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Exam 31: Open-Economy Macroeconomics: Basic Concepts

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Question 71

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

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The logic behind purchasing-power parity...

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Question 72

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A nation with a trade surplus will necessarily have saving that is greater than domestic investment.

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Question 73

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When Microsoft, a U.S. company, establishes a distribution center in Canada, U.S. net capital outflow

If a nation produces more than it spends what do we know about: A. its net exports? B. its net capital outflow? C. its saving in relation to its domestic investment?

A country recently had a trade deficit of 350 billion euros. Its residents also purchased 400 billion euros of foreign assets. What was the value of this country's assets purchased by foreigners?

If the exchange rate is 12.5 pesos per U.S. dollar, it is also 1/12.5 U.S. dollars per peso.

While on a study abroad program you see a McDonald's in Paris. A combo meal costs 8 euros. The same meal costs $6 in the U.S. and the exchange rate is .75 euros per dollar. A. Find the real exchange rate. Show your work. B. In terms of dollars where is the combo meal cheaper?

The nominal exchange rate is 3 Malaysian ringgits per dollar. The real exchange rate is 8/5. If a Big Mac costs 7.5 ringgits in Malaysia, how much does a Big Mac cost in the U.S.? Show your work.

During some year a country had exports of $85 billion, imports of $60 billion, and domestic investment of $130 billion. What was its saving during the year?

If Walmart buys $50 million worth of consumer goods from China and sells them in the U.S., and China uses the $50 million to purchase U.S. bonds, U.S. net exports and U.S. net capital outflow both fall.

Can purchasing-power parity be used to explain the fact that the U.S. dollar depreciated by more than 50 percent against the German mark between 1970 and 1998, but appreciated by more than 100 percent against the Italian lira during the same period? Defend your answer.

Gabrielle, an Italian citizen, uses some previously obtained dollars to purchase a bond issued by a U.S. company. This transaction

A country with negative net exports has a trade surplus.

Last year country A's residents purchased $700 billion of goods and services from and sold $500 billion of goods and services to residents of foreign countries. Its domestic investment was $1,100. What was country A's saving? Show your work.

Last year a country purchased $1.5 trillion worth of goods and services from foreign countries, sold $2 trillion worth of goods and services to foreign countries and had national saving of $1.25 trillion. What was the value of its domestic investment? Show your work.

If a German firm buys goods from a U.S. firm with dollars it obtains by exchanging euros for dollars, both U.S. net exports and U.S. net capital outflow increase.

If the U.S. real exchange rate with Japan is greater than 1, then U.S. goods are relatively cheap.

While on vacation in Europe you notice that a tablet computer is selling for 600 euros in France and for 533 pounds in Britain. You also know that the exchange rates are .75 euros per dollar and .65 British pounds per dollar. Where is the number of dollars you would pay for the tablet lower? How many dollars would you have to pay to buy it there?

Suppose that the real return from operating factories in France rises relative to the real rate of return in the United States. Other things the same, this will

Which of the following is an example of U.S. foreign portfolio investment?