Government borrowing:
A. is the primary means of financing public expenditures.
B. provides a stimulus to government spending with no opportunity cost.
C. may crowd out private sector investment.
D. is prohibited by the U.S. constitution.
Answer: C
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Suppose a U.S. investor buys a Canadian government bond with a face value of Canadian dollar (CAD) 100 and an annual yield of 8.8 percent. Which of the following statements is true?
a. At maturity, the dollar return from the Canadian bond will be $108.8, regardless of what happens to the exchange rate. b. The Canadian bond will yield the same dollar return from the time of purchase to the time of maturity. c. An American will make a profit on the Canadian bond only when the CAD-denominated return is higher on the Canadian bond than the dollar-denominated return on a comparable U.S. bond. d. The dollar return on the Canadian bond depends on the dollar price of the Canadian dollar at the time of maturity. e. The decision to buy the Canadian bond should be based solely on the CAD interest return and not on changes in the exchange rate.
Karl can produce either 10 tons of oranges or 5 tons of apples in a year, while Adam can produce either 5 tons of oranges or 10 tons of apples. If the exchange rate between apples and oranges in international markets is 1 ton of apples per 3 tons of oranges: a. Karl and Adam will not trade apples and oranges with one another, since both will specialize in and export oranges to other
countries. b. Karl and Adam will not trade apples and oranges with one another, since both will specialize in and export apples to other countries. c. Karl and Adam will trade apples and oranges with one another. d. Karl and Adam will not specialize or engage in international trade.