9. If U.S investors buy more foreign assets than foreigners buy of U.S assets, t
ID: 1154538 • Letter: 9
Question
9. If U.S investors buy more foreign assets than foreigners buy of U.S assets, then it must be true that(Assume that the capital account equals zero)
a. both the financial account and the current account are in surplus
b. both the financial account and the current account are in deficit
c. the financial account is in surplus and the current account is in deficit
d. the financial account is in deficit and the current account is in surplus
10. Assume there is a permanent increase in the money supply. Which of the following varables would not change in the long run?
a. the interest rate
b. the exchange rate
c. the price lavel
d. None of the above
11. When the british central bank buys U.S. dollars,
a. the U.S money supply falls
b. the U.S money rises
c. the british money supply rises
d. the British money supply falls
12. Which of the following did not occur during the 1999-2007 period preceding the Euro crisis?
a. Southern European countries ran current account deficits and financial account surplus
b. Prices rose faster in Southern Europe than in Northern Europe
c. Interest rates increased more in Southern Europe than in Northern europe
d. There was an investment and consumption boom in Southern Europe
Explanation / Answer
9) d is correct
US investment abroad causes increase in current account and decrease in financial account.
10) a is correct
Permanent change in money supply in nuetral in long run in real value. It has no effect on interest rate and output. It only causes changes in price level and exchange rate.
11) c is correct
British central bank needs dollar currency to buy US currency. It pays british currency in exchange of dollar currency. This increases supply of british money supply.
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