Question 1

When the euro depreciates against the pound,

Accepted Answer

A)  the number of pounds per euro will increase. 
B)  tourism from eurozone countries to London will increase. 
C)  UK exports to Euroland will increase. 
D)  the price of imported Italian olive oil in the UK will fall. 
A)  the number of pounds per euro will increase. 
B)  tourism from eurozone countries to London will increase. 
C)  UK exports to Euroland will increase. 
D)  the price of imported Italian olive oil in the UK will fall. D

Question 2

Which of the following statements is not true about the relationship between national saving, investment, and net capital outflow?

Accepted Answer

A)  An increase in saving associated with an equal increase in net capital outflow leaves domestic investment unchanged. 
B)  For a given amount of saving, an increase in net capital outflow must decrease domestic investment. 
C)  For a given amount of saving, a decrease in net capital outflow must decrease domestic investment. 
D)  Saving is the sum of investment and net capital outflow. 
A)  An increase in saving associated with an equal increase in net capital outflow leaves domestic investment unchanged. 
B)  For a given amount of saving, an increase in net capital outflow must decrease domestic investment. 
C)  For a given amount of saving, a decrease in net capital outflow must decrease domestic investment. 
D)  Saving is the sum of investment and net capital outflow. C

Question 3

Suppose the nominal exchange rate between the Japanese yen and the UK pound is 100 yen per pound. Further, suppose that a kilogram of rice costs £2 in the UK and 250 yen in Japan. What is the real exchange rate between Japan and the UK?

Accepted Answer

A)  0.5 kilograms of Japanese rice per kilogram of UK rice 
B)  0.8 kilograms of Japanese rice per kilogram of UK rice 
C)  1.25 kilograms of Japanese rice per kilogram of UK rice 
D)  2.5 kilograms of Japanese rice per kilogram of UK rice 
E)  none of these answers 
A)  0.5 kilograms of Japanese rice per kilogram of UK rice 
B)  0.8 kilograms of Japanese rice per kilogram of UK rice 
C)  1.25 kilograms of Japanese rice per kilogram of UK rice 
D)  2.5 kilograms of Japanese rice per kilogram of UK rice 
E)  none of these answers B

Question 4

Suppose the same basket of goods costs $100 in the USA and £80 in Britain. According to PPP, if the prices do not change, what will be the exchange rate?

Accepted Answer

A)  $5 per pound 
B)  $4 per pound 
C)  $1.25 per pound 
D)  $0.80 per pound 
A)  $5 per pound 
B)  $4 per pound 
C)  $1.25 per pound 
D)  $0.80 per pound

Question 5

If the exchange rate changes from 3 Brazilian reals per euro to 4 reals per euro,

Accepted Answer

A)  none of these answers 
B)  the euro has appreciated. 
C)  the euro has depreciated. 
D)  the euro could have appreciated or depreciated depending what happened to relative prices in Brazil and the Eurozone countries. 
A)  none of these answers 
B)  the euro has appreciated. 
C)  the euro has depreciated. 
D)  the euro could have appreciated or depreciated depending what happened to relative prices in Brazil and the Eurozone countries.

Question 6

Suppose the inflation rate over the last 20 years has been 10 per cent in the UK, 7 per cent in Japan, and 3 per cent in the USA. If purchasing power parity holds, which of the following statements is true? Over this period,

Accepted Answer

A)  the value of the dollar should have fallen compared to the value of the pound and the yen. 
B)  none of these answers 
C)  the yen should have fallen in value compared to the pound and risen compared to the dollar. 
D)  the value of the pound should have risen compared to the value of the yen and the dollar. 
E)  the yen should have risen in value compared to the pound and fallen compared to the dollar. 
A)  the value of the dollar should have fallen compared to the value of the pound and the yen. 
B)  none of these answers 
C)  the yen should have fallen in value compared to the pound and risen compared to the dollar. 
D)  the value of the pound should have risen compared to the value of the yen and the dollar. 
E)  the yen should have risen in value compared to the pound and fallen compared to the dollar.

Question 7

Which of the following statements is true about a country with a trade deficit?

