Question 1

Why are net exports and net capital outflow always equal?

Accepted Answer

Net exports and net capital outflow are

Question 2

Arbitrage is the process of taking advantage of differences in prices of the same good by buying where the good is cheap and selling where it is expensive.

Accepted Answer

A) True 
 B)False

Question 3

If the UK price level is increasing by 3 per cent annually and the Swiss price level is increasing by 5 per cent annually, by what percentage would the pound sterling price of Swiss francs need to change according to purchasing power parity?

Accepted Answer

A)  depreciate by 5 per cent per year 
B)  appreciate by 3 per cent per year 
C)  appreciate by 5 per cent per year 
D)  depreciate by 2 per cent per year 
A)  depreciate by 5 per cent per year 
B)  appreciate by 3 per cent per year 
C)  appreciate by 5 per cent per year 
D)  depreciate by 2 per cent per year

Question 4

Which of the following would be recorded as an UK merchandise export?

Accepted Answer

A)  A UK tourist spends 10,000 euros on vacation in the south of France. 
B)  A machine shop in Nottingham purchases a grinder made in Italy. 
C)  A UK resident receives a £50 dividend on shares she owns in a business in Germany. 
D)  A French car hire firm purchases a fleet of new Honda cars built at Honda's factory in the UK. 
A)  A UK tourist spends 10,000 euros on vacation in the south of France. 
B)  A machine shop in Nottingham purchases a grinder made in Italy. 
C)  A UK resident receives a £50 dividend on shares she owns in a business in Germany. 
D)  A French car hire firm purchases a fleet of new Honda cars built at Honda's factory in the UK.

Question 5

What is the logic behind the theory of purchasing-power parity?

Accepted Answer

The logic behind purchasing-power parity

Question 6

Suppose that money supply growth continues to be higher in Turkey than it is in the United States. What does purchasing-power parity imply will happen to the real and to the nominal exchange rate?

Accepted Answer

Higher money growth leads to higher pric

Question 7

The exchange rate is the

Accepted Answer

A)  value of money. 
B)  quantity of euros, dollars, yen, etc., that are traded on currency markets. 
C)  amount of foreign currency that is used to buy goods made in your country. 
D)  number of units of a foreign currency that can be bought with one unit of your own currency. 
A)  value of money. 
B)  quantity of euros, dollars, yen, etc., that are traded on currency markets. 
C)  amount of foreign currency that is used to buy goods made in your country. 
D)  number of units of a foreign currency that can be bought with one unit of your own currency.

Question 8

If the yen/euro exchange rate rises, the euro has appreciated.

Accepted Answer

A) True 
 B)False

Question 9

When people take advantage of differences in prices for the same good by buying it where it is cheap and selling it where it is expensive, it is known as

Accepted Answer

A)  net exports. 
B)  purchasing power parity. 
C)  net capital outflow. 
D)  currency appreciation. 
E)  arbitrage. 
A)  net exports. 
B)  purchasing power parity. 
C)  net capital outflow. 
D)  currency appreciation. 
E)  arbitrage.

Question 10

Which of the following is a statement of the purchasing power parity theory of exchange rate determination? The exchange rate will adjust in the

Accepted Answer

A)  long run until the interest rate is roughly the same in both countries. 
B)  long run until real GDP is roughly the same in both countries. 
C)  long run until the average price of goods is roughly the same in both countries. 
D)  short run until the average price of goods is roughly the same in both countries. 
A)  long run until the interest rate is roughly the same in both countries. 
B)  long run until real GDP is roughly the same in both countries. 
C)  long run until the average price of goods is roughly the same in both countries. 
D)  short run until the average price of goods is roughly the same in both countries.

Question 11

Which of the following would directly increase UK net capital outflow?

Accepted Answer

A)  Rolls Royce sells an aircraft engine to Boeing of the USA. 
B)  The Japanese financial company Nomura buys shares in Vodafone. 
C)  BP builds a new oil rig in Venezuela. 
D)  Honda builds a new plant in the UK. 
A)  Rolls Royce sells an aircraft engine to Boeing of the USA. 
B)  The Japanese financial company Nomura buys shares in Vodafone. 
C)  BP builds a new oil rig in Venezuela. 
D)  Honda builds a new plant in the UK.

Question 12

If a company based in the UK prefers a strong pound (a pound with a high foreign exchange value), then the company probably exports more than it imports

Accepted Answer

A) True 
 B)False

Question 13

Which of the following products would likely be the least accurate if used to calculate purchasing power parity?

Accepted Answer

A)  Diamonds 
B)  Gold 
C)  Cars 
D)  Wheat 
E)  Dental services 
A)  Diamonds 
B)  Gold 
C)  Cars 
D)  Wheat 
E)  Dental services

Question 14

If a case of mineral water is priced at €8 in the eurozone and 720 yen in Japan, then according to the purchasing power parity theory of exchange rates, the yen/euro exchange rate should be 5,760 yen/euro.

