Question 1

To increase domestic investment, a country must increase its saving.

Accepted Answer

A) True 
 B)False

Question 2

Suppose a McDonalds Big Mac cost $4.00 in the United States and 3.20 euros in the euro area and 5.20 Australian dollars in Australia. If exchange rates are .75 euros per dollar and 1.3 Australian dollars per dollar, where does purchasing power parity hold?

Accepted Answer

A)  Both the euro area and Australia.
B)  Neither the euro area or Australia.
C)  The euro area but not Australia.
D)  Australia but not the euro area.E) A) and D)
F) All of the above

Question 3

If a Dutch 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.

Accepted Answer

A) True 
 B)False

Question 4

A U.S. pharmacy buys drugs from a British company and pays for them with US dollars. This transaction

Accepted Answer

A)  increases British net exports, and increases U.S. net capital outflow.
B)  increases British net exports, and decreases U.S. net capital outflow.
C)  decreases British net exports, and increases U.S. net capital outflow.
D)  decreases British net exports, and decreases U.S. net capital outflow.E) A) and C)
F) B) and D)

Question 5

Other things the same, the real exchange rate between American and Mexican goods would be lower if

Accepted Answer

A)  prices of Mexican goods were higher, or the number of pesos a dollar purchased was higher.
B)  prices of Mexican goods were higher, or the number of pesos a dollar purchased was lower.
C)  prices of Mexican goods were lower, or the number of pesos a dollar purchased was higher.
D)  prices of Mexican goods were lower, or the number of pesos a dollar purchased was lower.E) C) and D)
F) B) and C)

Question 6

According to purchasing power parity, if two countries have the same price level because they have the same prices for all goods and services, then which of the following would equal 1?

Accepted Answer

A)  the real exchange rate, but not the nominal exchange rate
B)  the nominal exchange rate, but not the real exchange rate
C)  the real exchange rate and the nominal exchange rate
D)  neither the real exchange rate nor the nominal exchange rateE) B) and C)
F) C) and D)

Question 7

A Japanese bank buys U.S. government bonds this purchase

Accepted Answer

A)  increases U.S. net capital outflow and has no affect on Japanese net capital outflow.
B)  increases U.S. net capital outflow and increases Japanese net capital outflow.
C)  increases U.S. net capital outflow, but decreases Japanese net capital outflow.
D)  decreases U.S. net capital outflow, but increases Japanese net capital outflow.E) A) and B)
F) None of the above

Question 8

If a bushel of wheat costs $6.40 in the United States, costs 40 pesos in Mexico, and the nominal exchange rate is 10 pesos per dollar, then the real exchange rate is

Accepted Answer

A)  1.60
B)  1.25
C)  .625
D)  None of the above is correct.E) All of the above
F) None of the above

Question 9

U.S. international trade has

Accepted Answer

A)  decreased because of a decrease in the trade of goods with a high value per pound.
B)  decreased because of an increase in the trade of goods with a high value per pound.
C)  increased because of a decrease in trade of goods with a high value per pound.
D)  increased because of an increase in trade of goods with a high value per pound.E) A) and B)
F) None of the above

Question 10

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) All of the above

Question 11

Jill, a U.S. citizen, uses some euros to purchase a bond issued by a French vineyard. This exchange

Accepted Answer

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

Question 12

According to purchasing power parity what should the nominal exchange rate between the U.S. and another country be equal to?

Accepted Answer

A)  1
B)  the real exchange rate between the U.S. and that country
C)  the price level in the U.S. divided by the price level in the other country
D)  the price level in the other country divided by the price level in the U.S.E) A) and B)
F) C) and D)

Question 13

The country of Wiknam has net capital outflow of $1,000, government purchases of $5,000 and consumption of $20,000. Which of the following is correct?

Accepted Answer

A)  If its domestic investment is $1,000, its GDP is $26,000.
B)  If its domestic investment is $2,000, its GDP is $28,000.
C)  If its domestic investment is $5,000, its GDP is $29,000.
D)  None of the above are correct.E) All of the above
F) B) and C)

Question 14

A German company exchanges euros for dollars from U.S. residents and then uses the dollars to buy U.S. products to sell in Germany. U.S. residents who exchanged their dollars for euros use the euros to buy bonds issued by Spanish corporations. At this point

Accepted Answer

A)  both U.S. net exports and U.S. net capital outflows have risen.
B)  both U.S. net exports and U.S. net capital outflow have fallen.
C)  U.S. net exports have risen and U.S. net capital outflow have fallen.
D)  U.S. net exports have fallen and U.S. net capital outflow have risen.E) B) and C)
F) B) and D)

Question 15

In an open economy, national saving can be less than investment.

Accepted Answer

A) True 
 B)False

Question 16

A U.S. citizen buys bonds issued by an automobile manufacturer in Japan. Her expenditures are U.S.

