Question 1

Suppose a Starbucks tall latte cost $4.00 in the United States and 3.20 euros in the Euro area. Also, suppose a McDonald's Big Mac costs $3.50 in the United States and 2.45 euros in Euro area. If the nominal exchange rate is .75 euros per dollar, the prices of which goods have prices that are consistent with purchasing power parity?

Accepted Answer

A)  Both the tall latte and the Big Mac.
B)  Neither the tall latte nor the Big Mac.
C)  The tall latte but not the Big Mac.
D)  The Big Mac but not the tall latte.E) All of the above
F) A) and B)

Question 2

If over the next year the price level in Turkey increases and the price level in Japan falls, then the Turkish lira should depreciate relative to the Japanese Yen.

Accepted Answer

A) True 
 B)False

Question 3

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

Question 4

During a hyperinflation the real domestic value of a country's currency

Accepted Answer

A)  falls and its nominal exchange rate depreciates.
B)  falls and its nominal exchange rate appreciates.
C)  rises and its nominal exchange rate depreciates.
D)  rises and its nominal exchange rate appreciates.E) B) and D)
F) All of the above

Question 5

If the purchasing power of the dollar is always the same at home and abroad, then the nominal exchange rate defined as units of foreign currency per dollar decreases if the U.S. price level rises more than the price level in foreign countries.

Accepted Answer

A) True 
 B)False

Question 6

A U.S. company uses U.K. pounds it already owned to purchase bonds issued by a company in the U.K. Which of these countries has an increase in net capital outflow?

Accepted Answer

A)  The U.S. and the U.K.
B)  The U.S. but not the U.K.
C)  The U.K. but not the U.S.
D)  Neither the U.S. nor the U.K.E) A) and C)
F) C) and D)

Question 7

Other things the same, if the exchange rate changes from 75 Algerian dinar per dollar to 72 Algerian dinar per dollar, the dollar has

Accepted Answer

A)  appreciated and so buys more Algerian goods.
B)  appreciated and so buys fewer Algerian goods.
C)  depreciated and so buys more Algerian goods.
D)  depreciated and so buys fewer Algerian goods.E) A) and D)
F) All of the above

Question 8

If a country's trade surplus falls, its net capital outflow rises.

Accepted Answer

A) True 
 B)False

Question 9

For an economy as a whole, net exports must equal minus one times net capital outflow.

Accepted Answer

A) True 
 B)False

Question 10

A Japanese firm buys lumber 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) C) and D)

Question 11

Other things the same, an increase in the foreign price level leads to an increase in the real exchange rate.

Accepted Answer

A) True 
 B)False

Question 12

A Japanese bank buys bonds sold by Minnesota Manufacturing. Minnesota Manufacturing then uses these funds to buy machinery from Canada. Which of the following decreases?

Accepted Answer

A)  U.S. net exports but not US net capital outflow
B)  U.S. net capital outflow but not U.S. net exports
C)  U.S. net exports and U.S. net capital outflow
D)  neither U.S. net exports nor U.S. net capital outflowE) None of the above
F) A) and B)

Question 13

A country has $20 billion of domestic investment and net capital outflow of $10 billion. What is saving?

Accepted Answer

A)  $10 billion
B)  $30 billion
C)  -$20 billion
D)  -$30 billionE) C) and D)
F) B) and D)

Question 14

Suppose that the real exchange rate between the United States and Vietnam is defined in terms of baskets of goods. Other things the same, which of the following will increase the real exchange rate (that is increase the number of baskets of Vietnamese goods a basket of U.S. goods buys) ?

Accepted Answer

A)  an increase in the quantity of Vietnamese currency that can be purchased with a dollar
B)  an increase in the price of U.S. baskets of goods
C)  a decrease in the price in Vietnamese currency of Vietnamese goods
D)  All of the above are correct.E) None of the above
F) B) and C)

Question 15

Suppose that U.S. citizens purchase more cars made in Korea, and Koreans purchase more bonds issued by U.S. corporations. Other things the same, these actions

Accepted Answer

A)  raise both U.S. net exports and U.S. net capital outflows.
B)  raise U.S. net exports and lower U.S. net capital outflows.
C)  lower both U.S. net exports and U.S. net capital outflows.
D)  lower U.S. net exports and raise U.S. net capital outflows.E) A) and C)
F) A) and D)

Question 16

Under what circumstances does purchasing-power parity explain how exchange rates are determined, and why is it not completely accurate?

Accepted Answer

Purchasing-power parity works well in he...

Question 17

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 C)
F) A) and D)

Question 18

If the U.S. real exchange rate appreciates, U.S. exports

Accepted Answer

A)  increase and U.S. imports decrease.
B)  decrease and U.S. imports increase.
C)  and U.S. imports both increase.
D)  and U.S. imports both decrease.E) A) and B)
F) All of the above

Question 19

In an open economy, gross domestic product equals $2,450 billion, consumption expenditure equals $1,390 billion, government expenditure equals $325 billion, investment equals $510 and net capital outflow equals $225 billion. What is national saving?

Accepted Answer

A)  $225 billion
B)  $510 billion
C)  $735 billion
D)  $1,390 billionE) B) and D)
F) None of the above

Question 20

According to the theory of purchasing-power parity, the nominal exchange rate between two countries must reflect the differing

Accepted Answer

A)  price levels in those countries.
B)  resource endowments in those countries.
C)  income levels in those countries.
D)  standards of living between those countries.E) A) and B)
F) None of the above

Exam 18: Open-Economy Macroeconomic Models

Under what circumstances does purchasing-power parity explain how exchange rates are determined, and why is it not completely accurate?

