Question

26. If the US real exchange rate appreciates against major countries, then which of the following is true about US exports and imports?

a. The US export increases and import decreases

b. The US export decreases and import increases

c. Both export and import increases

d. Net export remain unchanged

27. Which of the following statement is true?

a. If national saving is greater than national investment, then net export is positive.

b. If national saving is less than national investment, then NCO is negative.

c. If national saving is greater than national investment, then export is greater than import.

d. All of the above

28. Let the gov’t. removed precious tax incentive for investment. What kind of effect will this have on the real interest rate?

a. The real interest rate will remain unaffected.

b. The real interest rate will increase

c. The real interest rate will decrease

d. No effect.

Answer 1

26. b. The US export decreases and import increases

Explanation: The appreciation of the dollar would make imports cheaper and exports less profitable.

27. b. If national saving is less than national investment, then NCO is negative.

Explanation: When NCO is negative, it means there is net capital inflow. This happens because the country saves less than it invests.

28. c. The real interest rate will decrease

Explanation: Because of the removal of the tax incentive, there will be a fall in the demand for loanable funds. So, the real interest rate will decrease.

Answer 2

ANSWERS ;

26 . b. The US export decrease and import increases.

( appreciation of dollar means, for US imports less dollars to be shelled out. So US import will increase.

For exports demand will decrease as other countries will have to pay more in their courrencies and so US export will decrease)

27. d. All of the above.

( S = I + NFI and NX = NFI . 

So, S - I = NX . 

If S > I, NX is positive, NCO is negative and export is greater than imports, means all options are applicable)

28. c. The real interest rate will decrease.

( If tax incentives for investments are withdrawn, investments will decline. Thereby, demand for money will decline and the interest rate will go down).