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Exam 31: Open-Economy Macroeconomics: Basic Concepts

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Question 141

Multiple Choice

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Suppose a Starbucks tall latte cost $4.00 in the United States and 2.50 euros in the Euro area. Also, suppose a McDonald's Big Mac costs $4.50 in the United States and 3.60 euros in the Euro area. If the nominal exchange rate is .80 euros per dollar, which goods have prices that are consistent with purchasing-power parity?

A) both the tall latte and the Big Mac
B) the tall latte but not the Big Mac
C) the Big Mac but not the tall latte
D) neither the Big Mac nor the tall latte

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

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Question 142

Multiple Choice

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Other things the same, if a country's domestic investment decreases, then

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

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Question 143

Essay

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If a nation produces less than it spends what do we know about: A. its net exports? B. its net capital outflow? C. its saving in relation to its domestic investment?

Jill, a U.S. citizen, uses some euros to purchase a bond issued by a French vineyard. This exchange

If it took as many dollars to buy goods in the United States as it did to buy enough currency to buy the same goods in India, the real exchange rate would be computed as how many Indian goods per U.S. goods?

While vacationing in Agra, India, the price of one night's stay at your hotel room rises from 6600 rupees to 7200 rupees. If the exchange rate was previously 55 rupees per dollar, what would the exchange rate need to be now in order for the number of dollars you pay for your room to remain the same? Does this imply the rupee depreciated or appreciated against the dollar?

If prices in the U.S. rise faster than prices in the United Kingdom, then according to the doctrine of purchasing- power parity the U.S. nominal exchange rate should rise

A U.S. grocery store chain bought $800,000 worth of Kenyan currency from a bank in Kenya. It then used these funds to buy $800,000 worth of coffee from Kenyan coffee growers. As a result of this exchange, by how much and in which direction did: A. U.S. net exports change? B. U.S. net capital outflow change?

Other things the same, according to purchasing-power parity, if over the next few years Mexico has a higher money supply growth rate than the U.S., then

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.

A country recently had saving of 250 billion euro and domestic investment of 400 billion euro. What was the value of this country's net exports? Show your work.

A country's trade balance

A country recently had saving of 300 billion euros and domestic investment of 200 billion euros. What was the value of this country's net exports? Explain how you found your answer.

Which of the following does purchasing-power parity imply?

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.

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

Suppose that money supply growth continues to be higher in Turkey than it is in the United States. What does purchasing-power parity imply will happen to the real and to the nominal exchange rate?

The price of a basket of goods is $2000 in the U.S. If purchasing-power parity holds, and the dollar buys two units of some country's currency, then how many units of foreign currency does the same basket of goods cost in that country?

A farmer in Mexico purchases a tractor made in the U.S. This purchase is an example of

If the real exchange rate for coal is 1.5, the price of coal in the U.S. is $50 per ton, and the price of coal in Britain is 20 British pounds per ton, what is the nominal exchange rate?