Question 1

If a dollar buys more potatoes in the U.S. than in France, then

Accepted Answer

A)  the real exchange rate is greater than 1; a profit might be made by buying potatoes in the U.S. and selling them in France.
B)  the real exchange rate is greater than 1; a profit might be made by buying potatoes in France. and selling them in the U.S.
C)  the real exchange rate is less than 1; a profit might be made by buying potatoes in the U.S. and selling them in France.
D)  the real exchange rate is less than 1; a profit might be made by buying potatoes in France and selling them in the U.S.E) All of the above
F) None of the above

Question 2

If the exchange rate is .70 euro per dollar, the price of an MP3 player in Paris is 150 euros and the price of an MP3 player in the U.S. is $150, then what is the real exchange rate?

Accepted Answer

A)  1/.70 French MP3 players per U.S. MP3 player
B)  1 French MP3 players per U.S. MP3 player
C)  .70 French MP3 players per U.S. MP3 player.
D)  None of the above are correct.E) B) and C)
F) None of the above

Question 3

In the 1970s and 1980s the U.S. dollar depreciated against the German mark and appreciated against the Italian lira because U.S. inflation was lower than in Germany but higher than in Italy.

Accepted Answer

A) True 
 B)False

Question 4

U.S- based Dell sells computers to an Irish company that pays with previously obtained U.S. currency. This exchange

Accepted Answer

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

Question 5

Domestic saving must equal domestic investment in

Accepted Answer

A)  both closed and open economies.
B)  closed, but not open economies.
C)  open, but not closed economies.
D)  neither closed nor open economies.E) B) and C)
F) A) and D)

Question 6

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) All of the above
F) None of the above

Question 7

The nominal exchange rate is 2 Barbados dollars per U.S. dollar. If the price of a good in Barbados is 3 Barbados dollars and the price in the U.S. is 2 U.S. dollars, what is the real exchange rate to the nearest 100th?

Accepted Answer

A)  3 Barbados goods per U.S. good
B)  1.33 Barbados goods per U.S. good
C)  .75 Barbados goods per U.S. good
D)  none of the above is correctE) C) and D)
F) B) and D)

Question 8

Purchasing-power parity describes the forces that determine

Accepted Answer

A)  prices in the short run.
B)  prices in the long run.
C)  exchange rates in the short run.
D)  exchange rates in the long run.E) None of the above
F) B) and D)

Question 9

Catherine, a citizen of Spain, decides to purchase bonds issued by Chile instead of ones issued by the United States even though the Chilean bonds have a higher risk of default. An economic reason for her decision might be that

Accepted Answer

A)  she dislikes U.S. foreign policy.
B)  the Chilean bonds pay a higher rate of interest.
C)  the U.S. government is more stable than the Chilean government.
D)  None of the above provide an economic reason for buying the riskier bond.E) All of the above
F) C) and D)

Question 10

Table 18-1
 
-Refer to Table 18-1. What are Bolivia's net exports?

Accepted Answer

A)  $30 billion
B)  $5 billion
C)  -$5 billion
D)  -$25 billionE) A) and D)
F) None of the above

Question 11

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) None of the above
F) All of the above

Question 12

Which of the following is correct?

Accepted Answer

A)  U.S. exports as a percentage of GDP have more than doubled since 1950. The U.S. currently has a trade surplus.
B)  U.S. exports as a percentage of GDP have more than doubled since 1950. The U.S. currently has a trade deficit.
C)  U.S. exports as a percentage of GDP have increased, but have not nearly doubled since 1950. The U.S. currently has a trade surplus.
D)  U.S. exports as a percentage of GDP have increased, but have not nearly doubled since 1950. The U.S. currently has a trade deficit.E) A) and B)
F) A) and C)

Question 13

If a country changes its corporate tax laws so that domestic businesses build and manage more business in other countries, then the net capital outflow of that country

Accepted Answer

A)  and the net capital outflow of other countries rise.
B)  rises and the net capital outflow of other countries fall.
C)  falls and the net capital outflow of other countries rise.
D)  None of the above are correct.E) A) and B)
F) None of the above

Question 14

If a country has business opportunities that are relatively attractive to other countries, we would expect it to have

Accepted Answer

A)  both positive net exports and positive net capital outflow.
B)  both negative net exports and negative net capital outflow.
C)  positive net exports and negative net capital outflow.
D)  negative net exports and positive net capital outflow.E) All of the above
F) C) and D)

Question 15

If the U.S. has a trade deficit and the nominal exchange rate depreciates, then other things the same

Accepted Answer

A)  the trade deficit rises and net capital outflow rises.
B)  the trade deficit rises and net capital outflow falls.
C)  the trade deficit falls and net capital outflows rise.
D)  the trade deficit falls and net capital outflows fall.E) None of the above
F) All of the above

Question 16

Other things the same, which of the following would both increase the U.S. real exchange rate with Israel?