Accepted Answer

A)  Net exports are negative. 
B)  Net capital outflow must be positive. 
C)  Exports exceed imports. 
D)  Net exports are positive. 
E)  none of these answers 
A)  Net exports are negative. 
B)  Net capital outflow must be positive. 
C)  Exports exceed imports. 
D)  Net exports are positive. 
E)  none of these answers

Question 8

If purchasing power parity holds, the real exchange rate is always equal to 1.

Accepted Answer

A) True 
 B)False

Question 9

For a given amount of UK national saving, an increase in UK net capital outflow decreases UK domestic investment.

Accepted Answer

A) True 
 B)False

Question 10

The most accurate measure of the international value of the UK pound is

Accepted Answer

A)  an exchange rate index that accounts for many exchange rates. 
B)  the yen/pound exchange rate. 
C)  the pound/dollar exchange rate. 
D)  the euro/pound exchange rate. 
E)  the Swiss franc/pound exchange rate. 
A)  an exchange rate index that accounts for many exchange rates. 
B)  the yen/pound exchange rate. 
C)  the pound/dollar exchange rate. 
D)  the euro/pound exchange rate. 
E)  the Swiss franc/pound exchange rate.

Question 11

If one country has a lower inflation rate than other countries, its

Accepted Answer

A)  currency tends to appreciate. 
B)  currency tends to depreciate. 
C)  real interest rate will be higher than in other countries. 
D)  nominal interest rate will be higher than in other countries. 
A)  currency tends to appreciate. 
B)  currency tends to depreciate. 
C)  real interest rate will be higher than in other countries. 
D)  nominal interest rate will be higher than in other countries.

Question 12

If Japan exports more than it imports,

Accepted Answer

A)  Japan's net exports are negative. 
B)  Japan is running a trade deficit. 
C)  Japan's net capital outflow must be positive. 
D)  Japan's net capital outflow must be negative. 
A)  Japan's net exports are negative. 
B)  Japan is running a trade deficit. 
C)  Japan's net capital outflow must be positive. 
D)  Japan's net capital outflow must be negative.

Question 13

When more euros are needed to buy a unit of Japanese yen, the euro

Accepted Answer

A)  has deflated. 
B)  has inflated. 
C)  has appreciated. 
D)  has depreciated. 
A)  has deflated. 
B)  has inflated. 
C)  has appreciated. 
D)  has depreciated.

Question 14

If the nominal exchange rate between UK pounds and US dollars is £0.50 per $1.00, how many dollars can you get for a pound?

Accepted Answer

A)  $0.50 
B)  $1.00 
C)  $1.50 
D)  $2.00 
E)  none of these answers 
A)  $0.50 
B)  $1.00 
C)  $1.50 
D)  $2.00 
E)  none of these answers

Question 15

Other things the same, if a country saves less, then

Accepted Answer

A)  net capital outflow rises, so net exports rise. 
B)  net capital outflow rises, so net exports fall. 
C)  net capital outflow falls, so net exports rise. 
D)  net capital outflow falls, so net exports fall. 
A)  net capital outflow rises, so net exports rise. 
B)  net capital outflow rises, so net exports fall. 
C)  net capital outflow falls, so net exports rise. 
D)  net capital outflow falls, so net exports fall.

Question 16

If the exchange rate was 1.50 US dollars per euro, that would mean that Europeans would have to spend __________ to buy a $12 watch in New York City.

Accepted Answer

A)  €8 
B)  €15 
C)  €1.5 
D)  €12 
A)  €8 
B)  €15 
C)  €1.5 
D)  €12

Question 17

If a European county has €25 billion in imports, €15 billion in exports, and sells €20 billion of assets to foreigners, how many foreign assets do domestic residents purchase?

Accepted Answer

A)  €5 billion 
B)  €10 billion 
C)  €30 billion 
D)  None of the above are correct. 
A)  €5 billion 
B)  €10 billion 
C)  €30 billion 
D)  None of the above are correct.

Question 18

Suppose a cup of coffee is €1.50 in Germany and £0.50 in the UK. If purchasing power parity holds, what is the nominal exchange rate between euros and pounds?

Accepted Answer

A)  €0.33 per pound 
B)  €1.50 per pound 
C)  €0.75 per pound 
D)  €3 per pound 
A)  €0.33 per pound 
B)  €1.50 per pound 
C)  €0.75 per pound 
D)  €3 per pound

Question 19

For any country, net exports are always equal to net capital outflow because every international transaction involves an exchange of an equal value of some combination of goods and assets.

