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1. Suppose a domestic country's total international borrowing is $500 billion. The country's trade deficit with...

1. Suppose a domestic country's total international borrowing is $500 billion. The country's trade deficit with Foreign Country Z then rises, while the domestic country's total international borrowing remains the same at $500 billion. In this case the domestic country's overall trade deficit,

a. rises

b. stays the same

c. falls

d. goes to zero

Question 2 1. Suppose the perceived financial risk in a country falls significantly. Other things equal, we would tend to see,

a. financial capital flowing into the country and interest rates rising in the country

b. financial capital flowing into the country and interest rates falling in the country

c. financial capital flowing out of the country and interest rates rising in the country

d. financial capital flowing out of the country and interest rates falling in the country

Question 3 1. Suppose currency traders believe that a currency will get weaker in the near future. Then other things equal, this tends to cause,

a. currency traders to sell the currency now, causing the currency to depreciate more quickly

b. currency traders to sell the currency now, causing the currency to appreciate more quickly

c. currency traders to buy the currency now, causing the currency to depreciate more quickly

d. currency traders to buy the currency now, causing the currency to appreciate more quickly

Question 4 1. Suppose initially the nominal exchange rate is 9400 Indonesian rupiahs to 1 Australian dollar. Over a period of years, there is then 32% inflation in Indonesia and 7% inflation in Australia. If purchasing power parity holds, then the new nominal exchange rate will be,

a. 7620 rupiahs per dollar

b. 10058 rupiahs per dollar

c. 11,596 rupiahs per dollar

d. 12,408 rupiahs per dollar

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Homework Answers

Answer #1

1. If the domestic country's total International borrowing is $500 billion, that means the domestic country is already running a trade deficit of $500 billion and to keep up their spending they are borrowing from other countries. Now if domestic country's trade deficit with foreign country Z Rises, while the international borrowing remains the same(means the initial trade deficit remains same), then the domestic country's overall trade deficit will increase.

Answer: option A

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