Question 1

Suppose that more British decide to vacation in the U.S. and that the British purchase more U.S. Treasury bonds. Ignoring how payments are made for these purchases,

Accepted Answer

A)   the first action by itself raises U.S. net exports, the second action by itself raises U.S. net capital outflow.
B)   the first action by itself raises U.S. net exports, the second action by itself lowers U.S. net capital outflow.
C)   the first action by itself lowers U.S. net exports, the second action by itself raises U.S. net capital outflow.
D)   the first action by itself lowers U.S. net exports, the second action by itself lowers U.S. net capital outflow.E) C) and D)
F) None of the above

Question 2

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.

Accepted Answer

A) True 
 B)False

Question 3

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 4

In an open economy national saving equals domestic investment plus net capital outflow.

Accepted Answer

A) True 
 B)False

Question 5

If a country has a trade surplus then

Accepted Answer

A)   S > I and Y > C + I + G.
B)   S > I and Y 
C)   S  C + I + G.
D)   S E) All of the above
F) C) and D)

Question 6

A Mexican firm exchanges Pesos for U.S. dollars and then uses these dollars to purchase corn from the U.S. This transaction

Accepted Answer

A)   increases Mexican net capital outflow, and increases U.S. net exports.
B)   increases Mexican net capital outflow, and decreases U.S. net exports.
C)   decreases Mexican net capital outflow, and increases U.S. net exports.
D)   decreases Mexican net capital outflow, and decreases U.S. net exports.E) None of the above
F) A) and B)

Question 7

A firm in the United Kingdom hires a firm in the U.S. to train its managers. By itself this transaction

Accepted Answer

A)   increases U.S. imports and decreases U.S. net exports.
B)   increases U.S. imports and increases U.S. net exports.
C)   increases U.S. exports and decreases U.S. net exports.
D)   increases U.S. exports and increases U.S. net exports.E) C) and D)
F) A) and D)

Question 8

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

Question 9

From 2000-2006 net capital outflow as a percent of GDP became a

Accepted Answer

A)   larger positive number.
B)   smaller positive number.
C)   larger negative number.
D)   smaller negative numberE) A) and D)
F) All of the above

Question 10

A country has $50 million of domestic investment and net capital outflow of $15 million. What is saving?

Accepted Answer

A)   $65 million.
B)   -$65 million.
C)   $35 million.
D)   -$35 million.E) B) and D)
F) All of the above A

Question 11

From 1980-1987, U.S. net capital outflow as a percent of GDP became a

Accepted Answer

A)   larger positive number.
B)   smaller positive number.
C)   larger negative number.
D)   smaller negative number.E) None of the above
F) A) and D)

Question 12

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) A) and D)
F) None of the above C

Question 13

A Peruvian firm purchases construction equipment made in the U.S. and pays for it with Peruvian currency. This transaction

Accepted Answer

A)   increases U.S. net exports, and increases Peruvian net capital outflow.
B)   increases U.S. net exports, and decreases Peruvian net capital outflow.
C)   decreases U.S. net exports, and increases Peruvian net capital outflow.
D)   decreases U.S. net exports, and decreases Peruvian net capital outflow.E) All of the above
F) B) and C)

Question 14

If Norway sold more goods and services abroad than it purchased from abroad, then it had

Accepted Answer

A)   positive net exports which is a trade surplus.
B)   positive net exports which is a trade deficit.
C)   negative net exports which is a trade surplus.
D)   negative net exports which is a trade deficit.E) A) and B)
F) None of the above

Question 15

Suppose that the inflation rate is higher in Turkey than in the U.S. for the next six months. Then according to purchasing power parity, if exchange rates are given in terms of how many Turkish lira or how many Turkish goods a U.S. dollar buys,

Accepted Answer

A)   the nominal exchange rate rises but the real exchange rate does not.
B)   the nominal exchange rate does not rise, but the real exchange rate does.
C)   both the nominal and real exchange rates rise.
D)   neither the nominal nor the real exchange rate rises.E) B) and C)
F) None of the above

Question 16

Suppose a bottle of wine costs 20 euros in France and 25 dollars in the United States. If the exchange rate is .80 euros per dollar, what is the real exchange rate?

