Question 1

If Thailand has a trade surplus, then

Accepted Answer

A)   foreign countries purchase more Thai assets than Thailand purchases from them. This makes Thai saving greater than Thai domestic investment
B)   foreign countries purchase more Thai assets than Thailand purchases from them. This makes Thai saving smaller then Thai domestic investment
C)   foreign countries purchase fewer Thai assets than Thailand purchases from them. This makes Thai saving greater than Thai domestic investment.
D)   foreign countries purchase fewer Thai assets than Thailand purchases from them. This makes Thai saving greater than Thai domestic investmentE) C) and D)
F) B) and D)

Question 2

When the central bank of some country prints large quantities of money, that county's currency loses value both in terms of the goods and services it buys and in terms of the amount of foreign currencies it can buy.

Accepted Answer

A) True 
 B)False

Question 3

If a country changes its corporate tax laws so that foreign businesses build and manage more business in that country, then the net capital outflow of that country

Accepted Answer

A)   and the net capital outflow of other countries rise.
B)   rises and the net capital outflow of other countries fall.
C)   falls and the net capital outflow of other countries rise.
D)   None of the above are correct.E) A) and D)
F) None of the above

Question 4

If the American company Stryker builds and operates a new factory in France,

Accepted Answer

A)   it engages in foreign direct investment. By itself this action lowers U.S. net capital outflow.
B)   it engages in foreign direct investment. By itself this action raises U.S. net capital outflow.
C)   it engages in foreign portfolio investment. By itself this action lowers U.S. net capital outflow.
D)   it engages in foreign portfolio investment. By itself this action raises U.S. net capital outflow.E) B) and D)
F) A) and C)

Question 5

A Japanese bank buys bonds sold by Minnesota Manufacturing. Minnesota Manufacturing then uses these funds to buy machinery from Canada. Which of the following decreases?

Accepted Answer

A)   U.S. net exports but not US net capital outflow
B)   U.S. net capital outflow but not U.S. net exports
C)   U.S. net exports and U.S. net capital outflow
D)   neither U.S. net exports nor U.S. net capital outflowE) B) and C)
F) B) and D)

Question 6

An MP3 player in Singapore costs 200 Singaporean dollars. In the U.S. it costs 100 US dollars. Which of the following is correct?

Accepted Answer

A)   if the nominal exchange rate is 2.0 Singaporean dollars per U.S. dollar, purchasing power parity holds.
B)   if the nominal exchange rate is 1 Singaporean dollars per U.S. dollar, purchasing power parity holds.
C)   if the nominal exchange rate is .50 Singaporean dollars per U.S. dollar, purchasing power parity holds.
D)   purchasing power parity does not hold at any of the above exchange rates.E) B) and D)
F) A) and D)

Question 7

Gabrielle, an Italian citizen, uses some previously obtained dollars to purchase a bond issued by a U.S. company. This transaction

Accepted Answer

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

Question 8

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

Accepted Answer

A)   Disney builds a new amusement park near Barcelona, Spain.
B)   A U.S. citizen buys bonds issued by the British government.
C)   A Dutch hotel chain opens a new hotel in the United States.
D)   A citizen of Singapore buys a bond issued by a U.S. corporation.E) A) and B)
F) A) and C)

Question 9

A country must have a positive net outflow of capital if it has a trade deficit.

Accepted Answer

A) True 
 B)False

Question 10

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

Accepted Answer

A) True 
 B)False

Question 11

Which of the following equations is always correct in an open economy?

Accepted Answer

A)   I = Y - C
B)   I = S
C)   I = S - NCO
D)   I = S + NXE) C) and D)
F) B) and D)

Question 12

Last summer when you went to Stockholm Sweden you exchanged $20 to get 16 kronas to buy a meal. This summer you exchanged $25 to get 18 kronas to buy the same meal. The nominal exchange rate

Accepted Answer

A)   rose. If purchasing-power parity holds, than prices in the Sweden rose faster than prices in the U.S.
B)   rose. If purchasing-power parity holds, than prices in the U.S. rose faster than prices in the Sweden.
C)   fell. If purchasing-power parity holds, than prices in the Sweden rose faster than prices in the U.S.
D)   fell. If purchasing-power parity holds, than prices in the U.S. rose faster than prices in the Sweden.E) B) and C)
F) A) and D)

Question 13

Prices in both the U.S. and India rise, but prices in India increase by a larger 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 Indian 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 Indian 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 Indian currency it can buy.
D)   loses value both in terms of the domestic goods and services it can buy and in terms of the Indian currency it can buy.E) A) and D)
F) A) and B)

Question 14

A Swiss watchmaker opens a factory in the United States. This is an example of Swiss

Accepted Answer

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

Question 15

If a country's trade surplus falls, its net capital outflow rises.