Correct Answer
verified
Purchasing-power parity works well in he...
View Answer

If over the next year the price level in Turkey increases and the price level in Japan falls, then the Turkish lira should depreciate relative to the Japanese Yen.

Correct Answer
verified

Other things the same, an increase in the foreign price level leads to an increase in the real exchange rate.

Correct Answer
verified

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

Correct Answer
verified

A Japanese bank buys bonds sold by Minnesota Manufacturing. Minnesota Manufacturing then uses these funds to buy machinery from Canada. Which of the following decreases?

Correct Answer
verified

For an economy as a whole, net exports must equal minus one times net capital outflow.

Correct Answer
verified

A country has $20 billion of domestic investment and net capital outflow of $10 billion. What is saving?

Correct Answer
verified

In an open economy, gross domestic product equals $2,450 billion, consumption expenditure equals $1,390 billion, government expenditure equals $325 billion, investment equals $510 and net capital outflow equals $225 billion. What is national saving?

Correct Answer
verified

Suppose that the real exchange rate between the United States and Vietnam is defined in terms of baskets of goods. Other things the same, which of the following will increase the real exchange rate (that is increase the number of baskets of Vietnamese goods a basket of U.S. goods buys) ?

Correct Answer
verified

During a hyperinflation the real domestic value of a country's currency

Correct Answer
verified

A Japanese firm buys lumber from the United States and pays for it with yen. Other things the same, Japanese

Correct Answer
verified

A U.S. company uses U.K. pounds it already owned to purchase bonds issued by a company in the U.K. Which of these countries has an increase in net capital outflow?

Correct Answer
verified

If a country's trade surplus falls, its net capital outflow rises.

Correct Answer
verified

Suppose that U.S. citizens purchase more cars made in Korea, and Koreans purchase more bonds issued by U.S. corporations. Other things the same, these actions

Correct Answer
verified

If the purchasing power of the dollar is always the same at home and abroad, then the nominal exchange rate defined as units of foreign currency per dollar decreases if the U.S. price level rises more than the price level in foreign countries.

Correct Answer
verified

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

Correct Answer
verified

If the U.S. real exchange rate appreciates, U.S. exports

Correct Answer
verified

Other things the same, if the exchange rate changes from 75 Algerian dinar per dollar to 72 Algerian dinar per dollar, the dollar has

Correct Answer
verified

According to the theory of purchasing-power parity, the nominal exchange rate between two countries must reflect the differing

Correct Answer
verified

Correct Answer
verified

Exam 18: Open-Economy Macroeconomic Models

Under what circumstances does purchasing-power parity explain how exchange rates are determined, and why is it not completely accurate?

Correct AnswerverifiedPurchasing-power parity works well in he...View AnswerShow Answer

If over the next year the price level in Turkey increases and the price level in Japan falls, then the Turkish lira should depreciate relative to the Japanese Yen.

Correct AnswerverifiedShow Answer

Other things the same, an increase in the foreign price level leads to an increase in 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

A Japanese bank buys bonds sold by Minnesota Manufacturing. Minnesota Manufacturing then uses these funds to buy machinery from Canada. Which of the following decreases?

Correct AnswerverifiedShow Answer

For an economy as a whole, net exports must equal minus one times net capital outflow.

Correct AnswerverifiedShow Answer

A country has $20 billion of domestic investment and net capital outflow of $10 billion. What is saving?

Correct AnswerverifiedShow Answer

In an open economy, gross domestic product equals $2,450 billion, consumption expenditure equals $1,390 billion, government expenditure equals $325 billion, investment equals $510 and net capital outflow equals $225 billion. What is national saving?

Correct AnswerverifiedShow Answer

Suppose that the real exchange rate between the United States and Vietnam is defined in terms of baskets of goods. Other things the same, which of the following will increase the real exchange rate (that is increase the number of baskets of Vietnamese goods a basket of U.S. goods buys) ?

Correct AnswerverifiedShow Answer

During a hyperinflation the real domestic value of a country's currency

Correct AnswerverifiedShow Answer

A Japanese firm buys lumber from the United States and pays for it with yen. Other things the same, Japanese

Correct AnswerverifiedShow Answer

A U.S. company uses U.K. pounds it already owned to purchase bonds issued by a company in the U.K. Which of these countries has an increase in net capital outflow?

Correct AnswerverifiedShow Answer

If a country's trade surplus falls, its net capital outflow rises.

Correct AnswerverifiedShow Answer

Suppose that U.S. citizens purchase more cars made in Korea, and Koreans purchase more bonds issued by U.S. corporations. Other things the same, these actions

Correct AnswerverifiedShow Answer

If the purchasing power of the dollar is always the same at home and abroad, then the nominal exchange rate defined as units of foreign currency per dollar decreases if the U.S. price level rises more than the price level in foreign countries.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

If the U.S. real exchange rate appreciates, U.S. exports

Correct AnswerverifiedShow Answer

Other things the same, if the exchange rate changes from 75 Algerian dinar per dollar to 72 Algerian dinar per dollar, the dollar has

Correct AnswerverifiedShow Answer

According to the theory of purchasing-power parity, the nominal exchange rate between two countries must reflect the differing

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct Answer
verified
Purchasing-power parity works well in he...
View Answer

Correct Answer
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Correct Answer
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