1. Ali, a Lebanese citizen, opens a restaurant in Dubai. His expenditures a. inc

Question

1. Ali, a Lebanese citizen, opens a restaurant in Dubai. His expenditures
a. increase UAE net capital outflow and have no affect on Lebanon net capital outflow.
b. increase UAE net capital outflow and increase Lebanon net capital outflow.
c. increase UAE net capital outflow, but decrease Lebanon net capital outflow.
d. decrease UAE net capital outflow, but increase Lebanon net capital outflow.

2. If citizens of a country are not saving much, it is better to
a. force citizens to save.
b. reduce investment.
c. have foreigners invest in the domestic economy than no one at all.
d. to prevent opportunities for citizens to buy capital assets abroad.

3. Consider an identical basket of goods in both the U.S. and India. For a given nominal exchange rate, in which
case is it certain that the U.S. real exchange rate with India falls?
a. the price of the basket of goods rises in the U.S. and India.
b. the price of the basket of goods rises in the U.S. and falls in India.
c. the price of the basket of goods falls in the U.S. and rises in India.
d. the price of the basket of goods falls in both India and the U.S..

Explanation / Answer

1. Net capital outflow is the purchase of foreign assets by the domestic residents minus the purchase of domestic assets by the foreign residents.

So, an opening of a restaurant in UAE by a Lebanon residents will decrease the net capital outflow of the UAE and will increase the net capital outflow of Lebanon.

So, the correct answer is an option (d).

2. If the citizens of a country are not saving, then it is better to have foreigners invest in the domestic economy than no one at all.  

So, the correct answer is an option (C).

3. For a given nominal exchange rate, if there is a fall in US real exchange rate with India, then there should be fall in the price level in the U.S and rises in India.

So, the correct answer is an option (c).

Related Questions

Navigate

• Browse (All)
• Browse 1
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.