Question 1

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) All of the above
F) B) and D)

Question 2

A country purchases $3 billion of foreign-produced goods and services and sells $2 billion dollars of domestically produced goods and services to foreign countries. It has

Accepted Answer

A)   exports of $3 billion and a trade surplus of $1 billion.
B)   exports of $3 billion and a trade deficit of $1 billion.
C)   exports of $2 billion and a trade surplus of $1 billion.
D)   exports of $2 billion and a trade deficit of $1 billion.E) A) and B)
F) C) and D)

Question 3

If a nation is selling more goods and services to foreigners than it is buying from them, then on net it must be selling assets abroad.

Accepted Answer

A) True 
 B)False

Question 4

According to purchasing-power parity, if prices in the United States increase by a smaller percentage than prices in Poland, then

Accepted Answer

A)   the real exchange defined as Polish goods per unit of U.S. goods rises.
B)   the real exchange defined as Polish goods per unit of U.S. goods falls.
C)   the nominal exchange rate defined as Polish currency per dollar rises.
D)   the nominal exchange rate defined as Polish currency per dollar falls.E) A) and B)
F) B) and C)

Question 5

The theory of purchasing-power parity states that a unit of a country's currency should be able to buy the same quantity of goods in foreign countries as it does domestically.

Accepted Answer

A) True 
 B)False

Question 6

Bob, a Greek citizen, opens a restaurant in Chicago. His expenditures

Accepted Answer

A)   increase U.S. net capital outflow and have no affect on Greek net capital outflow.
B)   increase U.S. net capital outflow and increase Greek net capital outflow.
C)   increase U.S. net capital outflow, but decrease Greek net capital outflow.
D)   decrease U.S. net capital outflow, but increase Greek net capital outflow.E) None of the above
F) A) and C)

Question 7

A Swiss company sells chocolates to a retailer in the United States. These sales by themselves

Accepted Answer

A)   decrease U.S. net export and Swiss net exports.
B)   decrease U.S. net exports and increase Swiss net exports.
C)   increase U.S. and Swiss net exports.
D)   increase U.S. net exports and decrease Swiss net exports.E) B) and C)
F) A) and B)

Question 8

A ton of scrap iron sells for $150 in the U.S. and 1400 yuan in China. The nominal exchange rate is 6.7 yuan per dollar.

Accepted Answer

A)   A profit could be made by buying scrap iron in China and selling it in the U.S. This would tend to drive down the price of U.S. scrap iron.
B)   A profit could be made by buying scrap iron in China and selling it in the U.S. This would tend to drive down the price of Chinese scrap iron.
C)   A profit could be made by buying scrap iron in the U.S. and selling it in China. This would tend to drive down the price of U.S. scrap iron.
D)   A profit could be made by buying scrap iron in the U.S. and selling it in China. This would tend to drive down the price of Chinese scrap iron.E) B) and C)
F) None of the above

Question 9

Net capital outflow measures

Accepted Answer

A)   foreign assets held by domestic residents minus domestic assets held by foreign residents.
B)   the imbalance between the amount of foreign assets bought by domestic residents and the amount of domestic assets bought by foreigners.
C)   the imbalance between the amount of foreign assets bought by domestic residents and the amount of domestic goods and services sold to foreigners.
D)   None of the above is correct.E) None of the above
F) A) and D)

Question 10

Other things the same, if a country saves more, then

Accepted Answer

A)   net capital outflow rises, so net exports rise.
B)   net capital outflow rises, so net exports fall.
C)   net capital outflow falls, so net exports rise.
D)   net capital outflow falls, so net exports fall.E) C) and D)
F) All of the above

Question 11

Many economists believe that the theory of purchasing-power parity describes the forces that determine exchange rates in the long run.

Accepted Answer

A) True 
 B)False

Question 12

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

Question 13

Prices in both the U.S. and China rise, but prices in China increase by a smaller percentage. According to purchasing-power parity the U.S. dollar

Accepted Answer

A)   gains value both in terms of the domestic goods and services it can buy and in terms of the Chinese currency it can buy.
B)   gains value in terms of the domestic goods and services it can buy, but loses value in terms of the Chinese currency it can buy.
C)   loses value in terms of the domestic goods and services it can buy, but gains value in terms of the Chinese currency it can buy.
D)   loses value both in terms of the domestic goods and services it can buy and in terms of the Chinese currency it can buy.E) None of the above
F) All of the above

Question 14

Catherine, a citizen of Spain, decides to purchase bonds issued by Chile instead of ones issued by the United States even though the Chilean bonds have a higher risk of default. An economic reason for her decision might be that

Accepted Answer

A)   she dislikes U.S. foreign policy.
B)   the Chilean bonds pay a higher rate of interest.
C)   the U.S. government is more stable than the Chilean government.
D)   None of the above provide an economic reason for buying the riskier bond.E) None of the above
F) A) and B)

Question 15

According to purchasing power parity, the nominal exchange rate between the U.S. and another country should equal the price level of foreign goods divided by the price level of U.S. goods.

