Question 1

Which of the following statements is not true about the relationship between national saving, investment, and net capital outflow?

Accepted Answer

A)   An increase in saving associated with an equal increase in net capital outflow leaves domestic investment unchanged.
B)   For a given amount of saving, an increase in net capital outflow must decrease domestic investment.
C)   For a given amount of saving, a decrease in net capital outflow must decrease domestic investment.
D)   Saving is the sum of investment and net capital outflow.E) C) and D)
F) A) and B) C

Question 2

When the euro depreciates against the pound,

Accepted Answer

A)   the number of pounds per euro will increase.
B)   tourism from eurozone countries to London will increase.
C)   UK exports to Euroland will increase.
D)   the price of imported Italian olive oil in the UK will fall.E) A) and B)
F) A) and C) D

Question 3

Other things the same, if a country saves less, then

Accepted Answer

A)   net capital outflow rises, so net exports rise.
B)   net capital outflow rises, so net exports fall.
C)   net capital outflow falls, so net exports rise.
D)   net capital outflow falls, so net exports fall.E) None of the above
F) A) and B)

Question 4

Which of the following statements is true about a country with a trade deficit?

Accepted Answer

A)   Net exports are negative.
B)   Net capital outflow must be positive.
C)   Exports exceed imports.
D)   Net exports are positive.
E)   none of these answersF) D) and E)
G) C) and E)

Question 5

If the exchange rate was 1.50 US dollars per euro, that would mean that Europeans would have to spend __________ to buy a $12 watch in New York City.

Accepted Answer

A)   €8
B)   €15
C)   €1.5
D)   €12E) A) and D)
F) B) and C)

Question 6

A fall in the euro's nominal exchange rate in terms of US dollars

Accepted Answer

A)   will always lead to a fall in the real exchange rate of the euro in terms of US dollars.
B)   may be offset by a rise in the price level in the eurozone so that the real exchange rate of the euro in terms of US dollars is unchanged.
C)   will always make US imports into the eurozone countries more expensive relative to goods produced in the eurozone.
D)   may make the eurozone a less affordable holiday destination for US residents.E) B) and C)
F) A) and D)

Question 7

Suppose a cup of coffee is €1.50 in Germany and £0.50 in the UK. If purchasing power parity holds, what is the nominal exchange rate between euros and pounds?

Accepted Answer

A)   €0.33 per pound
B)   €1.50 per pound
C)   €0.75 per pound
D)   €3 per poundE) B) and C)
F) A) and D)

Question 8

If Japan exports more than it imports,

Accepted Answer

A)   Japan's net exports are negative.
B)   Japan is running a trade deficit.
C)   Japan's net capital outflow must be positive.
D)   Japan's net capital outflow must be negative.E) A) and B)
F) All of the above

Question 9

If the nominal exchange rate between UK pounds and US dollars is £0.50 per $1.00, how many dollars can you get for a pound?

Accepted Answer

A)   $0.50
B)   $1.00
C)   $1.50
D)   $2.00
E)   none of these answersF) B) and D)
G) All of the above

Question 10

If a European county has €25 billion in imports, €15 billion in exports, and sells €20 billion of assets to foreigners, how many foreign assets do domestic residents purchase?

Accepted Answer

A)   €5 billion
B)   €10 billion
C)   €30 billion
D)   None of the above are correct.E) All of the above
F) B) and C)

Question 11

If purchasing power parity holds, the real exchange rate is always equal to 1.

Accepted Answer

A) True 
 B)False

Question 12

If one country has a lower inflation rate than other countries, its

Accepted Answer

A)   currency tends to appreciate.
B)   currency tends to depreciate.
C)   real interest rate will be higher than in other countries.
D)   nominal interest rate will be higher than in other countries.E) All of the above
F) B) and C)

Question 13

The most accurate measure of the international value of the UK pound is

Accepted Answer

A)   an exchange rate index that accounts for many exchange rates.
B)   the yen/pound exchange rate.
C)   the pound/dollar exchange rate.
D)   the euro/pound exchange rate.
E)   the Swiss franc/pound exchange rate.F) A) and E)
G) C) and E)

Question 14

Suppose the inflation rate over the last 20 years has been 10 per cent in the UK, 7 per cent in Japan, and 3 per cent in the USA. If purchasing power parity holds, which of the following statements is true? Over this period,

Accepted Answer

A)   the value of the dollar should have fallen compared to the value of the pound and the yen.
B)   none of these answers
C)   the yen should have fallen in value compared to the pound and risen compared to the dollar.
D)   the value of the pound should have risen compared to the value of the yen and the dollar.
E)   the yen should have risen in value compared to the pound and fallen compared to the dollar.F) B) and C)
G) C) and E)

Question 15

Suppose the same basket of goods costs $100 in the USA and £80 in Britain. According to PPP, if the prices do not change, what will be the exchange rate?

