Question 1

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 rate.

Question 2

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

Accepted Answer

A)   A U.S. legal office opens a branch office in Holland.
B)   Erica, a U.S. resident, buys bonds issued by the Swiss government.
C)   Both A and B are examples of U.S. portfolio investment.
D)   Neither A nor B are examples of U.S. portfolio investment.

Question 3

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.

Question 4

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.

Question 5

If you go to the bank and notice that a dollar buys more Japanese yen than it used to, then the dollar has

Accepted Answer

A)   appreciated. Other things the same, the appreciation would make Americans less likely to travel to Japan.
B)   appreciated. Other things the same, the appreciation would make Americans more likely to travel to Japan.
C)   depreciated. Other things the same, the depreciation would make Americans less likely to travel to Japan.
D)   depreciated. Other things the same, the depreciation would make Americans more likely to travel to Japan.

Question 6

If U.S. exports are $150 billion and U.S. imports are $100 billion, which of the following is correct?

Accepted Answer

A)   The U.S. has a trade surplus of $100 billion.
B)   The U.S. has a trade surplus of $50 billion.
C)   The U.S. has a trade deficit of $100 billion.
D)   The U.S. has a trade deficit of $50 billion.

Question 7

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

Accepted Answer

A)   decreases U.S. net capital outflow.
B)   increases U.S. net capital outflow by more than the value of the bond.
C)   increases U.S. net capital outflow by the value of the bond.
D)   does not change U.S. net capital outflow.

Question 8

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 9

Under what circumstances does purchasing-power parity explain how exchange rates are determined, and why is it not completely accurate?

Accepted Answer

Purchasing-power parity works well in he...

Question 10

According to purchasing-power parity, if it took 1,100 Korean Won to buy a dollar this year, but it took 1,000 to buy it last year, then the dollar has

Accepted Answer

A)   appreciated, indicating inflation was higher in the U.S. than in Korea.
B)   appreciated indicating inflation was lower in the U.S. than in Korea.
C)   depreciated indicating inflation was higher in the U.S. than in Korea.
D)   depreciated indicating inflation was lower in the U.S. than in Korea.

Question 11

Ivan, a Russian citizen, sells several hundred cases of caviar to a restaurant chain in the United States. By itself, this sale

Accepted Answer

A)   increases U.S. net exports and decreases Russian net exports.
B)   increases U.S. net exports and has no effect on Russian net exports.
C)   decreases U.S. net exports and increases Russian net exports.
D)   decreases U.S. net exports and has no effect on Russian net exports.

Question 12

A country has $3 billion of domestic investment and net exports of $2 billion. What is its saving?

Accepted Answer

A)   $1 billion
B)   $2billion
C)   $3 billion
D)   $5 billion

Question 13

Which of the following both reduce net exports?

Accepted Answer

A)   exports rise, imports rise
B)   exports rise, imports fall
C)   exports fall, imports rise
D)   exports fall, imports fall

Question 14

Last year a country had exports of $100 billion, imports of $70 billion, and purchased $60 billion worth of foreign assets. What was the value of domestic assets purchased by foreigners?

Accepted Answer

A)   $70 billion
B)   $40 billion
C)   $30 billion
D)   $10 billion

Question 15

Paine Pharmaceuticals produces medicines in the U.S. Its overseas sales

Accepted Answer

A)   are an export of the U.S. and increase U.S. net exports.
B)   are an export of the U.S. and decrease U.S. net exports.
C)   are an import of the U.S. and increase U.S. net exports.
D)   are an import of the U.S. and decrease U.S. net exports.

Question 16

According to purchasing-power parity, when a country's central bank decreases the money supply, a unit of money

Accepted Answer

A)   gains value both in terms of the domestic goods and services it can buy and in terms of the foreign 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 foreign 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 foreign currency it can buy.
D)   loses value both in terms of the domestic goods and services it can buy and in terms of the foreign currency it can buy.

Question 17

A country recently had GDP of $1,200 billion. Its consumption expenditures were $700 billion, its government spent $200 billion, and it had domestic investment of $175 billion. What was the value of this country's net capital outflow?
Show your work.

Accepted Answer

Y = C + I + G + NX
$1,200 bill...

Question 18

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 correct

Question 19

Purchasing-power parity theory does not hold at all times because

Accepted Answer

A)   many goods are not easily transported.
B)   the same goods produced in different countries may be imperfect substitutes for each other.
C)   Both a and b are correct.
D)   prices are different across countries.

Question 20

A rational investor will always purchase the bond that pays the highest real interest rate.

Accepted Answer

A) True 
 B)False

Exam 13: Open-Economy Macroeconomics: Basic Concepts

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

Correct AnswerverifiedShow Answer

Ivan, a Russian citizen, sells several hundred cases of caviar to a restaurant chain in the United States. By itself, this sale

Correct AnswerverifiedShow Answer

Paine Pharmaceuticals produces medicines in the U.S. Its overseas sales

Correct AnswerverifiedShow Answer

Under what circumstances does purchasing-power parity explain how exchange rates are determined, and why is it not completely accurate?

Correct AnswerverifiedPurchasing-power parity works well in he...View AnswerShow Answer

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Which of the following both reduce net exports?

Correct AnswerverifiedShow Answer

A rational investor will always purchase the bond that pays the highest real interest rate.

Correct AnswerverifiedShow Answer

A country has $3 billion of domestic investment and net exports of $2 billion. What is its saving?

Correct AnswerverifiedShow Answer

Last year a country had exports of $100 billion, imports of $70 billion, and purchased $60 billion worth of foreign assets. What was the value of domestic assets purchased by foreigners?

Correct AnswerverifiedShow Answer

According to purchasing-power parity, if it took 1,100 Korean Won to buy a dollar this year, but it took 1,000 to buy it last year, then the dollar has

Correct AnswerverifiedShow Answer

Purchasing-power parity theory does not hold at all times because

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

According to purchasing-power parity, when a country's central bank decreases the money supply, a unit of money

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

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

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

A country recently had GDP of $1,200 billion. Its consumption expenditures were $700 billion, its government spent $200 billion, and it had domestic investment of $175 billion. What was the value of this country's net capital outflow? Show your work.

Correct AnswerverifiedY = C + I + G + NX$1,200 bill...View AnswerShow Answer

If U.S. exports are $150 billion and U.S. imports are $100 billion, which of the following is correct?

Correct AnswerverifiedShow Answer

If you go to the bank and notice that a dollar buys more Japanese yen than it used to, then the dollar has

Correct AnswerverifiedShow Answer

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Purchasing-power parity works well in he...
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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
verified

Correct Answer
verified
Y = C + I + G + NX
$1,200 bill...
View Answer

Correct Answer
verified

Correct Answer
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