Question 1

Which of the following is an example of foreign direct investment?

Accepted Answer

A)  General Motors of the USA buys steel from South Korea.
B)  General Motors of the USA buys shares in Saab of Sweden.
C)  McDonald's builds a restaurant in Moscow.
D)  UK publisher Bloomsbury sells the rights to make a film of a Harry Potter book to an American film studio.E) A) and D)
F) B) and C)

Question 2

Suppose the same basket of goods costs $100 in the USA and R80 in SA.According to PPP, if the prices do not change, what will be the exchange rate?

Accepted Answer

A)  $5 per rand
B)  $4 per rand
C)  $1.25 per rand
D)  $0.80 per randE) B) and D)
F) None of the above

Question 3

A country that exports more than it imports is said to have a trade deficit.

Accepted Answer

A) True 
 B)False

Question 4

Suppose the nominal exchange rate between the Japanese yen and the SA rand is 100 yen per rand.Further, suppose that a kilogram of rice costs R2 in SA and 250 yen in Japan.What is the real exchange rate between Japan and SA?

Accepted Answer

A)  0.5 kilograms of Japanese rice per kilogram of SA rice.
B)  0.8 kilograms of Japanese rice per kilogram of SA rice.
C)  1.25 kilograms of Japanese rice per kilogram of SA rice.
D)  2.5 kilograms of Japanese rice per kilogram of SA rice.
E)  None of these answers.F) B) and D)
G) B) and E)

Question 5

Suppose the money supply in Mexico grows more quickly than the money supply in the USA.We would expect that

Accepted Answer

A)  the Mexican peso should appreciate relative to the US dollar.
B)  the Mexican peso should depreciate relative to the US dollar.
C)  None of these answers.
D)  the Mexican peso should maintain a constant exchange rate with the US dollar because of purchasing power parity.E) B) and C)
F) None of the above

Question 6

If purchasing power parity holds, the real exchange rate is always equal to 1.

Accepted Answer

A) True 
 B)False

Question 7

If SA saves R1 000 billion and SA net capital outflow is - R200 billion, SA's domestic investment is

Accepted Answer

A)  -R200 billion.
B)  R200 billion.
C)  R800 billion.
D)  R1 000 billion.
E)  R1 200 billion.F) B) and E)
G) B) and C)

Question 8

Which of the following products would likely be the least accurate if used to calculate purchasing power parity?

Accepted Answer

A)  Diamonds.
B)  Gold.
C)  Cars.
D)  Wheat.
E)  Dental services.F) All of the above
G) B) and D)

Question 9

When the euro depreciates against the rand,

Accepted Answer

A)  the number of rands per euro will increase.
B)  tourism from eurozone countries to SA will increase.
C)  SA exports to Euroland will increase.
D)  the price of imported Italian olive oil in SA will fall.E) None of the above
F) C) and D)

Question 10

If the exchange rate changes from 3 Brazilian reals per rand to 4 reals per rand,

Accepted Answer

A)  None of these answers.
B)  the rand has appreciated.
C)  the rand has depreciated.
D)  the rand could have appreciated or depreciated depending what happened to relative prices in Brazil and SA.E) A) and D)
F) A) and C)

Question 11

Suppose that a US dollar buys more gold in Australia than it buys in SA.What does purchasing power parity imply should happen?

Accepted Answer

People can make a profit by buying gold ...

Question 12

The most accurate measure of the international value of the SA rand is

Accepted Answer

A)  an exchange rate index that accounts for many exchange rates.
B)  the yen/rand exchange rate.
C)  the rand/dollar exchange rate.
D)  the euro/rand exchange rate.
E)  the Swiss franc/rand exchange rate.F) None of the above
G) C) and D)

Question 13

Which of the following would directly increase SA net capital outflow?

Accepted Answer

A)  Rolls Royce sells an aircraft engine to Boeing of the USA.
B)  The Japanese financial company Nomura buys shares in Vodacom.
C)  SASOL builds a new oil rig in Mauritius.
D)  Honda builds a new plant in SA.E) A) and B)
F) A) and C)

Question 14

A country's trade balance is positive when

Accepted Answer

A)  exports exceed imports.
B)  exports plus investment exceed imports plus domestic saving.
C)  imports exceed exports.
D)  imports plus domestic saving exceed exports plus investment.E) B) and D)
F) C) and D)

Question 15

For a given amount of SA national saving, an increase in SA net capital outflow decreases SA domestic investment.

Accepted Answer

A) True 
 B)False

Question 16

Why are net exports and net capital outflow always equal?

Accepted Answer

Net exports and net capital outflow are ...