Accepted Answer

A)   $5 per pound
B)   $4 per pound
C)   $1.25 per pound
D)   $0.80 per poundE) A) and B)
F) B) and C)

Question 16

Suppose the nominal exchange rate between the Japanese yen and the UK pound is 100 yen per pound. Further, suppose that a kilogram of rice costs £2 in the UK and 250 yen in Japan. What is the real exchange rate between Japan and the UK?

Accepted Answer

A)   0.5 kilograms of Japanese rice per kilogram of UK rice
B)   0.8 kilograms of Japanese rice per kilogram of UK rice
C)   1.25 kilograms of Japanese rice per kilogram of UK rice
D)   2.5 kilograms of Japanese rice per kilogram of UK rice
E)   none of these answersF) All of the above
G) A) and B) B

Question 17

For any country, net exports are always equal to net capital outflow because every international transaction involves an exchange of an equal value of some combination of goods and assets.

Accepted Answer

A) True 
 B)False

Question 18

If the exchange rate changes from 3 Brazilian reals per euro to 4 reals per euro,

Accepted Answer

A)   none of these answers
B)   the euro has appreciated.
C)   the euro has depreciated.
D)   the euro could have appreciated or depreciated depending what happened to relative prices in Brazil and the Eurozone countries.E) B) and D)
F) C) and D)

Question 19

For a given amount of UK national saving, an increase in UK net capital outflow decreases UK domestic investment.

Accepted Answer

A) True 
 B)False

Question 20

When more euros are needed to buy a unit of Japanese yen, the euro

Accepted Answer

A)   has deflated.
B)   has inflated.
C)   has appreciated.
D)   has depreciated.E) A) and D)
F) A) and C)

Exam 29: Open-Economy Macroeconomics: Basic Concepts

Which of the following statements is not true about the relationship between national saving, investment, and net capital outflow?

Correct AnswerverifiedC

When the euro depreciates against the pound,

Correct AnswerverifiedD

Other things the same, if a country saves less, then

Correct AnswerverifiedShow Answer

Which of the following statements is true about a country with a trade deficit?

Correct AnswerverifiedShow Answer

If the exchange rate was 1.50 US dollars per euro, that would mean that Europeans would have to spend __________ to buy a $12 watch in New York City.

Correct AnswerverifiedShow Answer

A fall in the euro's nominal exchange rate in terms of US dollars

Correct AnswerverifiedShow Answer

Suppose a cup of coffee is €1.50 in Germany and £0.50 in the UK. If purchasing power parity holds, what is the nominal exchange rate between euros and pounds?

Correct AnswerverifiedShow Answer

If Japan exports more than it imports,

Correct AnswerverifiedShow Answer

If the nominal exchange rate between UK pounds and US dollars is £0.50 per $1.00, how many dollars can you get for a pound?

Correct AnswerverifiedShow Answer

If a European county has €25 billion in imports, €15 billion in exports, and sells €20 billion of assets to foreigners, how many foreign assets do domestic residents purchase?

Correct AnswerverifiedShow Answer

If purchasing power parity holds, the real exchange rate is always equal to 1.

Correct AnswerverifiedShow Answer

If one country has a lower inflation rate than other countries, its

Correct AnswerverifiedShow Answer

The most accurate measure of the international value of the UK pound is

Correct AnswerverifiedShow Answer

Suppose the inflation rate over the last 20 years has been 10 per cent in the UK, 7 per cent in Japan, and 3 per cent in the USA. If purchasing power parity holds, which of the following statements is true? Over this period,

Correct AnswerverifiedShow Answer

Suppose the same basket of goods costs $100 in the USA and £80 in Britain. According to PPP, if the prices do not change, what will be the exchange rate?

Correct AnswerverifiedShow Answer

Suppose the nominal exchange rate between the Japanese yen and the UK pound is 100 yen per pound. Further, suppose that a kilogram of rice costs £2 in the UK and 250 yen in Japan. What is the real exchange rate between Japan and the UK?

Correct AnswerverifiedB

For any country, net exports are always equal to net capital outflow because every international transaction involves an exchange of an equal value of some combination of goods and assets.

Correct AnswerverifiedShow Answer

If the exchange rate changes from 3 Brazilian reals per euro to 4 reals per euro,

Correct AnswerverifiedShow Answer

For a given amount of UK national saving, an increase in UK net capital outflow decreases UK domestic investment.

Correct AnswerverifiedShow Answer

When more euros are needed to buy a unit of Japanese yen, the euro

Correct AnswerverifiedShow Answer

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B

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