Question 1

If purchasing power parity holds, then if the price of a basket of goods in the U.S. rose from $1,500 to $2,000 and the price of the same basket in Mexico rose from 12,000 pesos to 18,000 pesos

Accepted Answer

A)  inflation was higher in the U.S. than Mexico so the U.S. dollar would appreciate.
B)  inflation was higher in the U.S. than Mexico so the U.S.dollar would depreciate.
C)  inflation was lower in the U.S. than Mexico so the U.S. dollar would appreciate.
D)  inflation was lower in the U.S. than Mexico so the U.S dollar would depreciate.E) All of the above
F) B) and D)

Question 2

If the real exchange rate between the U.S. and Japan is 1, the nominal exchange rate is 100 yen per U.S. dollar and the price of chicken in the U.S. is $2.50 per pound, what is the price of chicken in Japan?

Accepted Answer

A)  400 yen per pound
B)  250 yen per pound
C)  100 yen per pound
D)  40 yen per poundE) All of the above
F) C) and D)

Question 3

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) B) and C)
F) None of the above

Question 4

You hold currency from a foreign country. If that country has a higher rate of inflation than the United States, then over time the foreign currency will buy

Accepted Answer

A)  more goods in that country and buy more dollars.
B)  more goods in that country but buy fewer dollars.
C)  fewer goods in that country but buy more dollars.
D)  fewer goods in that country and buy fewer dollars.E) A) and D)
F) C) and D)

Question 5

If a nation is selling more goods and services to foreigners than it is buying from them, then on net it must be buying assets abroad.

Accepted Answer

A) True 
 B)False

Question 6

Which of the following is correct?

Accepted Answer

A)  U.S. exports as a percentage of GDP have about tripled since 1950. The U.S. currently has a trade deficit.
B)  U.S. exports as a percentage of GDP have about tripled since 1950. The U.S. currently has a trade surplus.
C)  U.S. exports as a percentage of GDP have about doubled since 1950. The U.S. currently has a trade deficit.
D)  U.S. exports as a percentage of GDP have about doubled since 1950. The U.S. currently has a trade surplus.E) A) and B)
F) A) and C)

Question 7

According to purchasing-power parity, if two countries have the same price level because they have the same prices for all goods and services, then which of the following would equal 1?

Accepted Answer

A)  the real exchange rate, but not the nominal exchange rate
B)  the nominal exchange rate, but not the real exchange rate
C)  the real exchange rate and the nominal exchange rate
D)  neither the real exchange rate nor the nominal exchange rateE) C) and D)
F) All of the above

Question 8

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 C)
F) All of the above

Question 9

If the price of a sofa is $800 in the U.S. and 2400 pesos in Argentina, and the exchange rate is 4 pesos per dollar, what is the real exchange rate?

Accepted Answer

A)  3
B)  4/3
C)  3/4
D)  None of the above is correct.E) C) and D)
F) B) and D)

Question 10

Last year a country had exports of $50 billion, imports of $60 billion, and domestic investment of $40 billion. What was its saving last year?

Accepted Answer

A)  $30 billion
B)  $20 billion
C)  $10 billion
D)  -$10 billionE) All of the above
F) B) and C)

Question 11

Use the (hypothetical)  information in the following table to answer the following questions.
Table 31-2 
-Refer to Table 31-2. Which currency(ies)  is(are)  have a higher nominal exchange rate than predicted by the doctrine of purchasing-power parity?

Accepted Answer

A)  the bolivar and the pound
B)  the euro and the riyal
C)  the yen
D)  the poundE) A) and B)
F) All of the above

Question 12

From 1970 to 1998 the U.S. dollar

Accepted Answer

A)  gained value compared to the Italian lira because inflation was higher in Italy.
B)  gained value compared to the Italian lira because inflation was lower in Italy.
C)  lost value compared to the Italian lira because inflation was higher in Italy.
D)  lost value compared to the Italian lira because inflation was lower in Italy.E) All of the above
F) None of the above

Question 13

If purchasing-power parity holds, when a country's central bank increases the money supply, its

Accepted Answer

A)  price level rises and its currency appreciates relative to other currencies in the world.
B)  price level rises and its currency depreciates relative to other currencies in the world.
C)  price level falls and its currency appreciates relative to other currencies in the world.
D)  price level falls and its currency depreciates relative to other currencies in the world.E) A) and C)
F) A) and B)

Question 14

In an open economy, gross domestic product equals $3,500 billion, consumption expenditure equals $2100 billion, government expenditure equals $400 billion, investment equals $800 billion, and net exports equals $200 billion. What is national savings?

