets cause a decrease in external wealth.
	B)	Net exports of home assets cause an increase in external wealth.
	C)	Net imports of foreign assets cause a decrease in external wealth.
	D)	Financial flows do not affect a nation’s international investment position.

125.	When there are capital gains, such as in the real estate or stock markets, or there are exchange rate changes, we see a change in the external wealth calculation. These are known as:
	A)	financial flows.
	B)	investment flows.
	C)	valuation effects.
	D)	capital flows.

126.	A change in a nation’s external wealth consists of two parts:
	A)	a change in GDP plus the change in income.
	B)	financial flows plus valuation effects.
	C)	an increase in liabilities to the rest of the world matched equally by an increase of external assets.
	D)	debits and credits.

127.	Assume a nation’s external wealth is negative. Also assume all liabilities and assets are denominated in a foreign currency. How will its wealth change when its currency appreciates in world markets?
	A)	Its external wealth will rise.
	B)	Its external wealth will fall.
	C)	It depends on the currency in which it has its assets and liabilities.
	D)	There will be no change in the value of its wealth.

128.	External wealth can be increased in three ways. Which of the following is NOT a way for a nation to increase its external wealth?
	A)	selling assets to the rest of the world (ROW)
	B)	exporting more and importing less, thus increasing the current account balance
	C)	good fortune in holding assets that appreciate in value (capital gain)
	D)	forgiveness of debt or foreign aid or grants

129.	If a nation experiences an exchange rate appreciation, what happens to the value of its external wealth?
	A)	It decreases.
	B)	It depends on the currency composition of its assets and liabilities.
	C)	It increases.
	D)	It depends on the size of its assets compared with the size of its liabilities.

130.	Which of the following would cause a nation’s external wealth to decrease?
	A)	a decrease in domestic GDP
	B)	a decline in domestic real estate prices
	C)	a current account deficit
	D)	an increase in the unemployment rate

131.	When a country’s currency depreciates, its external wealth:
	A)	rises.
	B)	stays the same.
	C)	falls.
	D)	Not enough information is provided to answer the question.

132.	The external wealth of the United States rose by nearly $800 billion during the financial crisis of 2009. What were some of the factors contributing to this rise?
	A)	There were price change effects (capital gains) and an appreciation of the dollar against other currencies.
	B)	The United States paid down a major portion of its outstanding external debt.
	C)	The United States received aid from other nations to help it through the financial crisis.
	D)	The United States borrowed from its own gold reserves.

133.	In 2009, U.S. liabilities were dollar-denominated corporate and official debt for the most part, while U.S. external assets were mostly equities, bank loans, government debt, and foreign direct investment, denominated in foreign currencies. When the dollar fell in the wake of the financial crisis, what net effect was there on U.S. external wealth?
	A)	No change occurred because the change in currency value affects everything equally.
	B)	External wealth rose since the value of liabilities was already in dollars and changed little, but assets denominated in foreign currencies increased in value.
	C)	External wealth declined since the dollar fell and U.S. assets were not worth as much.
	D)	External wealth declined since the weak dollar forced the United States to default on loans.

134.	If one nation experiences a gain in its external wealth due to valuation effects only, combined, the other nations in the world will experience:
	A)	an equal gain since all currencies are worth more.
	B)	no change in external wealth.
	C)	an equal decline in external wealth.
	D)	an increase in the interest they earn.

135.	The primary driving force behind changes in external wealth is:
	A)	an imbalance between a nation’s total income and its total spending.
	B)	a change in the value of stocks and bonds.
	C)	financial innovation that creates different kinds of assets, which may then obscure their true value.
	D)	irresponsible investment and lax government regulation.

136.	The Greeks overstated GDP prior to joining the European Union by including:
	A)	consumption.
	B)	black-market activities.
	C)	government spending.
	D)	investment spending

137.	Your text has a discussion of various ways nations can skew income, production, and price-level data. Why would any nation choose to do so?
	A)	to avoid paying its debts
	B)	to avoid lower credit ratings or ease concerns of foreign investors
	C)	to keep the rich from getting richer
	D)	to increase its external wealth

138.	Describe issues involved in measuring trade and financial flows in an open economy.

139.	Explain the difference between GDP and GNI in an open economy, and why this is an important distinction.

140.	Explain the relationship between GNE, GNI and GDP in a closed economy.

141.	Looking at the balance of payments for the United States, suppose you see that there is a current account surplus but a trade deficit. How is this possible?

142.	Many U.S. residents complain that the nation should take care of its own needs before being generous with taxpayer funds donated to foreign lands. Based on the discussion in “Headlines: Are Rich Countries “Stingy” with Foreign Aid?,” analyze that complaint.

143.