Accepted Answer

A)  foreign direct investment that increase U.S. net capital outflow.
B)  foreign direct investment that decrease U.S. net capital outflow.
C)  foreign portfolio investment that increase U.S. net capital outflow.
D)  foreign portfolio investment that decrease U.S. net capital outflow.E) B) and D)
F) B) and C)

Question 17

Which of the following does purchasing-power parity conclude should equal 1?

Accepted Answer

A)  both the nominal and the real exchange rate.
B)  the nominal exchange rate but not the real exchange rate
C)  the real exchange rate but not the nominal exchange rate
D)  neither the nominal exchange rate nor the real exchange rateE) A) and B)
F) None of the above

Question 18

If the unit of foreign currency is the peso, in which case is the real exchange rate 1.2?

Accepted Answer

A)  the U.S. price is $2, the foreign price is 5 pesos, and the exchange rate is 3 pesos per dollar.
B)  the U.S. price is $3, the foreign price is 18 pesos, and the exchange rate is 5 pesos per dollar.
C)  the U.S. price is $5, the foreign price 12 pesos, and the exchange rate is 2 pesos per dollar.
D)  the U.S. price is $10, the foreign price is 3 pesos, and the exchange rate is 4 pesos per dollar.E) C) and D)
F) B) and D)

Question 19

An American hardware chain sells dollars to obtain Indian rupees. It then uses the rupees to buy electrical generators manufactured by an Indian firm. This exchange

Accepted Answer

A)  increases U.S. net capital outflow because Indians obtain U.S. assets.
B)  decreases U.S. net capital outflow because Indians obtain U.S. assets.
C)  increases U.S. net capital outflow because the U.S. buys capital goods.
D)  decreases U.S. net capital outflow because the U.S. buys capital goods.E) B) and C)
F) A) and D)

Question 20

Bob traps lobsters in Maine and sells them to a restaurant in Mexico. Other things the same, these sales

Accepted Answer

A)  increase U.S. net exports and has no effect on Mexican net exports.
B)  increase U.S. net exports and decrease Mexican net exports.
C)  decrease U.S. net exports and have no effect on Mexican net exports.
D)  decrease U.S. net exports and increase Mexican net exports.E) A) and B)
F) A) and C)

Exam 18: Open-Economy Macroeconomic Models

If a bushel of wheat costs $6.40 in the United States, costs 40 pesos in Mexico, and the nominal exchange rate is 10 pesos per dollar, then the real exchange rate is

Correct AnswerverifiedShow Answer

U.S. international trade has

Correct AnswerverifiedShow Answer

In an open economy, national saving can be less than investment.

Correct AnswerverifiedShow Answer

An American hardware chain sells dollars to obtain Indian rupees. It then uses the rupees to buy electrical generators manufactured by an Indian firm. This exchange

Correct AnswerverifiedShow Answer

Which of the following does purchasing-power parity conclude should equal 1?

Correct AnswerverifiedShow Answer

Suppose a McDonalds Big Mac cost $4.00 in the United States and 3.20 euros in the euro area and 5.20 Australian dollars in Australia. If exchange rates are .75 euros per dollar and 1.3 Australian dollars per dollar, where does purchasing power parity hold?

Correct AnswerverifiedShow Answer

A German company exchanges euros for dollars from U.S. residents and then uses the dollars to buy U.S. products to sell in Germany. U.S. residents who exchanged their dollars for euros use the euros to buy bonds issued by Spanish corporations. At this point

Correct AnswerverifiedShow Answer

A Japanese bank buys U.S. government bonds this purchase

Correct AnswerverifiedShow Answer

The country of Wiknam has net capital outflow of $1,000, government purchases of $5,000 and consumption of $20,000. Which of the following is correct?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

A U.S. citizen buys bonds issued by an automobile manufacturer in Japan. Her expenditures are U.S.

Correct AnswerverifiedShow Answer

Jill, a U.S. citizen, uses some euros to purchase a bond issued by a French vineyard. This exchange

Correct AnswerverifiedShow Answer

Bob traps lobsters in Maine and sells them to a restaurant in Mexico. Other things the same, these sales

Correct AnswerverifiedShow Answer

Other things the same, the real exchange rate between American and Mexican goods would be lower if

Correct AnswerverifiedShow Answer

A U.S. pharmacy buys drugs from a British company and pays for them with US dollars. This transaction

Correct AnswerverifiedShow Answer

To increase domestic investment, a country must increase its saving.

Correct AnswerverifiedShow Answer

According to purchasing power parity what should the nominal exchange rate between the U.S. and another country be equal to?

Correct AnswerverifiedShow Answer

According to purchasing power parity, if two countries have the same price level because they have the same prices for all goods and services, then which of the following would equal 1?

Correct AnswerverifiedShow Answer

If the unit of foreign currency is the peso, in which case is the real exchange rate 1.2?

Correct AnswerverifiedShow Answer

If a Dutch 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.

Correct AnswerverifiedShow Answer

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