The Foreign Purchases Effect Suggests That an Increase in the U.S

question 211

Multiple Choice

The foreign purchases effect suggests that an increase in the U.S. price level relative to other countries will

• A) increase the amount of U.S. real output purchased.
• B) increase U.S. imports and decrease U.S. exports.
• C) increase both U.S. imports and U.S. exports.
• D) decrease both U.S. imports and U.S. exports.

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Definitions:

Present Value

The current value of a future sum of money or stream of cash flows given a specified rate of return, often used in discounting cash flows.

Annuity Due

An annuity where payments are made at the beginning of each period instead of the end.

Bargain Purchase Option

An option given to the lessee to purchase the leased asset at the end of the lease term at a price significantly lower than the expected fair market value.

Future Rents

Future rents refer to the payments that are expected to be received in the future for the use of an asset, typically real estate.