The United States has experienced large and growing current account deficits for more than 20 years, whereas Japan has experienced large and growing current account surpluses for roughly the same period. The U.S. economy has grown at faster rates than Japan’s over the past 10 years. What might explain the difference? Relate your answer to the relationship between the current account and GDP.

144.	Your text authors state that in the long run a nation cannot sustain current account deficits and that every nation must eventually “live within its means.” What does that mean? What implications are there for the United States?

145.	The current account balance is equivalent to an excess of domestic expenditure (C + I + G) over gross national domestic income (GNDI). Some say a government budget deficit adds to this problem. Why?

146.	Suppose consumers decide to save a smaller proportion of their income. What are the implications for the current account? The financial account?

147.	What is meant by “twin deficits”?

148.	When analyzing the financial account of the balance of payments, there may be a situation in which the overall balance is not equal to zero. What could cause this to happen and how does BOP accounting handle it?

149.

Suppose the following transactions take place: (1) A U.S. book publisher sells $20,000 of books to a Chinese firm. The firm pays for the books by using its Chinese-based credit card company.; (2) Vlad, a Russian citizen working in New York, earned $6,000 last year working at a factory owned by a U.S .company, and (3) BNP Paribas (a French bank) has just purchased 20% of outstanding stock in First Commercial Bank (U.S.) for $200,000 million from Warren Buffet (a U.S. citizen). Buffet takes the check and puts it in his U.S. bank account. Assuming we started with a trade deficit of zero. What will these transactions do to our trade deficit?

150.

Suppose the following transactions take place: (1) A U.S. book publisher sells $20,000 of books to a Chinese firm. The Chinese firm pays for the books by using its China-based credit card company; (2) Vlad, a Russian citizen working in New York, earned $6000 last year working at a factory owned by a U.S. company, and (3) BNP Paribas (a French bank) has just purchased 20% of outstanding stock in First Commercial Bank (a U.S. bank) for $200,000 million from Warren Buffet (a U.S. citizen). Warren Buffet takes the check and puts it in his U.S. bank account. What will these transactions do to net external wealth?

151.	Occasionally, dramatic changes in financial account balances are recorded yearly. How is the financial account balance recorded, and what factors may influence the calculation?

152.	Explain why a nation with a current account deficit is a net external borrower, while a nation with a current account surplus is a net external lender.

153.	Explain why sometimes the balance of payments does not balance to zero. What remedy do we apply to fix the problem?

154.	Give an intuitive explanation that captures the relationship between the current account position (surplus or deficit) and the role of country as a net borrower or lender.

155.	What two reasons could cause a change in a nation’s external wealth?

156.	What role do exchange rates play in the net external wealth of a country? Illustrate by explaining what an exchange rate appreciation can do to a country holding an asset denominated in foreign currency.

157.	Over the past 30 years, the United States has experienced rising CA deficits. What have been the effects of the deficits? What fallout has there been on the U.S. economy?

Answer Key

1.	D
2.	C
3.	B
4.	A
5.	D
6.	D
7.	B
8.	D
9.	C
10.	A
11.	D
12.	C
13.	A
14.	B
15.	C
16.	B
17.	C
18.	A
19.	C
20.	B
21.	D
22.	A
23.	C
24.	B
25.	D
26.	D
27.	C
28.	A
29.	C
30.	A
31.	B
32.	D
33.	B
34.	C
35.	C
36.	B
37.	D
38.	C
39.	D
40.	B
41.	A
42.	A
43.	C
44.	D
45.	B
46.	C
47.	C
48.	C
49.	D
50.	B
51.	B
52.	B
53.	C
54.	B
55.	D
56.	A
57.	D
58.	C
59.	D
60.	A
61.	C
62.	D
63.	B
64.	B
65.	C
66.	A
67.	A
68.	D
69.	B
70.	B
71.	C
72.	A
73.	B
74.	C
75.	A
76.	B
77.	A
78.	B
79.	B
80.	A
81.	D
82.	D
83.	A
84.	D
85.	C
86.	C
87.	A
88.	A
89.	B
90.	C
91.	D
92.	A
93.	C
94.	A
95.	B
96.	B
97.	C
98.	B
99.	A
100.	B
101.	A
102.	A
103.	B
104.	C
105.	A
106.	B
107.	D
108.	C
109.	B
110.	A
111.	C
112.	D
113.	C
114.	B
115.	B
116.	B
117.	C
118.	B
119.	A
120.	A
121.	A
122.	D
123.	B
124.	A
125.	C
126.	B
127.	A
128.	A
129.	B
130.	C
131.	D
132.	A
133.	B
134.	C
135.	A
136.	B
137.	B
138.
139.
140.
141.
142.
143.
144.
145.
146.
147.
148.
149.
150.
151.
152.
153.
154.
155.
156.
157.

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