Accepted Answer

A) True 
 B)False

Question 20

A fall in the euro's nominal exchange rate in terms of US dollars

Accepted Answer

A)  will always lead to a fall in the real exchange rate of the euro in terms of US dollars. 
B)  may be offset by a rise in the price level in the eurozone so that the real exchange rate of the euro in terms of US dollars is unchanged. 
C)  will always make US imports into the eurozone countries more expensive relative to goods produced in the eurozone. 
D)  may make the eurozone a less affordable holiday destination for US residents. 
A)  will always lead to a fall in the real exchange rate of the euro in terms of US dollars. 
B)  may be offset by a rise in the price level in the eurozone so that the real exchange rate of the euro in terms of US dollars is unchanged. 
C)  will always make US imports into the eurozone countries more expensive relative to goods produced in the eurozone. 
D)  may make the eurozone a less affordable holiday destination for US residents.

Exam 29: Open-Economy Macroeconomics: Basic Concepts

When the euro depreciates against the pound,

Which of the following statements is not true about the relationship between national saving, investment, and net capital outflow?

Suppose the nominal exchange rate between the Japanese yen and the UK pound is 100 yen per pound. Further, suppose that a kilogram of rice costs £2 in the UK and 250 yen in Japan. What is the real exchange rate between Japan and the UK?

Suppose the same basket of goods costs $100 in the USA and £80 in Britain. According to PPP, if the prices do not change, what will be the exchange rate?

If the exchange rate changes from 3 Brazilian reals per euro to 4 reals per euro,

Suppose the inflation rate over the last 20 years has been 10 per cent in the UK, 7 per cent in Japan, and 3 per cent in the USA. If purchasing power parity holds, which of the following statements is true? Over this period,

Which of the following statements is true about a country with a trade deficit?

If purchasing power parity holds, the real exchange rate is always equal to 1.

For a given amount of UK national saving, an increase in UK net capital outflow decreases UK domestic investment.

The most accurate measure of the international value of the UK pound is

If one country has a lower inflation rate than other countries, its

If Japan exports more than it imports,

When more euros are needed to buy a unit of Japanese yen, the euro

If the nominal exchange rate between UK pounds and US dollars is £0.50 per $1.00, how many dollars can you get for a pound?

Other things the same, if a country saves less, then

If the exchange rate was 1.50 US dollars per euro, that would mean that Europeans would have to spend __________ to buy a $12 watch in New York City.

If a European county has €25 billion in imports, €15 billion in exports, and sells €20 billion of assets to foreigners, how many foreign assets do domestic residents purchase?

Suppose a cup of coffee is €1.50 in Germany and £0.50 in the UK. If purchasing power parity holds, what is the nominal exchange rate between euros and pounds?

For any country, net exports are always equal to net capital outflow because every international transaction involves an exchange of an equal value of some combination of goods and assets.

A fall in the euro's nominal exchange rate in terms of US dollars

What Is Economics

Thinking Like an Economist

The Market Forces of Supply and Demand

Elasticity and Its Applications

Background to Demand: Consumer Choices

Background to Supply: Firms in Competitive Markets

Consumers, Producers and the Efficiency of Markets

Supply, Demand and Government Policies

The Tax System

Public Goods, Common Resources and Merit Goods

Market Failure and Externalities

Information and Behavioural Economics

Firms Production Decisions

Market Structures I: Monopoly

Market Structures Ii: Monopolistic Competition

Market Structures Iii: Oligopoly

The Economics of Factor Markets

Income Inequality and Poverty

Interdependence and the Gains From Trade

Measuring a Nations Well-Being

Measuring the Cost of Living

Production and Growth

Unemployment

Saving, Investment and the Financial System

The Basic Tools of Finance

Issues in Financial Markets

The Monetary System

Money Growth and Inflation

A Macroeconomic Theory of the Open Economy

Business Cycles

Keynesian Economics and the Is-Lm Analysis

Aggregate Demand and Aggregate Supply

The Influence of Monetary and Fiscal Policy on Aggregate Demand

The Short-Run Trade-Off Between Inflation and Unemployment

Supply-Side Policies

Common Currency Areas and European Monetary Union

The Financial Crisis and Sovereign Debt

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