Accepted Answer

A) True 
 B)False

Question 16

If the real exchange rate between the U.S. and Japan is 1, the nominal exchange rate is 100 yen per U.S. dollar and the price of chicken in the U.S. is $2.50 per pound, what is the price of chicken in Japan?

Accepted Answer

A)   400 yen per pound
B)   250 yen per pound
C)   100 yen per pound
D)   40 yen per poundE) B) and C)
F) A) and B)

Question 17

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

Accepted Answer

A)   Albert, a German citizen, buys stock in a U.S. computer company.
B)   Larry, a citizen of Ireland, opens a fish and chips restaurant in the United States.
C)   Nancy, a U.S. citizen, buys bonds issued by a Japanese bank.
D)   Dustin, a U.S. citizen, opens a country-western tavern in New Zealand.E) B) and D)
F) All of the above

Question 18

If purchasing power parity holds, a bushel of rice costs $10 in the U.S., and the nominal exchange rate is 40 Thai baht per dollar, what is the price of rice in Thailand?

Accepted Answer

A)   400 baht
B)   200 baht
C)   100 baht
D)   40 bahtE) A) and B)
F) B) and C)

Question 19

Suppose that U.S. citizens purchase more cars made in Korea, and Koreans purchase more bonds issued by U.S. corporations. Other things the same, these actions

Accepted Answer

A)   raise both U.S. net exports and U.S. net capital outflows.
B)   raise U.S. net exports and lower U.S. net capital outflows.
C)   lower both U.S. net exports and U.S. net capital outflows.
D)   lower U.S. net exports and raise U.S. net capital outflows.E) B) and C)
F) A) and C)

Question 20

If a country has Y > C + I + G, then it has

Accepted Answer

A)   positive net capital outflow and positive net exports.
B)   positive net capital outflow and negative net exports.
C)   negative net capital outflow and positive net exports.
D)   negative net capital outflow and negative net exports.E) A) and D)
F) A) and B)

Exam 13: Open-Economy Macroeconomic Models

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

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A country must have a positive net outflow of capital if it has a trade deficit.

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Last summer when you went to Stockholm Sweden you exchanged $20 to get 16 kronas to buy a meal. This summer you exchanged $25 to get 18 kronas to buy the same meal. The nominal exchange rate

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If a country's trade surplus falls, its net capital outflow rises.

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If a country has Y > C + I + G, then it has

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Suppose that U.S. citizens purchase more cars made in Korea, and Koreans purchase more bonds issued by U.S. corporations. Other things the same, these actions

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Which of the following equations is always correct in an open economy?

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If purchasing power parity holds, a bushel of rice costs $10 in the U.S., and the nominal exchange rate is 40 Thai baht per dollar, what is the price of rice in Thailand?

Correct AnswerverifiedShow Answer

Gabrielle, an Italian citizen, uses some previously obtained dollars to purchase a bond issued by a U.S. company. This transaction

Correct AnswerverifiedShow Answer

An MP3 player in Singapore costs 200 Singaporean dollars. In the U.S. it costs 100 US dollars. Which of the following is correct?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

A Japanese bank buys bonds sold by Minnesota Manufacturing. Minnesota Manufacturing then uses these funds to buy machinery from Canada. Which of the following decreases?

Correct AnswerverifiedShow Answer

A Swiss watchmaker opens a factory in the United States. This is an example of Swiss

Correct AnswerverifiedShow Answer

If the American company Stryker builds and operates a new factory in France,

Correct AnswerverifiedShow Answer

If the real exchange rate between the U.S. and Japan is 1, the nominal exchange rate is 100 yen per U.S. dollar and the price of chicken in the U.S. is $2.50 per pound, what is the price of chicken in Japan?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

When the central bank of some country prints large quantities of money, that county's currency loses value both in terms of the goods and services it buys and in terms of the amount of foreign currencies it can buy.

Correct AnswerverifiedShow Answer

If a country changes its corporate tax laws so that foreign businesses build and manage more business in that country, then the net capital outflow of that country

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

If Thailand has a trade surplus, then

Correct AnswerverifiedShow Answer

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