Accepted Answer

A)  $200 billion
B)  $600 billion
C)  $800 billion
D)  $1,000 billionE) A) and C)
F) B) and D)

Question 15

Suppose that a country has $120 billion of national saving, and $80 billion of domestic investment. Is this possible? Where did the other $40 billion of national savings go?

Accepted Answer

This is possible for an open economy. Th...

Question 16

If the exchange rate is 5 Egyptian pounds per U.S. dollar, a watch that costs $25 US dollars costs

Accepted Answer

A)  125 Egyptian pounds
B)  50 Egyptian pounds
C)  5 Egyptian pounds
D)  None of the above is correct.E) A) and D)
F) B) and C)

Question 17

If citizens of a country are not saving much, it is better to

Accepted Answer

A)  force citizens to save.
B)  reduce investment.
C)  have foreigners invest in the domestic economy than no one at all.
D)  prevent opportunities for citizens to buy capital assets abroad.E) B) and C)
F) A) and B)

Question 18

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 19

If a dollar buys more rice in the China. than in the U.S., then

Accepted Answer

A)  the real exchange rate is greater than 1; a profit might be made by buying rice in the U.S. and selling it in China.
B)  the real exchange rate is greater than 1; a profit might be made by buying rice in China. and selling it in the U.S.
C)  the real exchange rate is less than 1; a profit might be made by buying rice in the U.S. and selling it in China.
D)  the real exchange rate is less than 1; a profit might be made by buying rice in China and selling it in the U.S.E) B) and D)
F) B) and C)

Question 20

Other things the same, an increase in the U.S. real exchange rate makes U.S. goods more expensive relative to foreign goods.

Accepted Answer

A) True 
 B)False

Exam 31: Open-Economy Macroeconomics: Basic Concepts

Last year a country had exports of $50 billion, imports of $60 billion, and domestic investment of $40 billion. What was its saving last year?

Correct AnswerverifiedShow Answer

Suppose that a country has $120 billion of national saving, and $80 billion of domestic investment. Is this possible? Where did the other $40 billion of national savings go?

Correct AnswerverifiedThis is possible for an open economy. Th...View AnswerShow 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

Other things the same, an increase in the U.S. real exchange rate makes U.S. goods more expensive relative to foreign goods.

Correct AnswerverifiedShow Answer

Since 1980 U.S. net capital outflow has been

Correct AnswerverifiedShow Answer

If purchasing-power parity holds, when a country's central bank increases the money supply, its

Correct AnswerverifiedShow Answer

If a nation is selling more goods and services to foreigners than it is buying from them, then on net it must be buying assets abroad.

Correct AnswerverifiedShow Answer

If the exchange rate is 5 Egyptian pounds per U.S. dollar, a watch that costs $25 US dollars costs

Correct AnswerverifiedShow Answer

If the real exchange rate between the U.S. and Japan is 1, the nominal exchange rate is 100 yen per U.S. dollar and the price of chicken in the U.S. is $2.50 per pound, what is the price of chicken in Japan?

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From 1970 to 1998 the U.S. dollar

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Use the (hypothetical) information in the following table to answer the following questions. Table 31-2 -Refer to Table 31-2. Which currency(ies) is(are) have a higher nominal exchange rate than predicted by the doctrine of purchasing-power parity?

Correct AnswerverifiedShow Answer

Which of the following is correct?

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

If citizens of a country are not saving much, it is better to

Correct AnswerverifiedShow Answer

In an open economy, gross domestic product equals $3,500 billion, consumption expenditure equals $2100 billion, government expenditure equals $400 billion, investment equals $800 billion, and net exports equals $200 billion. What is national savings?

Correct AnswerverifiedShow Answer

If the price of a sofa is $800 in the U.S. and 2400 pesos in Argentina, and the exchange rate is 4 pesos per dollar, what is the real exchange rate?

Correct AnswerverifiedShow Answer

If purchasing power parity holds, then if the price of a basket of goods in the U.S. rose from $1,500 to $2,000 and the price of the same basket in Mexico rose from 12,000 pesos to 18,000 pesos

Correct AnswerverifiedShow Answer

According to purchasing-power parity, if two countries have the same price level because they have the same prices for all goods and services, then which of the following would equal 1?

Correct AnswerverifiedShow Answer

If a dollar buys more rice in the China. than in the U.S., then

Correct AnswerverifiedShow Answer

You hold currency from a foreign country. If that country has a higher rate of inflation than the United States, then over time the foreign currency will buy

Correct AnswerverifiedShow Answer

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saving = domestic investment + net capit...
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