Question 1

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) B) and D)
F) All of the above

Question 2

Derive the relation between savings, domestic investment, and net capital outflow using the national income accounting identity.

Accepted Answer

Start from the national income accounting identity,
(1) Y = C + I + G + NX.
Recall from Chapter 25 that national saving is the income that is left after paying for current consumption and government expenditure,
(2) S = Y - C - g.Rearranging, (1) we obtain Y - C - G = I + NX, and substituting in (2)
(3) S = I + NX.
Because net exports also equal net capital outflow, we can also write this equation as
(4) S = I + NCO.

Question 3

List the factors that might influence a country's exports, imports, and trade balance.

Accepted Answer

a.the tastes of consumers for domestic a...

Question 4

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) A) and D)
F) None of the above

Question 5

The ability to profit by purchasing wheat in the U.S. and selling it in China implies that the

Accepted Answer

A)  nominal exchange rate is less than 1.
B)  nominal exchange rate is greater than 1.
C)  real exchange rate is less than 1.
D)  real exchange rate is greater than 1.E) A) and B)
F) C) and D)

Question 6

Which of the following does purchasing-power parity conclude should equal 1?

Accepted Answer

A)  both the nominal and the real exchange rate.
B)  the nominal exchange rate but not the real exchange rate
C)  the real exchange rate but not the nominal exchange rate
D)  neither the nominal exchange rate nor the real exchange rateE) A) and D)
F) A) and B)

Question 7

A U.S. firm called EcoWind produces windmills for households to generate electricity. It uses 25,000 recently obtained pesos to buy copper from a mining company in Argentina. As a result of this exchange, by how much, if at all, and in which direction did:
A. U.S. net exports change?
B. U.S. net capital outflow change?

Accepted Answer

A. U.S. net exports fell by 25,000 pesos.
B. U.S. net capital outflow fell by 25,000 pesos.

Question 8

While vacationing in Italy, you see an interesting meal on a menu. The price is 24 euros.
A. If the exchange rate is .80 euros per dollar, how many dollars would you have to give up to buy the meal?
B. If the dollar appreciated against the euro, but the price of the meal remained 24 euro, would the meal cost more or fewer dollars? Explain.

Accepted Answer

A. 24 euros = $x times .80 eur...

Question 9

The increase in international trade in the United States is partly due to

Accepted Answer

A)  improvements in transportation.
B)  advances in telecommunications.
C)  increased trade of goods with a high value per pound.
D)  All of the above are correct.E) A) and B)
F) A) and C)

Question 10

Suppose a McDonalds Big Mac costs $4.40 in the United States and 3.30 euros in the euro area and 5.72 Australian dollars in Australia. If exchange rates are .75 euros per dollar and 1.3 Australian dollars per dollar, where does purchasing-power parity hold?

Accepted Answer

A)  both the euro area and Australia
B)  the euro area but not Australia
C)  Australia but not the euro area
D)  neither the euro area nor AustraliaE) A) and B)
F) A) and C)

Question 11

From 1970 to 1998 the U.S. dollar

Accepted Answer

A)  gained value compared to the German mark because inflation was higher in Germany.
B)  gained value compared to the German mark because inflation was lower in Germany.
C)  lost value compared to the German mark because inflation was higher in Germany.
D)  lost value compared to the German mark because inflation was lower in Germany.E) A) and D)
F) A) and C)

Question 12

If Canada's national saving exceeds its domestic investment, then Canada has

Accepted Answer

A)  positive net capital outflows and negative net exports.
B)  positive net capital outflows and positive net exports.
C)  negative net capital outflows and negative net exports.
D)  negative net capital outflows and positive net exports.E) None of the above
F) B) and D)

Question 13

An open economy's GDP is always given by

Accepted Answer

A)  Y = C + I + G.
B)  Y = C + I + G + T.
C)  Y = C + I + G + S.
D)  Y = C + I + G + NX.E) All of the above
F) C) and D)

Question 14

A Japanese flour mill buys wheat from the United States and pays for it with yen. Other things the same, Japanese

Accepted Answer

A)  net exports increase, and U.S. net capital outflow increases.
B)  net exports increase, and U.S. net capital outflow decreases.
C)  net exports decrease, and U.S. net capital outflow increases.
D)  net exports decrease, and U.S. net capital outflow decreases.E) B) and C)
F) B) and D)

Question 15

Suppose that a U.S. dollar buys more gold in Australia than it buys in Russia. What does purchasing-power parity imply should happen?

Accepted Answer

People can make a profit by buying gold ...

Question 16

How do the nominal exchange rate and the real exchange rate differ?

Accepted Answer

The nominal exchange rate is the rate at...

Question 17

You are planning a graduation trip to Mexico. Other things the same, if the dollar appreciates relative to the peso, then

Accepted Answer

A)  the dollar buys fewer pesos. Your hotel room in Mexico will require fewer dollars.
B)  the dollar buys fewer pesos. Your hotel room in Mexico will require more dollars.
C)  the dollar buys more pesos. Your hotel room in Mexico will require fewer dollars.
D)  the dollar buys more pesos. Your hotel room in Mexico will require more dollars.E) All of the above
F) None of the above

Question 18

If the exchange rate is 60 Indian rupees per dollar and a bushel of rice costs 200 rupees in India and $3 in the U.S., then the real exchange rate is

Accepted Answer

A)  greater than one and arbitrageurs could profit by buying rice in the U.S. and selling it in India.
B)  greater than one and arbitrageurs could profit by buying rice in India and selling it in the U.S..
C)  less than one and arbitrageurs could profit by buying rice in the U.S. and selling it in India.
D)  less than one and arbitrageurs could profit by buying rice in India and selling it in the U.S..E) A) and D)
F) C) and D)

Question 19

A country has a trade deficit. Its

Accepted Answer

A)  net capital outflow must be positive, and saving is larger than investment.
B)  net capital outflow must be positive and saving is smaller than investment.
C)  net capital outflow must be negative and saving is larger than investment.
D)  net capital outflow must be negative and saving is smaller than investment.E) A) and B)
F) All of the above D

Question 20

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

Accepted Answer

A) True 
 B)False

Exam 31: Open-Economy Macroeconomics: Basic Concepts

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

Correct Answer
verified

Derive the relation between savings, domestic investment, and net capital outflow using the national income accounting identity.

