Question 1

If the U.S. real exchange rate is greater than 1, then there is the possibility of arbitraging by buying foreign goods to sell in the U.S.

Accepted Answer

A) True 
 B)False

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

Other things the same, if the exchange rate changes from .8 euros per dollar to .9 euros per dollar, the dollar

Accepted Answer

A)   depreciates so U.S. goods become less expensive relative to foreign goods.
B)   depreciates so U.S. goods become more expensive relative to foreign goods.
C)   appreciates so U.S. goods become less expensive relative to foreign goods.
D)   appreciates so U.S. goods become more expensive relative to foreign goods.E) B) and C)
F) A) and D)

Question 4

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 5

While on vacation in Europe you notice that a tablet computer is selling for 600 euros in France and for 533 pounds in Britain. You also know that the exchange rates are .75 euros per dollar and .65 British pounds per dollar. Where is the number of dollars you would pay for the tablet lower? How many dollars would you have to pay to buy it there?

Accepted Answer

It costs less in France where ...

Question 6

If saving is greater than domestic investment, then

Accepted Answer

A)   there is a trade deficit and Y > C + I + G.
B)   there is a trade deficit and Y 
C)   there is a trade surplus and Y > C + I + G.
D)   there is a trade surplus and Y < C + I + G.E) A) and B)
F) None of the above

Question 7

U.S.-based John Deere sells machinery to residents of South Africa who pay with South African currency the rand) .

Accepted Answer

A)   This increases U.S. net capital outflow because the U.S. acquires foreign assets.
B)   This decreases U.S. net capital outflow because the U.S. acquires foreign assets.
C)   This increases U.S. net capital outflow because the U.S. sells capital goods.
D)   This decreases U.S. net capital outflow because the U.S. sells capital goods.E) None of the above
F) C) and D)

Question 8

Exchange rates are 100 yen per dollar, 0.8 euro per dollar, and 12 pesos per dollar. A bottle of beer in New York costs 6 dollars, 500 yen in Tokyo, 6 euro in Munich, and 84 pesos in Cancun. Where is the most expensive and the cheapest beer, in that order?

Accepted Answer

A)   Cancun, New York
B)   Munich, Tokyo
C)   Tokyo, Munich
D)   New York, CancunE) A) and B)
F) C) and D)

Question 9

If the price of a sofa is $800 in the U.S. and 2400 pesos in Argentina, and the exchange rate is 4 pesos per dollar, what is the real exchange rate?

Accepted Answer

A)   3
B)   4/3
C)   3/4
D)   None of the above is correct.E) A) and D)
F) B) and D)

Question 10

Suppose that the real return from operating factories in Canada rises relative to the real rate of return in the United States. Other things the same,

Accepted Answer

A)   this will increases U.S. net capital outflow and decrease Canadian net capital outflow.
B)   this will decreases U.S. net capital outflow and increase Canadian net capital outflow.
C)   this will only increase U.S. net capital outflow.
D)   this will only increase Canadian net capital outflow.E) A) and B)
F) A) and C)

Question 11

A U.S. retailer buys shoes from an Italian company. The Italian firm then uses all of the revenues to buy leather from the U.S. These transactions

Accepted Answer

A)   increase both U.S. net exports and U.S. net capital outflow.
B)   decrease both U.S. net exports and U.S. net capital outflow.
C)   increase U.S. net exports and do not affect U.S. net capital outflow.
D)   None of the above is correct.E) None of the above
F) All of the above

Question 12

Bill, a U.S. citizen, pays a Spanish architect to design a metal casting factory. Which country's exports increase?

Accepted Answer

A)   Spain's
B)   the U.S.'s
C)   Spain's and the U.S.'s
D)   neither Spain's nor the U.S.'sE) A) and C)
F) None of the above

Question 13

Prices in both the U.S. and India rise, but prices in India 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 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 B)
F) C) and D)

Question 14

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

Accepted Answer

A)   A Chinese company opens a restaurant in the U.S.
B)   An Australian bank buys stocks issued by a U.S. corporation.
C)   A U.S. bank buys bonds issued by an Australian corporation.
D)   A U.S. company opens an auto parts factory in Canada.E) All of the above
F) B) and C)

Question 15

Which of the following events would be consistent with purchasing-power parity?

Accepted Answer

A)   The price level in the United States rises more rapidly than that in Ireland and the real exchange rate defined as Irish goods per unit of U.S. goods stays the same.
B)   The money supply in the United States rises more rapidly than in Egypt and the nominal exchange rate defined as Egyptian pounds per dollar falls.
C)   Earl, a worldwide traveler, looks at exchange rates and worldwide breakfast prices one morning and finds that whatever country he decides to go to he can convert $15 into enough local currency to buy the same breakfast.
D)   All of the above are correct.E) None of the above
F) A) and B)

Question 16

How do the nominal exchange rate and the real exchange rate differ?

Accepted Answer

The nominal exchange rate is the rate at...

