Question 1

If the purchasing power of the dollar is always the same at home and abroad, then the nominal exchange rate defined as units of foreign currency per dollar decreases if the U.S. price level rises more than the price level in foreign countries.

Accepted Answer

A) True 
 B)False

Question 2

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) None of the above
F) A) and D)

Question 3

If purchasing-power parity holds, the price level in the U.S. is 250, and the price level in Japan is 260, which of the following is true?

Accepted Answer

A)   the real exchange rate is 250/260
B)   the real exchange rate is 260/250
C)   the nominal exchange rate is 250/260
D)   the nominal exchange rate is 260/250E) B) and C)
F) A) and B)

Question 4

You are the CEO of a U.S. firm considering building a factory in Chile. If the dollar appreciates relative to the Chilean peso, then other things the same

Accepted Answer

A)   it takes fewer dollars to build the factory. By itself building the factory increases U.S. net capital outflow.
B)   it takes fewer dollars to build the factory. By itself building the factory decreases U.S. net capital outflow.
C)   it takes more dollars to build the factory. By itself building the factory increases U.S. net capital outflow.
D)   it takes more dollars to build the factory. By itself building the factory decreases U.S. net capital outflow.E) A) and B)
F) A) and C)

Question 5

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

Question 6

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

Accepted Answer

A) True 
 B)False

Question 7

If U.S. residents purchase $600 billion worth of foreign assets and foreigners purchase $300 billion worth of U.S. assets,

Accepted Answer

A)   U.S. net capital outflow is $300 billion; capital is flowing into the U.S.
B)   U.S. net capital outflow is $300 billion; capital is flowing out of the U.S.
C)   U.S. net capital outflow is -$300 billion; capital is flowing into the U.S.
D)   U.S. net capital outflow is -$300 billion; capital is flowing out of the U.S.E) C) and D)
F) B) and C)

Question 8

The increase in international trade in the United States is partly due to

Accepted Answer

A)   improvements in transportation.
B)   advances in telecommunications.
C)   increased trade of goods with a high value per pound.
D)   All of the above are correct.E) A) and B)
F) C) and D)

Question 9

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

Accepted Answer

A)   real exchange rate rises.
B)   nominal exchange rate rises.
C)   real exchange rate falls.
D)   nominal exchange rate falls.E) A) and B)
F) B) and C)

Question 10

By itself, if a U.S. firm builds a new factory overseas, U.S. net capital outflow rises.

Accepted Answer

A) True 
 B)False

Question 11

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

Question 12

Which of the following is always correct?

Accepted Answer

A)   Y - I = NCO
B)   NCO = NX
C)   NX = I
D)   All of the above are correct.E) All of the above
F) B) and C)

Question 13

Over the past six decades, the U.S. economy has experienced a dramatic increase in the relative importance of international trade and finance.

Accepted Answer

A) True 
 B)False

Question 14

If a country had a trade deficit of $20 billion and then its exports rose by $7 billion and its imports fell by $10 billion, its net exports would now be

Accepted Answer

A)   $37 billion
B)   $3 billion
C)   -$3 billion
D)   -$37 billionE) B) and D)
F) All of the above

Question 15

If the U.S. real exchange rate appreciates, U.S. exports

Accepted Answer

A)   increase and U.S. imports decrease.
B)   decrease and U.S. imports increase.
C)   and U.S. imports both increase.
D)   and U.S. imports both decrease.E) A) and B)
F) B) and C)

Question 16

Other things the same, an increase in the real exchange rate raises U.S. net exports.

Accepted Answer

A) True 
 B)False

Question 17

Last year country A's residents purchased $700 billion of goods and services from and sold $500 billion of goods and services to residents of foreign countries. Its domestic investment was $1,100. What was country A's saving? Show your work.

Accepted Answer

net capital outflow = net expo...

Question 18

If a country has a trade deficit then

Accepted Answer

A) S > I and Y > C + I + G. B) S > I and Y C) S C + I + G. D) S < I and Y < C + I + G.E) B) and D) F) A) and C)

Question 19

Other things the same, an increase in the foreign price level

Accepted Answer

A)   reduces the real exchange rate. This reduction could be offset by a decrease in the domestic price level.
B)   reduces the real exchange rate. This reduction could be offset by an increase in the domestic price level.
C)   increases the real exchange rate. This increase could be offset by a decrease in the domestic price level.
D)   increases the real exchange rate. This increase could be offset by an increase in the domestic price level.E) C) and D)
F) B) and D)

Question 20

An MP3 player in Singapore costs 200 Singaporean dollars. In the U.S. it costs 100 US dollars. What is the nominal exchange rate if purchasing-power parity holds?

Accepted Answer

A)   2.0
B)   1.0
C)   .50
D)   None of the above is correct.E) C) and D)
F) A) and B)

Exam 31: Open-Economy Macroeconomics: Basic Concepts

Other things the same, an increase in the foreign price level

Correct AnswerverifiedShow Answer

The nominal exchange rate is the

Correct AnswerverifiedShow Answer

The increase in international trade in the United States is partly due to

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

If the U.S. real exchange rate appreciates, U.S. exports

Correct AnswerverifiedShow Answer

If a country had a trade deficit of $20 billion and then its exports rose by $7 billion and its imports fell by $10 billion, its net exports would now be

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Other things the same, an increase in the real exchange rate raises U.S. net exports.

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 buying assets abroad.

Correct AnswerverifiedShow Answer

By itself, if a U.S. firm builds a new factory overseas, U.S. net capital outflow rises.

Correct AnswerverifiedShow Answer

Last year country A's residents purchased $700 billion of goods and services from and sold $500 billion of goods and services to residents of foreign countries. Its domestic investment was $1,100. What was country A's saving? Show your work.

Correct Answerverifiednet capital outflow = net expo...View AnswerShow Answer

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

Correct AnswerverifiedShow Answer

If purchasing-power parity holds, the price level in the U.S. is 250, and the price level in Japan is 260, which of the following is true?

Correct AnswerverifiedShow Answer

Which of the following is always correct?

Correct AnswerverifiedShow Answer

If U.S. residents purchase $600 billion worth of foreign assets and foreigners purchase $300 billion worth of U.S. assets,

Correct AnswerverifiedShow Answer

If the purchasing power of the dollar is always the same at home and abroad, then the nominal exchange rate defined as units of foreign currency per dollar decreases if the U.S. price level rises more than the price level in foreign countries.

Correct AnswerverifiedShow Answer

You are the CEO of a U.S. firm considering building a factory in Chile. If the dollar appreciates relative to the Chilean peso, then other things the same

Correct AnswerverifiedShow Answer

If a country has a trade deficit then

Correct AnswerverifiedShow Answer

Over the past six decades, the U.S. economy has experienced a dramatic increase in the relative importance of international trade and finance.

Correct AnswerverifiedShow Answer

An MP3 player in Singapore costs 200 Singaporean dollars. In the U.S. it costs 100 US dollars. What is the nominal exchange rate if purchasing-power parity holds?

Correct AnswerverifiedShow Answer

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net capital outflow = net expo...
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