List the factors that might influence a country's exports, imports, and trade balance.

Correct Answer
verified
a.the tastes of consumers for domestic a...
View Answer

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

Correct Answer
verified

The ability to profit by purchasing wheat in the U.S. and selling it in China implies that the

Correct Answer
verified

Which of the following does purchasing-power parity conclude should equal 1?

Correct Answer
verified

Correct Answer
verified
A. U.S. net exports fell by 25,000 pesos. B. U.S. net capital outflow fell by 25,000 pesos.

Correct Answer
verified
A. 24 euros = $x times .80 eur...
View Answer

The increase in international trade in the United States is partly due to

Correct Answer
verified

Suppose a McDonalds Big Mac costs $4.40 in the United States and 3.30 euros in the euro area and 5.72 Australian dollars in Australia. If exchange rates are .75 euros per dollar and 1.3 Australian dollars per dollar, where does purchasing-power parity hold?

Correct Answer
verified

From 1970 to 1998 the U.S. dollar

Correct Answer
verified

If Canada's national saving exceeds its domestic investment, then Canada has

Correct Answer
verified

An open economy's GDP is always given by

Correct Answer
verified

A Japanese flour mill buys wheat from the United States and pays for it with yen. Other things the same, Japanese

Correct Answer
verified

Suppose that a U.S. dollar buys more gold in Australia than it buys in Russia. What does purchasing-power parity imply should happen?

Correct Answer
verified
People can make a profit by buying gold ...
View Answer

How do the nominal exchange rate and the real exchange rate differ?

Correct Answer
verified
The nominal exchange rate is the rate at...
View Answer

You are planning a graduation trip to Mexico. Other things the same, if the dollar appreciates relative to the peso, then

Correct Answer
verified

If the exchange rate is 60 Indian rupees per dollar and a bushel of rice costs 200 rupees in India and $3 in the U.S., then the real exchange rate is

Correct Answer
verified

A country has a trade deficit. Its

Correct Answer
verified
D

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

Correct Answer
verified

Exam 31: Open-Economy Macroeconomics: Basic Concepts

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

Correct AnswerverifiedShow Answer

Derive the relation between savings, domestic investment, and net capital outflow using the national income accounting identity.

List the factors that might influence a country's exports, imports, and trade balance.

Correct Answerverifieda.the tastes of consumers for domestic a...View AnswerShow Answer

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

Correct AnswerverifiedShow Answer

The ability to profit by purchasing wheat in the U.S. and selling it in China implies that the

Correct AnswerverifiedShow Answer

Which of the following does purchasing-power parity conclude should equal 1?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedA. U.S. net exports fell by 25,000 pesos. B. U.S. net capital outflow fell by 25,000 pesos.

Correct AnswerverifiedA. 24 euros = $x times .80 eur...View AnswerShow Answer

The increase in international trade in the United States is partly due to

Correct AnswerverifiedShow Answer

Suppose a McDonalds Big Mac costs $4.40 in the United States and 3.30 euros in the euro area and 5.72 Australian dollars in Australia. If exchange rates are .75 euros per dollar and 1.3 Australian dollars per dollar, where does purchasing-power parity hold?

Correct AnswerverifiedShow Answer

From 1970 to 1998 the U.S. dollar

Correct AnswerverifiedShow Answer

If Canada's national saving exceeds its domestic investment, then Canada has

Correct AnswerverifiedShow Answer

An open economy's GDP is always given by

Correct AnswerverifiedShow Answer

A Japanese flour mill buys wheat from the United States and pays for it with yen. Other things the same, Japanese

Correct AnswerverifiedShow Answer

Suppose that a U.S. dollar buys more gold in Australia than it buys in Russia. What does purchasing-power parity imply should happen?

Correct AnswerverifiedPeople can make a profit by buying gold ...View AnswerShow Answer

How do the nominal exchange rate and the real exchange rate differ?

Correct AnswerverifiedThe nominal exchange rate is the rate at...View AnswerShow Answer

You are planning a graduation trip to Mexico. Other things the same, if the dollar appreciates relative to the peso, then

Correct AnswerverifiedShow Answer

If the exchange rate is 60 Indian rupees per dollar and a bushel of rice costs 200 rupees in India and $3 in the U.S., then the real exchange rate is

Correct AnswerverifiedShow Answer

A country has a trade deficit. Its

Correct AnswerverifiedD

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

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
verified
a.the tastes of consumers for domestic a...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
A. U.S. net exports fell by 25,000 pesos. B. U.S. net capital outflow fell by 25,000 pesos.

Correct Answer
verified
A. 24 euros = $x times .80 eur...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
People can make a profit by buying gold ...
View Answer

Correct Answer
verified
The nominal exchange rate is the rate at...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
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D

Correct Answer
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