Reference no: EM13749125

1. In theory, financially open economies can:
A) manipulate their trade accounts to avoid imbalances.
B) avoid all economic shocks or downturns.
C) lower the unemployment rate but cannot control inflation.
D) use access to the international financial markets to keep investment and consumption stable.

2. A nation's use of international capital markets enables it to do all of the following except:
A) provide for a higher level of national defense
B) smooth consumption over time
C) build a productive national capital stock
D) reduce risk through diversification

3. The change in external wealth from period t to t + 1 is equal to:
A) the balance on the current account minus the balance on the financial account (FA).
B) the trade balance (deficit or surplus) plus interest (earned or paid) on external debt or wealth.
C) a nation's domestic income plus net foreign factor income.
D) the balance on the current account plus the balance on the capital account .

4.The exorbitant privilege for the United States implies that:
A) the United States can lend money to people at low interest rates.
B) U.S. investments abroad often earn very low interest rates.
C) foreigners' investments in the United States earn them less income than the U.S. investments abroad.
D) foreigners' investments in the United States earn them more income than the U.S. investments abroad.

5. In the case of the United States, the long-run budget constraint is eased somewhat by:
A) increasing debt and increasing wealth at the same time.
B) figuring in the capital gain differential and an interest rate differential on external assets and liabilities.
C) the surprising shrinking trade deficit of the United States.
D) the shrinkage of the U.S. national debt.

6. In low-income nations, the budget constraint is usually:
A) more lenient because creditor nations are interested in helping poor countries grow.
B) more stringent because poor nations have low credit ratings and pay higher rates of interest.
C) ignored by international financial markets.
D) good for these nations because they should not get into debt they are unable to repay.

7. An assumption of the intertemporal model that is often not met in low-income nations is:
A) that the economy is always at full employment.
B) that prices are flexible.
C) that a nation can borrow or lend any amount in international markets at the prevailing world real rate of interest.
D) that the government of the nation has a balanced budget.

8.
What is a sudden stop?
A) a situation in which a nation runs out of labor resources
B) a situation in which a nation's prime minister has to call a new election
C) a situation in which a nation's financial markets collapse and investors lose everything
D) a situation in which a nation's creditors decide to cease new lending

9. The risk premium associated with a government loan:
A) rises with national debt.
B) is independent of national debt.
C) falls with national debt.
D) is unrelated to government bond ratings.

The risk premium associated with a government loan:
A) rises with national debt.
B) is independent of national debt.
C) falls with national debt.
D) is unrelated to government bond ratings.

10. Some emerging market national governments accumulate _____ for them to serve as a buffer for output shocks.
A) inventories of grain
B) foreign (currency) reserves
C) bonds denominated in their own currency
D) insurance policies

11. Sovereign wealth funds are created for all of the following reasons except:
A) to get a better return on their assets.
B) to save the windfall from natural resource exports.
C) to discourage foreign investment in the domestic economy.
D) to invest bank reserves and state revenue/savings.

12. Countries such as Norway are turning toward investing in private companies:
A) because of the increased risk of treasury bills.
B) to gain influence in the Western economies.
C) to increase their rates of return on investments.
D) so that they can be more dependent on market fluctuations.

13. Using Norway's oil industry as an example, it is possible to finance large and profitable investment without:
A) risk to investors.
B) government interference.
C) large initial consumption sacrifices.
D) service payments on debt or repayment of principal.

14. It is better to invest in a country whose shocks:
A) are positively correlated with yours.
B) are independent of yours.
C) are negatively correlated with yours.
D) are common to yours.

15. It has been shown that although investors could lower volatility and earn a higher average return on a diversified portfolio:
A) there seems to be a home bias factor, which reveals that investors favor domestic investments.
B) there are downside risks not recognized by the market.
C) most governments limit international investment.
D) investors prefer focusing on overseas investments.