ECN 211 - Midterm 3 Exam Questions and Answers 100% Pass

ECN 211 - Midterm 3 Exam

Questions and Answers 100% Pass


Variables that influence NCO - CORRECT ANSWER-1. real interest rates paid

on foreign assets

2. real interest rate paid on domestic assets

3. perceived risk of holding foreign assets

4. govt. policy affecting foreign ownership of domestic assets

Variables that influence NX - CORRECT ANSWER-1. consumers preferences for

foreign and domestic goods

2. Prices of goods at home and abroad

3. Income of consumers at home and abroad

4. The exchange rates at which foreign currency trades for domestic currency

5. transportation costs

6. govt. policies

NCO < 0 - CORRECT ANSWER-When S < I, foreigners are financing some of

the country's investment

, real exchange rate - CORRECT ANSWER-eP/P*




P = domestic price

P* = foreign price (in foreign currency)

e = nominal exchange rate (foreign unit per domestic unit of currency)

law of one price - CORRECT ANSWER-the price goods should be the same in all

markets

PPP - CORRECT ANSWER-Purchasing Power Parity

A theory of exchange rates whereby a unit of currency should be able to buy the

same quantity of goods in all countries

According this will find the amount of foreign goods per U.S. good in real terms -

CORRECT ANSWER-e = P*/P

What is true about about a trade deficit? - CORRECT ANSWER-Exports <

imports

Net capital outflow < 0

Y<C+I+G

How are the markets of loanable funds and the foreign-currency exchange rate

connected? - CORRECT ANSWER-NCO

Demand for loanable funds - CORRECT ANSWER-S = I + NCO