Question 17

If a bushel of wheat costs $6.40 in the United States, costs 40 pesos in Mexico, and the nominal exchange rate is 10 pesos per dollar, then the real exchange rate is

Accepted Answer

A)   1.60
B)   1.25
C)   .625
D)   None of the above is correct.E) All of the above
F) A) and D)

Question 18

If a country has positive net capital outflows, then its net exports are

Accepted Answer

A)   positive, and its saving is larger than its domestic investment.
B)   positive, and its saving is smaller than its domestic investment.
C)   negative, and its saving is larger than its domestic investment.
D)   negative, and its saving is smaller than its domestic investment.E) C) and D)
F) None of the above

Question 19

A country's saving is greater than its domestic investment. This difference means that its

Accepted Answer

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

Question 20

Firms in Saudi Arabia sell oil to the U.S. Other things the same, these oil sales

Accepted Answer

A)   increase Saudi net exports and net capital outflow.
B)   decrease Saudi net exports and net capital outflow.
C)   increase Saudi net exports and decrease Saudi net capital outflow.
D)   decrease Saudi net exports and increase Saudi net capital outflow.E) A) and D)
F) B) and D)

Exam 18: Open-Economy Macroeconomics: Basic Concepts

Firms in Saudi Arabia sell oil to the U.S. Other things the same, these oil sales

Correct Answer
verified

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

Correct Answer
verified

Suppose that the real return from operating factories in Canada rises relative to the real rate of return in the United States. Other things the same,

Correct Answer
verified

If the U.S. real exchange rate is greater than 1, then there is the possibility of arbitraging by buying foreign goods to sell in the U.S.

Correct Answer
verified

If a country has positive net capital outflows, then its net exports are

Correct Answer
verified

Other things the same, if the exchange rate changes from .8 euros per dollar to .9 euros per dollar, the dollar

Correct Answer
verified

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

Correct Answer
verified

If a bushel of wheat costs $6.40 in the United States, costs 40 pesos in Mexico, and the nominal exchange rate is 10 pesos per dollar, then the real exchange rate is

Correct Answer
verified

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

Correct Answer
verified

A country's saving is greater than its domestic investment. This difference means that its

Correct Answer
verified

How do the nominal exchange rate and the real exchange rate differ?

Correct Answer
verified
The nominal exchange rate is the rate at...
View Answer

U.S.-based John Deere sells machinery to residents of South Africa who pay with South African currency the rand) .

Correct Answer
verified

If saving is greater than domestic investment, then

Correct Answer
verified

Correct Answer
verified
It costs less in France where ...
View Answer

Bill, a U.S. citizen, pays a Spanish architect to design a metal casting factory. Which country's exports increase?

Correct Answer
verified

Exchange rates are 100 yen per dollar, 0.8 euro per dollar, and 12 pesos per dollar. A bottle of beer in New York costs 6 dollars, 500 yen in Tokyo, 6 euro in Munich, and 84 pesos in Cancun. Where is the most expensive and the cheapest beer, in that order?

Correct Answer
verified

Which of the following events would be consistent with purchasing-power parity?

Correct Answer
verified

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 Answer
verified

If the price of a sofa is $800 in the U.S. and 2400 pesos in Argentina, and the exchange rate is 4 pesos per dollar, what is the real exchange rate?

Correct Answer
verified

A U.S. retailer buys shoes from an Italian company. The Italian firm then uses all of the revenues to buy leather from the U.S. These transactions

Correct Answer
verified

Exam 18: Open-Economy Macroeconomics: Basic Concepts

Firms in Saudi Arabia sell oil to the U.S. Other things the same, these oil sales

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

Suppose that the real return from operating factories in Canada rises relative to the real rate of return in the United States. Other things the same,

Correct AnswerverifiedShow Answer

If the U.S. real exchange rate is greater than 1, then there is the possibility of arbitraging by buying foreign goods to sell in the U.S.

Correct AnswerverifiedShow Answer

If a country has positive net capital outflows, then its net exports are

Correct AnswerverifiedShow Answer

Other things the same, if the exchange rate changes from .8 euros per dollar to .9 euros per dollar, the dollar

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

If a bushel of wheat costs $6.40 in the United States, costs 40 pesos in Mexico, and the nominal exchange rate is 10 pesos per dollar, then the real exchange rate is

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

A country's saving is greater than its domestic investment. This difference means that its

Correct AnswerverifiedShow Answer

How do the nominal exchange rate and the real exchange rate differ?

Correct AnswerverifiedThe nominal exchange rate is the rate at...View AnswerShow Answer

U.S.-based John Deere sells machinery to residents of South Africa who pay with South African currency the rand) .

Correct AnswerverifiedShow Answer

If saving is greater than domestic investment, then

Correct AnswerverifiedShow Answer

Correct AnswerverifiedIt costs less in France where ...View AnswerShow Answer

Bill, a U.S. citizen, pays a Spanish architect to design a metal casting factory. Which country's exports increase?

Correct AnswerverifiedShow Answer

Exchange rates are 100 yen per dollar, 0.8 euro per dollar, and 12 pesos per dollar. A bottle of beer in New York costs 6 dollars, 500 yen in Tokyo, 6 euro in Munich, and 84 pesos in Cancun. Where is the most expensive and the cheapest beer, in that order?

Correct AnswerverifiedShow Answer

Which of the following events would be consistent with purchasing-power parity?

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 the price of a sofa is $800 in the U.S. and 2400 pesos in Argentina, and the exchange rate is 4 pesos per dollar, what is the real exchange rate?

Correct AnswerverifiedShow Answer

A U.S. retailer buys shoes from an Italian company. The Italian firm then uses all of the revenues to buy leather from the U.S. These transactions

Correct AnswerverifiedShow Answer

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The nominal exchange rate is the rate at...
View Answer

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It costs less in France where ...
View Answer

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