Question 1

If a lobster in Maine costs $10 and that the same type of lobster in Massachusetts costs $30, then people could make a profit by

Accepted Answer

A)   buying lobsters in Maine and selling them in Massachusetts. This action would increase the price of lobster in Massachusetts.
B)   buying lobsters in Maine and selling them in Massachusetts. This action would decrease the price of lobster in Massachusetts.
C)   buying lobsters in Massachusetts and selling them in Maine. This action would increase the price of lobster in Massachusetts.
D)   buying lobsters in Massachusetts and selling them in Maine. This action would decrease the price of lobster in Massachusetts.E) A) and D)
F) All of the above

Question 2

According to purchasing-power parity, if the same basket of goods costs $100 in the U.S. and 50 pounds in Britain, then what is the nominal exchange rate?

Accepted Answer

A)   2 pounds per dollar
B)   1 pound per dollar
C)   1/2 pound per dollar
D)   None of the above is correctE) A) and B)
F) A) and C)

Question 3

Assuming purchasing-power parity holds and that over a period of five years the dollar had appreciated relative to the currency of Country X, what would explain the appreciation of the dollar?

Accepted Answer

Money growth, and so...

Question 4

If you go to the bank and notice that a dollar buys more Japanese yen than it used to, then the dollar has

Accepted Answer

A)   appreciated. Other things the same, the appreciation would make Americans less likely to travel to Japan.
B)   appreciated. Other things the same, the appreciation would make Americans more likely to travel to Japan.
C)   depreciated. Other things the same, the depreciation would make Americans less likely to travel to Japan.
D)   depreciated. Other things the same, the depreciation would make Americans more likely to travel to Japan.E) A) and B)
F) All of the above

Question 5

When a Japanese auto maker opens a factory 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 D)
F) B) and C)

Question 6

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) A) and C)

Question 7

If over the next year the inflation rate in the euro area is higher than the inflation rate in Japan, then the euro should depreciate relative to the Japanese yen.

Accepted Answer

A) True 
 B)False

Question 8

A basket of goods costs $800 in the U.S. In Belgium the basket of goods costs 640 euros and the exchange rate is .80 euros per U.S. dollar. In Japan the basket of goods costs 90,000 yen and the exchange rate is 90 yen per dollar. Which country has purchasing-power parity with the U.S.?

Accepted Answer

A)   both Belgium and Japan
B)   Belgium but not Japan
C)   Japan but not Belgium
D)   neither Belgium nor JapanE) A) and B)
F) B) and C)

Question 9

According to purchasing-power parity, if it took 1,100 Korean Won to buy a dollar this year, but it took 1,000 to buy it last year, then the dollar has

Accepted Answer

A)   appreciated, indicating inflation was higher in the U.S. than in Korea.
B)   appreciated indicating inflation was lower in the U.S. than in Korea.
C)   depreciated indicating inflation was higher in the U.S. than in Korea.
D)   depreciated indicating inflation was lower in the U.S. than in Korea.E) B) and C)
F) A) and D)

Question 10

A country has net capital outflow of $40 billion. Which of the following is consistent with this net capital outflow?

Accepted Answer

A)   It has -$40 billion of net exports.
B)   Purchases of foreign assets by domestic residents exceed purchases of domestic assets by foreign residents by $40 billion.
C)   Its saving is $35 billion and its domestic investment is $5 billion.
D)   All of the above are consistent with a net capital outflow of $40 billion.E) A) and C)
F) A) and D)

Question 11

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) B) and D)

Question 12

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 than 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 < foreign price. The dollars required to purchase a good in the U.S. would not buy enough foreign currency to buy the same good overseas.E) All of the above
F) B) and C)

Question 13

Which of the following is correct?