Question 17

a) How do we find the real exchange rate from the nominal exchange rate?
b) Suppose a bottle of wine costs R20 in SA and 25 dollars in the USA.If the exchange rate is 0.80 rands per dollar, what is the real exchange rate?

Accepted Answer

a) Real Exchange Rate = Nominal Exchange...

Question 18

Each of the following is a reason why international trade has expanded in recent decades except which one?

Accepted Answer

A)  Technological improvements have meant that countries have become more similar in terms of the goods they can produce.
B)  Many new high technology goods have been introduced for which the cost of transport relative to the value of the product is low.
C)  There have been improvements in technology that have improved telecommunications between countries.
D)  Policy makers have promoted policies to increase international trade, such as the General Agreement on Tariffs and Trade, and subsequently established the World Trade Organization.
E)  Larger cargo ships and aeroplanes have reduced the cost of transporting goods.F) B) and C)
G) C) and D)

Question 19

If the exchange rate was 1.50 US dollars per rand, that would mean that South Africans would have to spend __________ to buy a $12 watch in New York City.

Accepted Answer

A)  R8
B)  R15
C)  R1.5
D)  R12E) C) and D)
F) A) and B)

Question 20

Currencies depreciate and appreciate all the time.Who gains and who loses when the SA rand depreciates?

Accepted Answer

A)  Europeans holding SA rands gain, European tourists to SA lose.
B)  European exporters to SA gain, Europeans holding SA rands lose.
C)  SA exporters gain, SA importers lose.
D)  SA importers gain, SA exporters lose.E) None of the above
F) A) and D)

Exam 11: Open-Economy Macroeconomics: Basic Concepts

The most accurate measure of the international value of the SA rand is

Correct AnswerverifiedShow Answer

When the euro depreciates against the rand,

Correct AnswerverifiedShow Answer

If the exchange rate changes from 3 Brazilian reals per rand to 4 reals per rand,

Correct AnswerverifiedShow Answer

For a given amount of SA national saving, an increase in SA net capital outflow decreases SA domestic investment.

Correct AnswerverifiedShow Answer

Which of the following would directly increase SA net capital outflow?

Correct AnswerverifiedShow Answer

Suppose the nominal exchange rate between the Japanese yen and the SA rand is 100 yen per rand.Further, suppose that a kilogram of rice costs R2 in SA and 250 yen in Japan.What is the real exchange rate between Japan and SA?

Correct AnswerverifiedShow Answer

Suppose the same basket of goods costs $100 in the USA and R80 in SA.According to PPP, if the prices do not change, what will be the exchange rate?

Correct AnswerverifiedShow Answer

a) How do we find the real exchange rate from the nominal exchange rate? b) Suppose a bottle of wine costs R20 in SA and 25 dollars in the USA.If the exchange rate is 0.80 rands per dollar, what is the real exchange rate?

Correct Answerverifieda) Real Exchange Rate = Nominal Exchange...View AnswerShow Answer

Why are net exports and net capital outflow always equal?

Correct AnswerverifiedNet exports and net capital outflow are ...View AnswerShow Answer

Which of the following products would likely be the least accurate if used to calculate purchasing power parity?

Correct AnswerverifiedShow Answer

A country that exports more than it imports is said to have a trade deficit.

Correct AnswerverifiedShow Answer

If purchasing power parity holds, the real exchange rate is always equal to 1.

Correct AnswerverifiedShow Answer

A country's trade balance is positive when

Correct AnswerverifiedShow Answer

Which of the following is an example of foreign direct investment?

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If the exchange rate was 1.50 US dollars per rand, that would mean that South Africans would have to spend __________ to buy a $12 watch in New York City.

Correct AnswerverifiedShow Answer

Currencies depreciate and appreciate all the time.Who gains and who loses when the SA rand depreciates?

Correct AnswerverifiedShow Answer

If SA saves R1 000 billion and SA net capital outflow is - R200 billion, SA's domestic investment is

Correct AnswerverifiedShow Answer

Suppose that a US dollar buys more gold in Australia than it buys in SA.What does purchasing power parity imply should happen?

Correct AnswerverifiedPeople can make a profit by buying gold ...View AnswerShow Answer

Suppose the money supply in Mexico grows more quickly than the money supply in the USA.We would expect that

Correct AnswerverifiedShow Answer

Each of the following is a reason why international trade has expanded in recent decades except which one?

Correct AnswerverifiedShow Answer

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a) Real Exchange Rate = Nominal Exchange...
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Net exports and net capital outflow are ...
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People can make a profit by buying gold ...
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