Question 1

What is the logic behind the theory of purchasing-power parity?

Accepted Answer

The logic behind purchasing-power parity...

Question 2

A country recently had saving of 300 billion euros and domestic investment of 200 billion euros. What was the value of this country's net exports? Explain how you found your answer.

Accepted Answer

saving = domestic investment + net capit...

Question 3

When Jamie, a U.S. citizen, purchases a wool jacket made in Ireland, the purchase is

Accepted Answer

A)   both a U.S. and Irish import.
B)   a U.S. import and an Irish export.
C)   a U.S. export and an Irish import.
D)   neither an export nor an import for either country.E) B) and C)
F) C) and D)

Question 4

To increase domestic investment, a country must increase its saving.

Accepted Answer

A) True 
 B)False

Question 5

If a country has net exports of $8 billion and sold $40 billion of goods and services abroad, then it has

Accepted Answer

A)   $48 billion of imports and $40 billion of exports.
B)   $48 billion of exports and $40 billion of imports.
C)   $40 billion of imports and $32 billion of exports.
D)   $40 billion of exports and $32 billion of imports.E) A) and D)
F) A) and C)

Question 6

If the real exchange rate is 5/4 pounds of Chilean beef per pound of U.S. beef, a pound of U.S. beef costs $2 and the nominal exchange rate is 500 Chilean pesos per dollar, then Chilean beef costs

Accepted Answer

A)   1,250 pesos per pound.
B)   800 pesos per pound
C)   250 pesos per pound.
D)   None of the above is correct.E) A) and B)
F) C) and D)

Question 7

If a country had a trade surplus of $50 billion and then its exports rose by $30 billion and its imports rose by $20 billion, its net exports would now be

Accepted Answer

A)   $0 billion.
B)   $20 billion.
C)   $40 billion.
D)   $60 billion.E) A) and D)
F) B) and D)

Question 8

Bob, a Greek citizen, opens a restaurant in Chicago. His expenditures

Accepted Answer

A)   increase U.S. net capital outflow and have no affect on Greek net capital outflow.
B)   increase U.S. net capital outflow and increase Greek net capital outflow.
C)   increase U.S. net capital outflow, but decrease Greek net capital outflow.
D)   decrease U.S. net capital outflow, but increase Greek net capital outflow.E) None of the above
F) A) and C)

Question 9

If the U.S. price level is increasing by 3 percent annually and the Japanese price level is increasing by 1 percent annually, then according to purchasing-power parity, by about what percent would the nominal exchange rate be changing?

Accepted Answer

A)   decreasing by 4 percent
B)   decreasing by 2 percent
C)   increasing by 4 percent
D)   increasing by 2 percentE) B) and C)
F) C) and D)

Question 10

The nominal exchange rate is .80 euros per dollar and the real exchange rate is 4/3. Which of the following prices for a particular good are consistent with these exchange rates?

Accepted Answer

A)   $4 in the U.S. and 3 euros in Italy.
B)   $4 in the U.S. and 3.75 euros in Italy.
C)   $5 in the U.S. and 3 euros in Italy.
D)   $6 in the U.S. and 2.50 euros in Italy.E) A) and B)
F) A) and C)

Question 11

Suppose that the nominal exchange rate is 80 yen per dollar, that the price of a basket of goods in the U.S. is $500 and the price of a basket of goods in Japan is 50,000 yen. Suppose that these values change to 100 yen per dollar, $600, and 70,000 yen. Then the real exchange rate would

Accepted Answer

A)   appreciate which by itself would make U.S. net exports fall.
B)   appreciate which by itself would make U.S. net exports rise.
C)   depreciate which by itself would make U.S. net exports fall.
D)   depreciate which by itself would make U.S. net exports rise.E) A) and B)
F) A) and C)

Question 12

Net capital outflow equals the purchase of

Accepted Answer

A)   foreign assets by domestic residents.
B)   domestic assets by foreign residents.
C)   domestic assets by foreign residents - the purchase of foreign assets by domestic residents
D)   foreign assets by domestic residents - the purchase of domestic assets by foreign residentsE) A) and B)
F) A) and C)

Question 13

The country of Wiknam has net capital outflow of $1,000, government purchases of $5,000 and consumption of $20,000. Which of the following is correct?

Accepted Answer

A)   If its domestic investment is $1,000, its GDP is $26,000.
B)   If its domestic investment is $2,000, its GDP is $28,000.
C)   If its domestic investment is $5,000, its GDP is $29,000.
D)   None of the above are correct.E) C) and D)
F) A) and B)

Question 14

Other things the same, an increase in foreign prices raises the real exchange rate.

Accepted Answer

A) True 
 B)False

Question 15

If purchasing-power parity holds, then the value of the

Accepted Answer

A)   nominal exchange rate is equal to one. A dollar buys as many goods in the U.S. as it does overseas.
B)   nominal exchange rate is equal to one. A dollar buys the quantity of foreign currency equal to the U.S. price level divided by the foreign country's price level.
C)   real exchange rate is equal to one. A dollar buys as many goods in the U.S. as it does overseas.
D)   real exchange rate is equal to one. A dollar buys the quantity of foreign currency equal to the U.S. price level divided by the foreign country's price level.E) A) and B)
F) C) and D)

Question 16

A good in the U.S. costs $20. The same good costs 150 pesos in Mexico. If the nominal exchange rate is 10 pesos per dollar, what is the real exchange rate?