Accepted Answer

A)   NCO = NX
B)   NCO + I = NX
C)   NX + NCO = Y
D)   Y = NCO - IE) All of the above
F) None of the above

Question 14

If a country has saving of $2 trillion and investment of $1.5 trillion, then it has

Accepted Answer

A)   a trade surplus and its net capital outflow = $.5 trillion.
B)   a trade surplus and its net capital outflow = -$.5 trillion.
C)   a trade deficit and its net capital outflow = $.5 trillion.
D)   a trade deficit and its net capital outflow = -$.5 trillion.E) A) and B)
F) A) and C)

Question 15

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) A) and D)

Question 16

Suppose that the real exchange rate between the United States and Brazil is defined in terms of baskets of goods. Other things the same, which of the following will increase the real exchange rate that is increase the number of baskets of Brazilian goods a basket of U.S. goods buys) ?

Accepted Answer

A)   an increase in the quantity of Brazilian currency that can be purchased with a dollar
B)   a decrease in the price of U.S. goods
C)   an increase in the price in Brazilian currency of Brazilian goods
D)   All of the above are correct.E) B) and D)
F) B) and C)

Question 17

In an open economy, gross domestic product equals $3,500 billion, consumption expenditure equals $2100 billion, government expenditure equals $400 billion, investment equals $800 billion, and net exports equals $200 billion. What is national savings?

Accepted Answer

A)   $200 billion
B)   $600 billion
C)   $800 billion
D)   $1,000 billionE) B) and C)
F) A) and C)

Question 18

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

Question 19

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

Accepted Answer

A)   A Greek company opens a cheese factory in the U.S.
B)   A German mutual fund buys stock issued by a U.S. corporation.
C)   A U.S. beverage company opens a bottling plant in Russia.
D)   A U.S. bank buys bonds issued by an Argentinean company.E) All of the above
F) B) and C)

Question 20

A U.S. bakery buys wheat from Canada and pays for it with US dollars. This transaction

Accepted Answer

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

Exam 18: Open-Economy Macroeconomics: Basic Concepts

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

If you go to the bank and notice that a dollar buys more Japanese yen than it used to, then the dollar has

Correct AnswerverifiedShow Answer

Suppose that the real exchange rate between the United States and Brazil is defined in terms of baskets of goods. Other things the same, which of the following will increase the real exchange rate that is increase the number of baskets of Brazilian goods a basket of U.S. goods buys) ?

Correct AnswerverifiedShow Answer

If a lobster in Maine costs $10 and that the same type of lobster in Massachusetts costs $30, then people could make a profit by

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

According to purchasing-power parity, if the same basket of goods costs $100 in the U.S. and 50 pounds in Britain, then what is the nominal exchange rate?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Which of the following is correct?

Correct AnswerverifiedShow Answer

Assuming purchasing-power parity holds and that over a period of five years the dollar had appreciated relative to the currency of Country X, what would explain the appreciation of the dollar?

Correct AnswerverifiedMoney growth, and so...View AnswerShow Answer

If over the next year the inflation rate in the euro area is higher than the inflation rate in Japan, then the euro should depreciate relative to the Japanese yen.

Correct AnswerverifiedShow Answer

If a country has saving of $2 trillion and investment of $1.5 trillion, then it has

Correct AnswerverifiedShow Answer

A basket of goods costs $800 in the U.S. In Belgium the basket of goods costs 640 euros and the exchange rate is .80 euros per U.S. dollar. In Japan the basket of goods costs 90,000 yen and the exchange rate is 90 yen per dollar. Which country has purchasing-power parity with the U.S.?

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

In an open economy, gross domestic product equals $3,500 billion, consumption expenditure equals $2100 billion, government expenditure equals $400 billion, investment equals $800 billion, and net exports equals $200 billion. What is national savings?

Correct AnswerverifiedShow Answer

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

A country has net capital outflow of $40 billion. Which of the following is consistent with this net capital outflow?

Correct AnswerverifiedShow Answer

According to purchasing-power parity, if it took 1,100 Korean Won to buy a dollar this year, but it took 1,000 to buy it last year, then the dollar has

Correct AnswerverifiedShow Answer

When a Japanese auto maker opens a factory in the U.S., U.S. net capital outflow

Correct AnswerverifiedShow Answer

A U.S. bakery buys wheat from Canada and pays for it with US dollars. 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

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Money growth, and so...
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