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Exam 31: Open-Economy Macroeconomics: Basic Concepts

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Question 81

True/False

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According to purchasing-power parity theory, the nominal exchange rate between the U.S. and another country should equal the U.S. price level divided by the price level in the foreign country.

A) True
B) False

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Question 82

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

A) True
B) False

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Question 83

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If foreign residents purchase 30 billion pesos of Mexican assets and Mexican residents purchase 25 billion pesos of foreign assets, then Mexico has a net capital outflow of 5 billion pesos.

When a company from Germany builds an automobile factory in the United States, the German firm has engaged in foreign direct investment.

A U.S. bank loaned a Canadian oil company 1 million U.S. dollars. The Canadian company then used the entire loan to buy mining equipment from a U.S. company. As a result of these transactions, by how much and in which direction did: A. U.S. net exports change? B. U.S. net capital outflow change?

A Chinese company exchanges yuan (Chinese currency) for dollars. It uses these dollars to purchase scrap metal from a U.S. company. As a result of these transactions, Chinese net exports

The nominal exchange rate is 32 Russian rubles per dollar. The price of a bushel of wheat is 260 rubles in Russia and $7 in the U.S. A. What is the real exchange rate? Show your work. B. Can arbitragers make a profit? C. If your answer to B is yes, where would arbitragers buy and where would they sell.

A country purchases $110 billion of foreign-produced goods and services and sells $120 billion of domestically produced goods and services to foreign countries. It has imports of

If you are vacationing in Spain and the dollar depreciates relative to the euro, then the dollar buys

A Turkish firm exchanges lira (Turkish currency) for dollars. It then uses these dollars to purchase computers from the U.S. These actions decrease U.S. net capital outflow and increase U.S. net exports.

If the nominal exchange rate e is foreign currency per dollar, the domestic price is P, and the foreign price is P*, then the real exchange rate is defined as

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?

If a country has positive net capital outflows, then its net exports are

How do we find the real exchange rate from the nominal exchange rate?

Suppose that Bill, a resident of the U.S., buys software from a company in Japan. Explain why and in what directions this changes U.S. net exports and U.S. net capital outflow.

Which of the following is correct? Since 1950

Assuming purchasing-power parity holds and that over a period of five years the dollar had appreciated relative to the currency of Country X, what would explain the appreciation of the dollar?

Reductions in transportation costs help explain the increase in U.S. trade flows.

Last year residents of country A purchased $400 billion of foreign assets and $200 of foreign goods. Foreigners purchased $300 billion dollars of country A's assets. What was the value of country A's exports?

If saving is greater than domestic investment, then there is a trade