Accepted Answer

A)   4/3 so the good is more expensive in the U.S.
B)   4/3 so the good is more expensive in Mexico
C)   3/4 so the good is more expensive in the U.S.
D)   3/4 so the good is more expensive in MexicoE) A) and D)
F) C) and D)

Question 17

Which of the following is an example of U.S. foreign direct investment and by itself increases U.S. net capital outflow?

Accepted Answer

A)   A U.S. electronics company opens and operates a new factory in India.
B)   A Swiss bank buys bonds issued by a U.S. company.
C)   A U.S. pension fund buys bonds issued by the Japanese government.
D)   A French restaurant opens and operates a restaurant in New York.E) None of the above
F) All of the above

Question 18

An MP3 player in Singapore costs 200 Singaporean dollars. In the U.S. it costs 100 US dollars. What is the nominal exchange rate if purchasing-power parity holds?

Accepted Answer

A)   2.0
B)   1.0
C)   .50
D)   None of the above is correct.E) A) and C)
F) C) and D)

Question 19

Since 1980 U.S. net capital outflow has been

Accepted Answer

A)   negative, meaning that foreigners were buying more capital assets from the United States than Americans were buying abroad.
B)   negative, meaning that Americans were buying more capital assets abroad than foreigners were buying from the United States.
C)   positive, meaning that foreigners were buying more capital assets from the United States than Americans were buying abroad.
D)   positive, meaning that Americans were buying more capital assets abroad than foreigners were buying from the United States.E) A) and B)
F) A) and C)

Question 20

Other things the same, if the exchange rate changes from 30 Thai bhat per dollar to 25 Thai bhat per dollar, then the dollar has

Accepted Answer

A)   appreciated and so buys more Thai goods.
B)   appreciated and so buys fewer Thai goods.
C)   depreciated and so buys more Thai goods.
D)   depreciated and so buys fewer Thai goods.E) A) and B)
F) A) and C)

Exam 18: Open-Economy Macroeconomics: Basic Concepts

Other things the same, an increase in foreign prices raises the real exchange rate.

Correct AnswerverifiedShow Answer

If the real exchange rate is 5/4 pounds of Chilean beef per pound of U.S. beef, a pound of U.S. beef costs $2 and the nominal exchange rate is 500 Chilean pesos per dollar, then Chilean beef costs

Correct AnswerverifiedShow Answer

If a country has net exports of $8 billion and sold $40 billion of goods and services abroad, then it has

Correct AnswerverifiedShow Answer

A good in the U.S. costs $20. The same good costs 150 pesos in Mexico. If the nominal exchange rate is 10 pesos per dollar, what is the real exchange rate?

Correct AnswerverifiedShow Answer

If a country had a trade surplus of $50 billion and then its exports rose by $30 billion and its imports rose by $20 billion, its net exports would now be

Correct AnswerverifiedShow Answer

Suppose that the nominal exchange rate is 80 yen per dollar, that the price of a basket of goods in the U.S. is $500 and the price of a basket of goods in Japan is 50,000 yen. Suppose that these values change to 100 yen per dollar, $600, and 70,000 yen. Then the real exchange rate would

Correct AnswerverifiedShow Answer

A country recently had saving of 300 billion euros and domestic investment of 200 billion euros. What was the value of this country's net exports? Explain how you found your answer.

Correct Answerverifiedsaving = domestic investment + net capit...View AnswerShow Answer

Which of the following is an example of U.S. foreign direct investment and by itself increases U.S. net capital outflow?

Correct AnswerverifiedShow Answer

Since 1980 U.S. net capital outflow has been

Correct AnswerverifiedShow Answer

Other things the same, if the exchange rate changes from 30 Thai bhat per dollar to 25 Thai bhat per dollar, then the dollar has

Correct AnswerverifiedShow Answer

To increase domestic investment, a country must increase its saving.

Correct AnswerverifiedShow Answer

If purchasing-power parity holds, then the value of the

Correct AnswerverifiedShow Answer

An MP3 player in Singapore costs 200 Singaporean dollars. In the U.S. it costs 100 US dollars. What is the nominal exchange rate if purchasing-power parity holds?

Correct AnswerverifiedShow Answer

Net capital outflow equals the purchase of

Correct AnswerverifiedShow Answer

When Jamie, a U.S. citizen, purchases a wool jacket made in Ireland, the purchase is

Correct AnswerverifiedShow Answer

If the U.S. price level is increasing by 3 percent annually and the Japanese price level is increasing by 1 percent annually, then according to purchasing-power parity, by about what percent would the nominal exchange rate be changing?

Correct AnswerverifiedShow Answer

What is the logic behind the theory of purchasing-power parity?

Correct AnswerverifiedThe logic behind purchasing-power parity...View AnswerShow Answer

The nominal exchange rate is .80 euros per dollar and the real exchange rate is 4/3. Which of the following prices for a particular good are consistent with these exchange rates?

Correct AnswerverifiedShow Answer

Bob, a Greek citizen, opens a restaurant in Chicago. His expenditures

Correct AnswerverifiedShow Answer

The country of Wiknam has net capital outflow of $1,000, government purchases of $5,000 and consumption of $20,000. Which of the following is correct?

Correct AnswerverifiedShow Answer

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saving = domestic investment + net capit...
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The logic behind purchasing-power parity...
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