Accepted Answer

A) True 
 B)False

Question 16

U.S- based Dell sells computers to an Irish company that pays with previously obtained U.S. currency. This exchange

Accepted Answer

A)   increases U.S. net capital outflow because the U.S. acquires foreign-owned assets.
B)   decreases U.S. net capital outflow because the U.S. acquires foreign-owned assets.
C)   increases U.S. net capital outflow because the U.S. sells capital goods.
D)   decreases U.S. net capital outflow because the U.S. sells capital goods.E) C) and D)
F) A) and B)

Question 17

A U.S. firm exchanges dollars for yen and then uses them to buy Japanese goods. Overall as a result of these transactions

Accepted Answer

A)   both U.S. net capital outflow and U.S. net exports rise.
B)   both U.S. net capital outflow and U.S. net exports fall.
C)   U.S. net capital outflow rises and U.S. net exports fall.
D)   U.S. net capital outflow falls and U.S. net exports rise.E) A) and B)
F) C) and D)

Question 18

The purchase of U.S. government bonds by Egyptians is an example of

Accepted Answer

A)   U.S. imports.
B)   U.S. exports.
C)   foreign portfolio investment by Egyptians.
D)   foreign direct investment by Egyptians.E) B) and C)
F) None of the above

Question 19

A depreciation of the U.S. real exchange rate induces U.S. consumers to buy

Accepted Answer

A)   fewer domestic goods and fewer foreign goods.
B)   more domestic goods and fewer foreign goods.
C)   fewer domestic goods and more foreign goods.
D)   more domestic goods and more foreign goods.E) B) and C)
F) None of the above

Question 20

The ability to profit by purchasing wheat in the U.S. and selling it in China implies that the

Accepted Answer

A)   nominal exchange rate is less than 1.
B)   nominal exchange rate is greater than 1.
C)   real exchange rate is less than 1.
D)   real exchange rate is greater than 1.E) A) and B)
F) C) and D)

Exam 13: Open-Economy Macroeconomic Models

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

Correct AnswerverifiedShow Answer

A Swiss company sells chocolates to a retailer in the United States. These sales by themselves

Correct AnswerverifiedShow Answer

Many economists believe that the theory of purchasing-power parity describes the forces that determine exchange rates in the long run.

Correct AnswerverifiedShow Answer

Other things the same, if a country saves more, then

Correct AnswerverifiedShow Answer

Prices in both the U.S. and China rise, but prices in China increase by a smaller percentage. According to purchasing-power parity the U.S. dollar

Correct AnswerverifiedShow Answer

Catherine, a citizen of Spain, decides to purchase bonds issued by Chile instead of ones issued by the United States even though the Chilean bonds have a higher risk of default. An economic reason for her decision might be that

Correct AnswerverifiedShow Answer

Net capital outflow measures

Correct AnswerverifiedShow Answer

A depreciation of the U.S. real exchange rate induces U.S. consumers to buy

Correct AnswerverifiedShow Answer

The purchase of U.S. government bonds by Egyptians is an example of

Correct AnswerverifiedShow Answer

A country purchases $3 billion of foreign-produced goods and services and sells $2 billion dollars of domestically produced goods and services to foreign countries. It has

Correct AnswerverifiedShow Answer

Bob, a Greek citizen, opens a restaurant in Chicago. His expenditures

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

If a nation is selling more goods and services to foreigners than it is buying from them, then on net it must be selling assets abroad.

Correct AnswerverifiedShow Answer

According to purchasing power parity, the nominal exchange rate between the U.S. and another country should equal the price level of foreign goods divided by the price level of U.S. goods.

Correct AnswerverifiedShow Answer

A ton of scrap iron sells for $150 in the U.S. and 1400 yuan in China. The nominal exchange rate is 6.7 yuan per dollar.

Correct AnswerverifiedShow Answer

According to purchasing-power parity, if prices in the United States increase by a smaller percentage than prices in Poland, then

Correct AnswerverifiedShow Answer

The ability to profit by purchasing wheat in the U.S. and selling it in China implies that the

Correct AnswerverifiedShow Answer

A U.S. firm exchanges dollars for yen and then uses them to buy Japanese goods. Overall as a result of these transactions

Correct AnswerverifiedShow Answer

U.S- based Dell sells computers to an Irish company that pays with previously obtained U.S. currency. This exchange

Correct AnswerverifiedShow Answer

The theory of purchasing-power parity states that a unit of a country's currency should be able to buy the same quantity of goods in foreign countries as it does domestically.

Correct AnswerverifiedShow Answer

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