Question 1

According to purchasing-power parity, if the price of a basket of goods in the U.S. rose from $1,500 to $2,000 and the price of the same basket of goods rose from 600 units of some other country's currency to 1,000 units of that country's currency, then the

Accepted Answer

A)   nominal exchange rate would appreciate.
B)   nominal exchange rate would depreciate.
C)   real exchange rate would appreciate.
D)   real exchange rate would depreciate.E) A) and B)
F) None of the above

Question 2

According to purchasing-power parity, if over the course of a year the price level in the U.S. rises more than in Canada, then which of the following rises?

Accepted Answer

A)   the U.S. real exchange rate, but not the U.S. nominal exchange rate
B)   the U.S. nominal exchange rate, but not the U.S. real exchange rate
C)   the U.S. nominal exchange rate and the U.S. real exchange rate
D)   neither the real exchange rate nor the nominal exchange rateE) B) and C)
F) None of the above

Question 3

If a country's net exports fall, then its net capital outflow falls by the same amount.

Accepted Answer

A) True 
 B)False

Question 4

If business opportunities in a country become relatively less attractive relative to those of other countries, then

Accepted Answer

A)   both its net exports and net capital outflows fall.
B)   both its net exports and net capital outflows rise.
C)   its net exports fall and its net capital outflows fall.
D)   its net exports rise and its net capital outflows fallE) None of the above
F) B) and C)

Question 5

If purchasing-power parity holds, a bushel of rice costs $10 in the U.S., and the nominal exchange rate is 25 Thai baht per dollar, what is the price of rice in Thailand?

Accepted Answer

A)   400 baht
B)   250 bhat
C)   100 bhat
D)   None of the above is correct.E) A) and D)
F) A) and C)

Question 6

In the U.S. a digital camera costs $200. The same camera in London sells for 90 pounds. If the exchange rate were .50 pounds per dollar, then which of the following would be correct?

Accepted Answer

A)   The real exchange rate is greater than 1. A person in London with $200 could exchange them for pounds and have more than enough to buy the camera there.
B)   The real exchange rate is greater than 1. A person in London with $200 could exchange them for pounds but then wouldn't have enough to buy the camera there.
C)   The real exchange rate is less than 1. A person in London with $200 could exchange them for pounds and have more than enough to buy the camera there.
D)   The real exchange rate is less than 1. A person in London with $200 could exchange them for pounds but then wouldn't have enough to buy the camera.E) All of the above
F) B) and C)

Question 7

If over the next few years inflation is higher in Mexico than in the U.S., then according to purchasing-power parity which of the following should rise?

Accepted Answer

A)   the U.S. real exchange rate but not the U.S. nominal exchange rate
B)   the U.S. nominal exchange rate but not the U.S. real exchange rate
C)   the U.S. real exchange rate but not the U.S. nominal exchange rate
D)   neither the U.S. real nor the U.S. nominal exchange rateE) None of the above
F) B) and C)

Question 8

If the exchange rate is 60 Indian rupees per dollar and a bushel of rice costs 200 rupees in India and $3 in the U.S., then the real exchange rate is

Accepted Answer

A)   greater than one and arbitrageurs could profit by buying rice in the U.S. and selling it in India.
B)   greater than one and arbitrageurs could profit by buying rice in India and selling it in the U.S..
C)   less than one and arbitrageurs could profit by buying rice in the U.S. and selling it in India.
D)   less than one and arbitrageurs could profit by buying rice in India and selling it in the U.S..E) A) and B)
F) B) and C)

Question 9

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 C)
F) A) and B)

Question 10

The theory of purchasing­power parity states that a unit of a country's currency should be able to buy the same quantity of goods in foreign countries as it does in the domestic economy.

Accepted Answer

A) True 
 B)False

Question 11

Sam, a U.S. citizen, buys bonds issued by a Greek company that bottles olives. Sam's purchase is

Accepted Answer

A)   foreign direct investment. By itself it increases U.S. net capital outflow.
B)   foreign direct investment. By itself it decreases U.S. net capital outflow.
C)   foreign portfolio investment. By itself it increases U.S. net capital outflow.
D)   foreign portfolio investment. By itself it decreases U.S. net capital outflow.E) A) and B)
F) All of the above

Question 12

Most of the change from 1980 to 1987 in U.S. net capital outflow as a percent of GDP was due to a(n)

Accepted Answer

A)   decrease in U.S. investment.
B)   decrease in U.S. national saving.
C)   increase in U.S. investment.
D)   increase in U.S. national saving.E) None of the above
F) B) and D)

Question 13

From 1970 to 1998 the U.S. dollar

Accepted Answer

A)   gained value compared to the Italian lira because inflation was higher in Italy.
B)   gained value compared to the Italian lira because inflation was lower in Italy.
C)   lost value compared to the Italian lira because inflation was higher in Italy.
D)   lost value compared to the Italian lira because inflation was lower in Italy.E) A) and B)
F) A) and C)

Question 14

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

Accepted Answer

The nominal exchange rate is the rate at...