Accepted Answer

A)  prices in the U.S. were higher, or prices in Israel were higher.
B)  prices in the U.S were higher, or prices in Israel were lower.
C)  prices in the U.S. were lower, or prices in Israel were higher.
D)  prices in the U.S. were lower, or prices in Israel were lower.E) B) and C)
F) C) and D)

Question 17

According to purchasing-power parity, what is the relationship between changes in price levels between two countries and changes in nominal exchange rates?

Accepted Answer

Purchasing-power parity asserts that the...

Question 18

According to purchasing power parity, the nominal exchange rate between the U.S. and another country should equal the price level of foreign goods divided by the price level of U.S. goods.

Accepted Answer

A) True 
 B)False

Question 19

Net capital outflow is the purchase of domestic assets by foreign residents minus the purchase of foreign assets by domestic residents.

Accepted Answer

A) True 
 B)False

Question 20

If Thailand has a trade surplus, then

Accepted Answer

A)  foreign countries purchase more Thai assets than Thailand purchases from them. This makes Thai saving greater than Thai domestic investment.
B)  foreign countries purchase more Thai assets than Thailand purchases from them. This makes Thai saving smaller then Thai domestic investment
C)  foreign countries purchase fewer Thai assets than Thailand purchases from them. This makes Thai saving greater than Thai domestic investment.
D)  foreign countries purchase fewer Thai assets than Thailand purchases from them. This makes Thai saving greater than Thai domestic investmentE) All of the above
F) None of the above

Exam 18: Open-Economy Macroeconomic Models

If the U.S. has a trade deficit and the nominal exchange rate depreciates, then other things the same

Correct AnswerverifiedShow Answer

According to purchasing power parity, the nominal exchange rate between the U.S. and another country should equal the price level of foreign goods divided by the price level of U.S. goods.

Correct AnswerverifiedShow Answer

If a country has business opportunities that are relatively attractive to other countries, we would expect it to have

Correct AnswerverifiedShow Answer

The nominal exchange rate is 2 Barbados dollars per U.S. dollar. If the price of a good in Barbados is 3 Barbados dollars and the price in the U.S. is 2 U.S. dollars, what is the real exchange rate to the nearest 100th?

Correct AnswerverifiedShow Answer

U.S- based Dell sells computers to an Irish company that pays with previously obtained U.S. currency. This exchange

Correct AnswerverifiedShow Answer

Purchasing-power parity describes the forces that determine

Correct AnswerverifiedShow Answer

If a dollar buys more potatoes in the U.S. than in France, then

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 Thailand has a trade surplus, then

Correct AnswerverifiedShow Answer

If the exchange rate is .70 euro per dollar, the price of an MP3 player in Paris is 150 euros and the price of an MP3 player in the U.S. is $150, then what is the real exchange rate?

Correct AnswerverifiedShow Answer

Table 18-1 -Refer to Table 18-1. What are Bolivia's net exports?

Correct AnswerverifiedShow Answer

Which of the following is correct?

Correct AnswerverifiedShow Answer

Catherine, a citizen of Spain, decides to purchase bonds issued by Chile instead of ones issued by the United States even though the Chilean bonds have a higher risk of default. An economic reason for her decision might be that

Correct AnswerverifiedShow Answer

Domestic saving must equal domestic investment in

Correct AnswerverifiedShow Answer

In the 1970s and 1980s the U.S. dollar depreciated against the German mark and appreciated against the Italian lira because U.S. inflation was lower than in Germany but higher than in Italy.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Net capital outflow is the purchase of domestic assets by foreign residents minus the purchase of foreign assets by domestic residents.

Correct AnswerverifiedShow Answer

According to purchasing-power parity, what is the relationship between changes in price levels between two countries and changes in nominal exchange rates?

Correct AnswerverifiedPurchasing-power parity asserts that the...View AnswerShow Answer

If a country changes its corporate tax laws so that domestic businesses build and manage more business in other countries, then the net capital outflow of that country

Correct AnswerverifiedShow Answer

Other things the same, which of the following would both increase the U.S. real exchange rate with Israel?

Correct AnswerverifiedShow Answer

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Purchasing-power parity asserts that the...
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