Accepted Answer

The real exchange rate = nominal exchange rate $\times$ Domestic Price/Foreign price =X .80 euros per dollar 25 dollars/20 euros = 1.

Question 17

According to purchasing-power parity, which of the following necessarily equals the ratio of the foreign price level divided by the domestic price level?

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) C) and D)
F) B) and C)

Question 18

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.

Accepted Answer

The purchase of a foreign good by a U.S....

Question 19

From 1960 to about 1975 in the United States, net capital outflow was

Accepted Answer

A)   small but always positive.
B)   small and sometimes negative and sometimes positive.
C)   large and positive.
D)   large but sometimes negative and sometimes positive.E) A) and D)
F) B) and C)

Question 20

When a French vineyard establishes a distribution center in the U.S., U.S. net capital outflow

Accepted Answer

A)   increases because the foreign company makes a portfolio investment in the U.S.
B)   declines because the foreign company makes a portfolio investment in the U.S.
C)   increases because the foreign company makes a direct investment in capital in the U.S.
D)   declines because the foreign company makes a direct investment in capital in the U.S.E) A) and B)
F) A) and C)

Exam 13: Open-Economy Macroeconomic Models

Suppose that more British decide to vacation in the U.S. and that the British purchase more U.S. Treasury bonds. Ignoring how payments are made for these purchases,

Correct AnswerverifiedShow Answer

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.

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

In an open economy national saving equals domestic investment plus net capital outflow.

Correct AnswerverifiedShow Answer

If a country has a trade surplus then

Correct AnswerverifiedShow Answer

A Mexican firm exchanges Pesos for U.S. dollars and then uses these dollars to purchase corn from the U.S. This transaction

Correct AnswerverifiedShow Answer

A firm in the United Kingdom hires a firm in the U.S. to train its managers. By itself this transaction

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

From 2000-2006 net capital outflow as a percent of GDP became a

Correct AnswerverifiedShow Answer

A country has $50 million of domestic investment and net capital outflow of $15 million. What is saving?

Correct AnswerverifiedA

From 1980-1987, U.S. net capital outflow as a percent of GDP became a

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 AnswerverifiedC

A Peruvian firm purchases construction equipment made in the U.S. and pays for it with Peruvian currency. This transaction

Correct AnswerverifiedShow Answer

If Norway sold more goods and services abroad than it purchased from abroad, then it had

Correct AnswerverifiedShow Answer

Suppose that the inflation rate is higher in Turkey than in the U.S. for the next six months. Then according to purchasing power parity, if exchange rates are given in terms of how many Turkish lira or how many Turkish goods a U.S. dollar buys,

Correct AnswerverifiedShow Answer

Suppose a bottle of wine costs 20 euros in France and 25 dollars in the United States. If the exchange rate is .80 euros per dollar, what is the real exchange rate?

Correct AnswerverifiedThe real exchange rate = nominal exchange rate \(\times\) Domestic Price/Foreign price =X .80 euros per dollar 25 dollars/20 euros = 1.

According to purchasing-power parity, which of the following necessarily equals the ratio of the foreign price level divided by the domestic price level?

Correct AnswerverifiedShow Answer

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.

Correct AnswerverifiedThe purchase of a foreign good by a U.S....View AnswerShow Answer

From 1960 to about 1975 in the United States, net capital outflow was

Correct AnswerverifiedShow Answer

When a French vineyard establishes a distribution center in the U.S., U.S. net capital outflow

Correct AnswerverifiedShow Answer

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A

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C

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The real exchange rate = nominal exchange rate \(\times\) Domestic Price/Foreign price =X .80 euros per dollar 25 dollars/20 euros = 1.

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The purchase of a foreign good by a U.S....
View Answer

Correct Answer
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