Accepted Answer

A) True 
 B)False

Question 15

Which of the following is a reason why exchange rates may deviate from their purchasing power parity values for many years?

Accepted Answer

A)  Some goods are not tradable. 
B)  In some cases, a foreign-produced good is not a perfect substitute for a domestically produced version of the same thing. 
C)  In some markets, import quotas limit the ability of firms to agree on exchange prices. 
D)  Both a and b are correct. 
A)  Some goods are not tradable. 
B)  In some cases, a foreign-produced good is not a perfect substitute for a domestically produced version of the same thing. 
C)  In some markets, import quotas limit the ability of firms to agree on exchange prices. 
D)  Both a and b are correct.

Question 16

Italy's net capital outflow measures

Accepted Answer

A)  the flow of goods and services between Italy and other countries. 
B)  the flow of assets between Italy and other countries. 
C)  the Italian government's budget surpluses and deficits relative to those experienced in other countries. 
D)  the amount of physical capital built by Italian firms in foreign countries. 
A)  the flow of goods and services between Italy and other countries. 
B)  the flow of assets between Italy and other countries. 
C)  the Italian government's budget surpluses and deficits relative to those experienced in other countries. 
D)  the amount of physical capital built by Italian firms in foreign countries.

Question 17

Which of the following is equivalent to the trade deficit?

Accepted Answer

A)  imports ÷ exports 
B)  net capital inflow 
C)  exports + imports 
D)  net exports - imports 
A)  imports ÷ exports 
B)  net capital inflow 
C)  exports + imports 
D)  net exports - imports

Question 18

Currencies depreciate and appreciate all the time. Who gains and who loses when the Russian rouble depreciates?

Accepted Answer

A)  Europeans holding Russian roubles gain, European tourists to Russia lose. 
B)  European exporters to Russia gain, Europeans holding Russian roubles lose. 
C)  Russian exporters gain, Russian importers lose. 
D)  Russian importers gain, Russian exporters lose. 
A)  Europeans holding Russian roubles gain, European tourists to Russia lose. 
B)  European exporters to Russia gain, Europeans holding Russian roubles lose. 
C)  Russian exporters gain, Russian importers lose. 
D)  Russian importers gain, Russian exporters lose.

Question 19

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 20

If UK imports total £100 billion and UK exports total £150 billion, which of the following would be true?

Accepted Answer

A)  UK net exports equal £150 billion 
B)  The UK has a trade surplus of £50 billion. 
C)  The UK has a trade deficit of £100 billion. 
D)  The UK has a trade deficit of £50 billion. 
A)  UK net exports equal £150 billion 
B)  The UK has a trade surplus of £50 billion. 
C)  The UK has a trade deficit of £100 billion. 
D)  The UK has a trade deficit of £50 billion.

Exam 29: Open-Economy Macroeconomics: Basic Concepts

Why are net exports and net capital outflow always equal?

Arbitrage is the process of taking advantage of differences in prices of the same good by buying where the good is cheap and selling where it is expensive.

If the UK price level is increasing by 3 per cent annually and the Swiss price level is increasing by 5 per cent annually, by what percentage would the pound sterling price of Swiss francs need to change according to purchasing power parity?

Which of the following would be recorded as an UK merchandise export?

What is the logic behind the theory of purchasing-power parity?

Suppose that money supply growth continues to be higher in Turkey than it is in the United States. What does purchasing-power parity imply will happen to the real and to the nominal exchange rate?

The exchange rate is the

If the yen/euro exchange rate rises, the euro has appreciated.

When people take advantage of differences in prices for the same good by buying it where it is cheap and selling it where it is expensive, it is known as

Which of the following is a statement of the purchasing power parity theory of exchange rate determination? The exchange rate will adjust in the

Which of the following would directly increase UK net capital outflow?

If a company based in the UK prefers a strong pound (a pound with a high foreign exchange value), then the company probably exports more than it imports

Which of the following products would likely be the least accurate if used to calculate purchasing power parity?

If a case of mineral water is priced at €8 in the eurozone and 720 yen in Japan, then according to the purchasing power parity theory of exchange rates, the yen/euro exchange rate should be 5,760 yen/euro.

Which of the following is a reason why exchange rates may deviate from their purchasing power parity values for many years?

Italy's net capital outflow measures

Which of the following is equivalent to the trade deficit?

Currencies depreciate and appreciate all the time. Who gains and who loses when the Russian rouble depreciates?

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

If UK imports total £100 billion and UK exports total £150 billion, which of the following would be true?

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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