II. Answer True or False 1. If a nation is selling less goods and services to foreigners thank is buying from them, then on net it must be buying assets abroad, then the value of domestic assets purchased by foreigners4 2. By itself, the purchase of a U.S. bond by a foreign resident decreases U.S. net capital outflow and decreases foreign capital outflow. 3. If a U.S. firm buys Chinese toys using previously obtained Chinese currency, then both U.S. net exports and U.S. net capital outflow decrease. 4. The net value of the goods and services sold by a country (net exports) must equal the net value of the assets acquired (net capital outflow). 5. The theory of purchasing-power parity states that a unit of a country?s currency should be able to buy the same quantity of goods In foreign countries as it does domestically. 6. According to purchasing-power parity theory, the nominal exchange rate between the U.S. and another country should equal the price level for that country divided by the price level for the U.S. 7. When the U.S. real interest rate rises, purchases of foreign assets by domestic residents fall and purchases of U.S. assets by foreigners rise. Thus, net capital outflow is inversely related to the real interest rate. Solution IL Answer True or False 1. If a nation is selling less goods and services to foreigners than it is buying from them, then on net it must be buying assets abroad, then the value of domestic assets purchased by foreigners- ----,False 2. By itself, the purchase of a U.S. bond by a foreign resident decreases U.S. net capital outflow and decreases foreign capital outflow ----True . 3. If a U.S. firm buys Chinese toys using previously obtained Chinese currency, then both U.S. net exports and U.S. net capital outflow decrease. ----True 4. The net value of the goods and services sold by a country (net exports) must equal the net value of the assets acquired (net capital outflow). -----True 5. The theory of purchasing-power parity states that a unit of a country\'s currency should be able to buy the same quantity of goods in foreign countries as it does domestically --------True . 6. According to purchasing-power parity theory, the nominal exchange rate between the U.S. and another country should equal the price level for that country divided by the price level for the U.S. --------True 7 When the U.S. real interest rate rises, purchases of foreign assets by domestic residents fall and purchases of U.S. assets by foreigners rise. Thus, net capital outflow is inversely related to the real interest rate. --------True .

1. II. Answer True or False 1. If a nation is selling less goods and services to foreigners thank is
buying from them, then on net it must be buying assets abroad, then the value of domestic assets
purchased by foreigners4 2. By itself, the purchase of a U.S. bond by a foreign resident decreases
U.S. net capital outflow and decreases foreign capital outflow. 3. If a U.S. firm buys Chinese
toys using previously obtained Chinese currency, then both U.S. net exports and U.S. net capital
outflow decrease. 4. The net value of the goods and services sold by a country (net exports) must
equal the net value of the assets acquired (net capital outflow). 5. The theory of purchasing-
power parity states that a unit of a country?s currency should be able to buy the same quantity of
goods In foreign countries as it does domestically. 6. According to purchasing-power parity
theory, the nominal exchange rate between the U.S. and another country should equal the price
level for that country divided by the price level for the U.S. 7. When the U.S. real interest rate
rises, purchases of foreign assets by domestic residents fall and purchases of U.S. assets by
foreigners rise. Thus, net capital outflow is inversely related to the real interest rate.
Solution
IL Answer True or False
1. If a nation is selling less goods and services to foreigners than it is buying from them, then on
net it must be buying assets abroad, then the value of domestic assets purchased by foreigners- --
--,False
2. By itself, the purchase of a U.S. bond by a foreign resident decreases U.S. net capital outflow
and decreases foreign capital outflow ----True
. 3. If a U.S. firm buys Chinese toys using previously obtained Chinese currency, then both U.S.
net exports and U.S. net capital outflow decrease. ----True
4. The net value of the goods and services sold by a country (net exports) must equal the net
value of the assets acquired (net capital outflow). -----True
5. The theory of purchasing-power parity states that a unit of a country's currency should be able
to buy the same quantity of goods in foreign countries as it does domestically --------True
. 6. According to purchasing-power parity theory, the nominal exchange rate between the U.S.
and another country should equal the price level for that country divided by the price level for
the U.S. --------True

2. 7 When the U.S. real interest rate rises, purchases of foreign assets by domestic residents fall and
purchases of U.S. assets by foreigners rise. Thus, net capital outflow is inversely related to the
real interest rate. --------True