Question 1

A U.S. fast food restaurant chain sells dollars for Argentinean pesos and then uses the pesos to buy Argentinean beef. Which of the following do these transactions increase?

Accepted Answer

A)  Argentinean net capital outflow and Argentinean net exports
B)  only Argentinean net exports
C)  only Argentinean net capital outflow
D)  neither Argentinean net exports nor Argentinean capital outflowE) A) and B)
F) C) and D)

Question 2

If U.S. residents purchase $600 billion worth of foreign assets and foreigners purchase $300 billion worth of U.S. assets,

Accepted Answer

A)  U.S. net capital outflow is $300 billion; capital is flowing into the U.S.
B)  U.S. net capital outflow is $300 billion; capital is flowing out of the U.S.
C)  U.S. net capital outflow is -$300 billion; capital is flowing into the U.S.
D)  U.S. net capital outflow is -$300 billion; capital is flowing out of the U.S.E) B) and C)
F) A) and D)

Question 3

Mark, a U.S. citizen, buys stock in a British Shipping company. This purchase is an example of

Accepted Answer

A)  investment for Mark and U.S. foreign direct investment.
B)  investment for Mark and U.S. foreign portfolio investment.
C)  saving for Mark and U.S. foreign direct investment.
D)  saving for Mark and U.S. foreign portfolio investment.E) C) and D)
F) A) and D)

Question 4

If a country has business opportunities that are relatively attractive to other countries, we would expect it to have

Accepted Answer

A)  both positive net exports and positive net capital outflow.
B)  both negative net exports and negative net capital outflow.
C)  positive net exports and negative net capital outflow.
D)  negative net exports and positive net capital outflow.E) A) and B)
F) C) and D)

Question 5

Most of the change from 1991 to 2000 in U.S. net capital outflow as a percent of GDP was due to a(n)

Accepted Answer

A)  decrease in U.S. investment.
B)  decrease in U.S. national saving.
C)  increase in U.S. investment.
D)  increase in U.S. national saving.E) A) and D)
F) B) and C)

Question 6

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

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

Question 7

One year a country has positive net exports. The next year it still has positive but larger net exports

Accepted Answer

A)  its trade surplus fell.
B)  its trade surplus rose.
C)  its trade deficit fell.
D)  its trade deficit roseE) A) and D)
F) C) and D)

Question 8

Ann, a U.S. citizen, uses some previously obtained euros to purchase a bond issued by a Spanish company. This transaction

Accepted Answer

A)  increases U.S. net capital outflow by more than the value of the bond.
B)  increases U.S. net capital outflow by the value of the bond.
C)  does not change U.S. net capital outflow.
D)  decreases U.S. net capital outflow.E) A) and B)
F) All of the above

Question 9

If the U.S. real exchange rate is greater than 1, then there is the possibility of arbitraging by buying foreign goods to sell in the U.S.

Accepted Answer

A) True 
 B)False

Question 10

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

Question 11

If Chileans buy more U.S. stocks and bonds and U.S. residents buy more Chilean wine, then

Accepted Answer

A)  both U.S. net exports and U.S. net capital outflows rise.
B)  U.S. net exports rise and U.S. net capital outflows fall.
C)  U.S. net exports fall and U.S. net capital outflows rise.
D)  both U.S. net exports and U.S. net capital outflows fall.E) None of the above
F) A) and D)

Question 12

A rational investor will always purchase the bond that pays the highest real interest rate.

Accepted Answer

A) True 
 B)False

Question 13

Suppose the real exchange rate is 1.25 pounds of bananas in Guatemala per pound of bananas in the U.S. If a pound of bananas in the U.S. costs $.50, and the exchange rate is 10 Guatemalan Quetzals per dollar, what is the price of bananas in Guatemala?

Accepted Answer

A)  2.50 Quetzals per pound
B)  4.00 Quetzals per pound
C)  5.75 Quetzals per pound
D)  6.25 Quetzals per poundE) C) and D)
F) None of the above

Question 14

If the exchange rate is 8 Moroccan dirhams per U.S. dollars, a crate of oranges costs 400 dirhams in the Moroccan capital of Rabat, and a similar crate of oranges in Miami sells for $55 dollars, then

Accepted Answer

A)  the real exchange rate is greater than one and arbitrageurs could profit by buying oranges in the U.S. and selling them in Morocco.
B)  the real exchange rate is greater than one and arbitrageurs could profit by buying oranges in Morocco and selling them in the U.S.
C)  the real exchange rate is less than one and arbitrageurs could profit by buying oranges in the U.S. and selling them in Morocco.
D)  the real exchange rate is less than one and arbitrageurs could profit by buying oranges in Morocco and selling them in the U.S.E) A) and D)
F) B) and C)

