1.What happens if the trade balance is in surplus by more than a nation's service payments on its external debt?

A) The nation's net external wealth declines.

B) The nation's net external wealth increases.

C) The nation's net external wealth is constant.

D) The nation must run a trade deficit during the subsequent period.

2.The long-run budget constraint for a nation is:

A) GDP minus taxes to run the government.

B) equal to GDP divided by the population.

C) the level of external debt, offset by the sum of the present value of future trade surpluses taken to infinity.

D) determined by its ability to lure international investment and capital inflows.

3.The present value of a perpetual loan, for which only outstanding interest is paid (no principal), is equal to:

A) the principal.

B) the sum of future interest payments, which is infinity.

C) zero.

D) It depends on the rate of interest, which is also the rate of discount.

4.The present value of an infinite stream of payments (X) at an interest rate ofr% (r^*) is calculated as:

A) X-r^*.

B) X+r^*.

C) Xr^*.

D) Xr^*.

5.Sovereign wealth funds are __________that invest the savings of nations into productive and high-return assets.

A) privately owned firms

B) state-owned firms

C) family-owned firms

D) U.S.-based firms