Question 15

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

Accepted Answer

A)   S > I and it has a trade surplus.
B)   S > I and it has a trade deficit.
C)   S 
D)   S < I and it has a trade deficit.E) A) and B)
F) All of the above

Question 16

The real exchange rate is the nominal exchange rate, defined as foreign currency per dollar, times

Accepted Answer

A)   U.S. prices minus foreign prices.
B)   U.S. prices divided by foreign prices.
C)   foreign prices divided by U.S. prices.
D)   None of the above is correct.E) B) and C)
F) A) and D)

Question 17

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

Question 18

A quality men's suit in the U.S. costs $400. The same suit costs 300 British pounds in the U.K. The nominal exchange rate is .60 pounds per dollar.
A. Find the real exchange rate. Show your work.
B. In terms of dollars where is the suit cheaper?

Accepted Answer

The real exchange rate = $400 ...

Question 19

If Canada's national saving exceeds its domestic investment, then Canada has

Accepted Answer

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

Question 20

A Chinese company exchanges yuan (Chinese currency)  for dollars. It uses these dollars to purchase scrap metal from a U.S. company. As a result of these transactions, Chinese

Accepted Answer

A)   net exports increase, and U.S. net capital outflow increases.
B)   net exports increase, and U.S. net capital outflow decreases.
C)   net exports decrease, and U.S. net capital outflow increases.
D)   net exports decrease, and U.S. net capital outflow decreases.E) A) and C)
F) A) and B)

Exam 31: Open-Economy Macroeconomics: Basic Concepts

Most of the change from 1980 to 1987 in U.S. net capital outflow as a percent of GDP was due to a(n)

Correct AnswerverifiedShow Answer

A quality men's suit in the U.S. costs $400. The same suit costs 300 British pounds in the U.K. The nominal exchange rate is .60 pounds per dollar. A. Find the real exchange rate. Show your work. B. In terms of dollars where is the suit cheaper?

Correct AnswerverifiedThe real exchange rate = $400 ...View AnswerShow Answer

The real exchange rate is the nominal exchange rate, defined as foreign currency per dollar, times

Correct AnswerverifiedShow Answer

If a country's net exports fall, then its net capital outflow falls by the same amount.

Correct AnswerverifiedShow Answer

A Chinese company exchanges yuan (Chinese currency) for dollars. It uses these dollars to purchase scrap metal from a U.S. company. As a result of these transactions, Chinese

Correct AnswerverifiedShow Answer

If business opportunities in a country become relatively less attractive relative to those of other countries, then

Correct AnswerverifiedShow Answer

Sam, a U.S. citizen, buys bonds issued by a Greek company that bottles olives. Sam's purchase is

Correct AnswerverifiedShow Answer

If purchasing-power parity holds, a bushel of rice costs $10 in the U.S., and the nominal exchange rate is 25 Thai baht per dollar, what is the price of rice in Thailand?

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

According to purchasing-power parity, if the price of a basket of goods in the U.S. rose from $1,500 to $2,000 and the price of the same basket of goods rose from 600 units of some other country's currency to 1,000 units of that country's currency, then the

Correct AnswerverifiedShow Answer

If over the next few years inflation is higher in Mexico than in the U.S., then according to purchasing-power parity which of the following should rise?

Correct AnswerverifiedShow Answer

From 1970 to 1998 the U.S. dollar

Correct AnswerverifiedShow Answer

In the U.S. a digital camera costs $200. The same camera in London sells for 90 pounds. If the exchange rate were .50 pounds per dollar, then which of the following would be correct?

Correct AnswerverifiedShow Answer

According to purchasing-power parity, if over the course of a year the price level in the U.S. rises more than in Canada, then which of the following rises?

Correct AnswerverifiedShow Answer

If Canada's national saving exceeds its domestic investment, then Canada has

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

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

Correct AnswerverifiedShow Answer

If the exchange rate is 60 Indian rupees per dollar and a bushel of rice costs 200 rupees in India and $3 in the U.S., then the real exchange rate is

Correct AnswerverifiedShow Answer

The theory of purchasing­power parity states that a unit of a country's currency should be able to buy the same quantity of goods in foreign countries as it does in the domestic economy.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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The real exchange rate = $400 ...
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The nominal exchange rate is the rate at...
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The theory of purchasingpower parity states that a unit of a country's currency should be able to buy the same quantity of goods in foreign countries as it does in the domestic economy.

Correct Answer
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Correct Answer
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