Question 15

Firms in Saudi Arabia sell oil to the U.S. Other things the same, these oil sales

Accepted Answer

A)  increase Saudi net exports and net capital outflow.
B)  decrease Saudi net exports and net capital outflow.
C)  increase Saudi net exports and decrease Saudi net capital outflow.
D)  decrease Saudi net exports and increase Saudi net capital outflow.E) A) and D)
F) All of the above

Question 16

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

Accepted Answer

A)  A U.S. legal office opens a branch office in Holland.
B)  Erica, a U.S. resident, buys bonds issued by the Swiss government.
C)  Both A and B are examples of U.S. portfolio investment.
D)  Neither A nor B are examples of U.S. portfolio investment.E) A) and D)
F) A) and C)

Question 17

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

Accepted Answer

A)  A U.S. based mutual fund buys stock in Eastern European companies.
B)  A U.S. citizen builds and operates a coffee shop in the Netherlands.
C)  A Swiss bank buys a U.S. government bond.
D)  A German tractor factory opens a plant in Waterloo, Iowa.E) B) and C)
F) A) and D)

Question 18

Which of the following equations is always correct in an open economy?

Accepted Answer

A)  NX = Y - C - G - I
B)  NX = S - I
C)  NX = NCO
D)  All of the above are correct.E) C) and D)
F) A) and D)

Question 19

If the real exchange rate for coal is 1.5, the price of coal in the U.S. is $50 per ton, and the price of coal in Britain is 20 British pounds per ton, what is the nominal exchange rate?

Accepted Answer

A)  15/4
B)  5/3
C)  3/5
D)  4/15E) A) and D)
F) A) and C)

Question 20

If a country had a trade surplus of $100 billion and then its exports rose by $40 billion and its imports rose by $30 billion, its net exports would now be

Accepted Answer

A)  $110 billion
B)  $90 billion.
C)  $70 billion.
D)  $60 billion.E) B) and D)
F) B) and C)

Exam 31: Open-Economy Macroeconomics: Basic Concepts

If U.S. residents purchase $600 billion worth of foreign assets and foreigners purchase $300 billion worth of U.S. assets,

Correct AnswerverifiedShow Answer

Which of the following equations is always correct in an open economy?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

If the exchange rate is 8 Moroccan dirhams per U.S. dollars, a crate of oranges costs 400 dirhams in the Moroccan capital of Rabat, and a similar crate of oranges in Miami sells for $55 dollars, then

Correct AnswerverifiedShow Answer

If the real exchange rate for coal is 1.5, the price of coal in the U.S. is $50 per ton, and the price of coal in Britain is 20 British pounds per ton, what is the nominal exchange rate?

Correct AnswerverifiedShow Answer

Firms in Saudi Arabia sell oil to the U.S. Other things the same, these oil sales

Correct AnswerverifiedShow Answer

If a country has business opportunities that are relatively attractive to other countries, we would expect it to have

Correct AnswerverifiedShow Answer

If Chileans buy more U.S. stocks and bonds and U.S. residents buy more Chilean wine, then

Correct AnswerverifiedShow Answer

One year a country has positive net exports. The next year it still has positive but larger net exports

Correct AnswerverifiedShow Answer

Mark, a U.S. citizen, buys stock in a British Shipping company. This purchase is an example of

Correct AnswerverifiedShow Answer

Suppose the real exchange rate is 1.25 pounds of bananas in Guatemala per pound of bananas in the U.S. If a pound of bananas in the U.S. costs $.50, and the exchange rate is 10 Guatemalan Quetzals per dollar, what is the price of bananas in Guatemala?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Ann, a U.S. citizen, uses some previously obtained euros to purchase a bond issued by a Spanish company. This transaction

Correct AnswerverifiedShow Answer

If a country had a trade surplus of $100 billion and then its exports rose by $40 billion and its imports rose by $30 billion, its net exports would now be

Correct AnswerverifiedShow Answer

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

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

A rational investor will always purchase the bond that pays the highest real interest rate.

Correct AnswerverifiedShow Answer

A U.S. fast food restaurant chain sells dollars for Argentinean pesos and then uses the pesos to buy Argentinean beef. Which of the following do these transactions increase?

Correct AnswerverifiedShow Answer

Most of the change from 1991 to 2000 in U.S. net capital outflow as a percent of GDP was due to a(n)

Correct AnswerverifiedShow Answer

If the U.S. real exchange rate is greater than 1, then there is the possibility of arbitraging by buying foreign goods to sell in the U.S.

Correct AnswerverifiedShow Answer

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