Question 1

A nation's domestic investment is greater than its savings. Which of the following is correct?

Accepted Answer

A)   This nation has a negative net capital outflow.
B)   This nation has a trade surplus.
C)   Purchases of foreign assets by domestic residents exceed purchases of domestic assets by foreigners.
D)   All of the above are correct.E) A) and D)
F) All of the above

Question 2

If saving is less than domestic investment, then

Accepted Answer

A)   there is a trade deficit and Y > C + I + G.
B)   there is a trade deficit and Y 
C)   there is a trade surplus and Y > C + I + G.
D)   there is a trade surplus and Y E) B) and C)
F) A) and B)

Question 3

Other things the same, if the exchange rate changes from 30 Thai bhat per dollar to 25 Thai bhat per dollar, then the dollar has

Accepted Answer

A)   appreciated and so buys more Thai goods.
B)   appreciated and so buys fewer Thai goods.
C)   depreciated and so buys more Thai goods.
D)   depreciated and so buys fewer Thai goods.E) A) and D)
F) A) and C)

Question 4

If Walmart buys $50 million worth of consumer goods from China and sells them in the U.S., and China uses the $50 million to purchase U.S. bonds, U.S. net exports and U.S. net capital outflow both fall.

Accepted Answer

A) True 
 B)False

Question 5

In an open economy, gross domestic product equals $1,950 billion, government expenditure equals $280 billion, investment equals $500, and net capital outflow equals $280 billion. What is consumption expenditure?

Accepted Answer

A)   $280 billion
B)   $780 billion
C)   $890 billion
D)   $1,170 billionE) C) and D)
F) A) and C)

Question 6

Suppose that the real return from operating factories in Ghana rises relative to the real rate of return in the United States. Other things the same,

Accepted Answer

A)   this will increases U.S. net capital outflow and decrease Ghanan net capital outflow.
B)   this will decreases U.S. net capital outflow and increase Ghanan net capital outflow.
C)   this will only increase U.S. net capital outflow.
D)   this will only increase Ghanan net capital outflow.E) None of the above
F) All of the above

Question 7

John, a U.S. citizen, opens up a Sports bar in Tokyo. This is an example of U.S.

Accepted Answer

A)   exports.
B)   imports.
C)   foreign portfolio investment.
D)   foreign direct investment.E) C) and D)
F) B) and C)

Question 8

Net capital outflow

Accepted Answer

A)   is always greater than net exports.
B)   is always less than net exports.
C)   is always equal to net exports.
D)   could be any of the above.E) B) and D)
F) All of the above

Question 9

According to purchasing power parity, if it took 4 Israeli Shekels to buy a dollar this year, but it took 3.5 to buy it last year, then the dollar has

Accepted Answer

A)   appreciated, indicating inflation was higher in the U.S. than in Israel.
B)   appreciated, indicating inflation was lower in the U.S. than in Israel.
C)   depreciated, indicating inflation was higher in the U.S. than in Israel.
D)   depreciated, indicating inflation was lower in the U.S. than in Israel.E) None of the above
F) C) and D)

Question 10

If the number of Japanese yen a dollar buys falls, but neither country's price level changes, then the real exchange rate

Accepted Answer

A)   depreciates which causes U.S. net exports to increase.
B)   depreciates which causes U.S. net exports to decrease.
C)   appreciates which causes U.S. net exports to increase.
D)   appreciates, which causes U.S. net exports to decrease.E) A) and C)
F) A) and D)

Question 11

The nominal exchange rate is the

Accepted Answer

A)   nominal interest rate in one country divided by the nominal interest rate in the other country.
B)   the ratio of a foreign country's interest rate to the domestic interest rate.
C)   rate at which a person can trade the currency of one country for another.
D)   the real exchange rate minus the inflation rate.E) All of the above
F) None of the above

Question 12

An increase in U.S. sales of movies to other countries raises U.S.

Accepted Answer

A)   exports and so raises the U.S. trade balance.
B)   exports and so reduces the U.S. trade balance.
C)   imports and so raises the U.S. trade balance.
D)   imports and so reduces the U.S. trade balance.E) B) and C)
F) A) and B)

Question 13

A firm in India hires a U.S. firm to provide economic forecasts. By itself this transaction

Accepted Answer

A)   increases U.S. exports and so increases the U.S. trade balance.
B)   increases U.S. exports and so decreases the U.S. trade balance.
C)   increases U.S. imports and so increases the U.S. trade balance.
D)   increases U.S. imports and so decreases the U.S. trade balance.E) B) and C)
F) A) and C)

Question 14

Can purchasing-power parity be used to explain the fact that the U.S. dollar has depreciated by more than 50 percent against the German mark between 1970 and 1998, but appreciated by more than 100 percent against the Italian lira during the same period? Defend your answer.

Accepted Answer

The theory of purchasing-power parity su...

Question 15

A haircut costs 200 pesos in Mexico and $20 in the U.S. The exchange rate is 12.5 pesos per dollar. The real exchange rate is

Accepted Answer

A)   less than one. Haircuts in Mexico are cheaper than in the U.S.
B)   less than one. Haircuts in Mexico are more expensive than in the U.S.
C)   greater than one. Haircuts in Mexico are cheaper than in the U.S.
D)   greater than one. Haircuts in Mexico are more expensive than in the U.S.E) A) and B)
F) A) and C)

Question 16

A U.S. corporation builds an amusement park in France. Its expenditures are U.S.

Accepted Answer

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

Question 17

If the real exchange rate is greater than 1, then the

Accepted Answer

A)   nominal exchange rate x U.S. price > foreign price. The dollars required to purchase a good in the U.S. would buy more then enough foreign currency to buy the same good overseas.
B)   nominal exchange rate x U.S. price > foreign price. The dollars required to purchase a good in the U.S. would not buy enough foregoing currency to buy the same good overseas.
C)   nominal exchange rate x U.S. price 
D)   nominal exchange rate x U.S. price E) All of the above
F) C) and D)

Question 18

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) A) and B)
F) A) and C)

Question 19

If the price of a good in the U.S. is $10, the exchange rate is 2 units of foreign currency per dollar, and the foreign price of the same good is 30 units of foreign currency, then the real exchange rate is 2/3.

Accepted Answer

A) True 
 B)False

Question 20

An open economy's GDP is always given by

Accepted Answer

A)   Y = C + I + G.
B)   Y = C + I + G + T.
C)   Y = C + I + G + S.
D)   Y = C + I + G + NX.E) A) and C)
F) B) and C)

Exam 13: Open-Economy Macroeconomic Models

If saving is less than domestic investment, then

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Net capital outflow

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A haircut costs 200 pesos in Mexico and $20 in the U.S. The exchange rate is 12.5 pesos per dollar. The real exchange rate is

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An open economy's GDP is always given by

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If Walmart buys $50 million worth of consumer goods from China and sells them in the U.S., and China uses the $50 million to purchase U.S. bonds, U.S. net exports and U.S. net capital outflow both fall.

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If the price of a good in the U.S. is $10, the exchange rate is 2 units of foreign currency per dollar, and the foreign price of the same good is 30 units of foreign currency, then the real exchange rate is 2/3.

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Other things the same, if the exchange rate changes from 30 Thai bhat per dollar to 25 Thai bhat per dollar, then the dollar has

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Can purchasing-power parity be used to explain the fact that the U.S. dollar has depreciated by more than 50 percent against the German mark between 1970 and 1998, but appreciated by more than 100 percent against the Italian lira during the same period? Defend your answer.

Correct AnswerverifiedThe theory of purchasing-power parity su...View AnswerShow Answer

John, a U.S. citizen, opens up a Sports bar in Tokyo. This is an example of U.S.

Correct AnswerverifiedShow Answer

An increase in U.S. sales of movies to other countries raises U.S.

Correct AnswerverifiedShow Answer

In an open economy, gross domestic product equals $1,950 billion, government expenditure equals $280 billion, investment equals $500, and net capital outflow equals $280 billion. What is consumption expenditure?

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Suppose that the real return from operating factories in Ghana rises relative to the real rate of return in the United States. Other things the same,

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A firm in India hires a U.S. firm to provide economic forecasts. By itself this transaction

Correct AnswerverifiedShow Answer

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

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If the real exchange rate is greater than 1, then the

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A nation's domestic investment is greater than its savings. Which of the following is correct?

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If the number of Japanese yen a dollar buys falls, but neither country's price level changes, then the real exchange rate

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A U.S. corporation builds an amusement park in France. Its expenditures are U.S.

Correct AnswerverifiedShow Answer

According to purchasing power parity, if it took 4 Israeli Shekels to buy a dollar this year, but it took 3.5 to buy it last year, then the dollar has

Correct AnswerverifiedShow Answer

The nominal exchange rate is the

Correct AnswerverifiedShow Answer

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