Question 1

Roger lives in the Netherlands and purchases ice skates manufactured in Canada. What is this purchase?

Accepted Answer

A)  both a Canadian and a Dutch export 
B)  both a Canadian and a Dutch import 
C)  a Canadian import and a Dutch export 
D)  a Canadian export and a Dutch import 
A)  both a Canadian and a Dutch export 
B)  both a Canadian and a Dutch import 
C)  a Canadian import and a Dutch export 
D)  a Canadian export and a Dutch import D

Question 2

When a country's central bank increases the money supply, which statement best predicts the consequences?

Accepted Answer

A)  Its price level rises, and its currency appreciates relative to other currencies in the world. 
B)  Its price level rises, and its currency depreciates relative to other currencies in the world. 
C)  Its price level falls, and its currency appreciates relative to other currencies in the world. 
D)  Its price level falls, and its currency depreciates relative to other currencies in the world. 
A)  Its price level rises, and its currency appreciates relative to other currencies in the world. 
B)  Its price level rises, and its currency depreciates relative to other currencies in the world. 
C)  Its price level falls, and its currency appreciates relative to other currencies in the world. 
D)  Its price level falls, and its currency depreciates relative to other currencies in the world. B

Question 3

What is Canada's position in world financial markets?

Accepted Answer

A)  Canada is a net debtor: foreigners own more Canadian assets than Canadians own foreign assets. 
B)  Canada is a net creditor: foreigners own more Canadian assets than Canadians own foreign assets. 
C)  Canada is a net debtor: Canadians own more foreign assets than foreigners own Canadian assets. 
D)  Canada is a net creditor: Canadians own more foreign assets than foreigners own Canadian assets. 
A)  Canada is a net debtor: foreigners own more Canadian assets than Canadians own foreign assets. 
B)  Canada is a net creditor: foreigners own more Canadian assets than Canadians own foreign assets. 
C)  Canada is a net debtor: Canadians own more foreign assets than foreigners own Canadian assets. 
D)  Canada is a net creditor: Canadians own more foreign assets than foreigners own Canadian assets. A

Question 4

The country of Freedonia has a GDP of $4000, consumption of $1500, and government purchases of $900. What does this situation imply?

Accepted Answer

A)  Investment is equal to -$1600. 
B)  Investment plus net capital outflow is equal to $1600. 
C)  Investment plus net exports is equal to $2400. 
D)  Saving is equal to -$2400. 
A)  Investment is equal to -$1600. 
B)  Investment plus net capital outflow is equal to $1600. 
C)  Investment plus net exports is equal to $2400. 
D)  Saving is equal to -$2400.

Question 5

Which of the following would be Canadian foreign direct investment?

Accepted Answer

A)  Toyota increases the size of its plant in Woodstock, Ontario 
B)  an Irish citizen buys shares of stock in Lululemon, a Canadian company 
C)  Canada Goose, a Canadian company, opens a store in China 
D)  a Canadian citizen buys shares of stock in Sony, a Japanese company 
A)  Toyota increases the size of its plant in Woodstock, Ontario 
B)  an Irish citizen buys shares of stock in Lululemon, a Canadian company 
C)  Canada Goose, a Canadian company, opens a store in China 
D)  a Canadian citizen buys shares of stock in Sony, a Japanese company

Question 6

-Refer to Table 12-1. What country's good are less expensive than Canadian goods?

Accepted Answer

A)  Bolivia 
B)  Japan 
C)  Norway 
D)  Thailand 
A)  Bolivia 
B)  Japan 
C)  Norway 
D)  Thailand

Question 7

When a country's central bank decreases the money supply, which statement best predicts the consequences?

Accepted Answer

A)  Its price level rises, and its currency appreciates relative to other currencies in the world. 
B)  Its price level falls, and its currency appreciates relative to other currencies in the world. 
C)  Its price level rises, and its currency depreciates relative to other currencies in the world. 
D)  Its price level falls, and its currency depreciates relative to other currencies in the world. 
A)  Its price level rises, and its currency appreciates relative to other currencies in the world. 
B)  Its price level falls, and its currency appreciates relative to other currencies in the world. 
C)  Its price level rises, and its currency depreciates relative to other currencies in the world. 
D)  Its price level falls, and its currency depreciates relative to other currencies in the world.

Question 8

A country sells more to people overseas than it buys from them. Which statement best identifies the effects of these transactions?

Accepted Answer

A)  The country will have a trade surplus and positive net exports. 
B)  The country will have a trade surplus and negative net exports. 
C)  The country will have a trade deficit and positive net exports. 
D)  The country will have a trade deficit and negative net exports. 
A)  The country will have a trade surplus and positive net exports. 
B)  The country will have a trade surplus and negative net exports. 
C)  The country will have a trade deficit and positive net exports. 
D)  The country will have a trade deficit and negative net exports.

Question 9

If the Canadian real exchange rate appreciates, what will most likely happen?

Accepted Answer

A)  Net exports increase, and net capital outflow decreases. 
B)  Net exports decrease, and net capital outflow increases. 
C)  Net exports and net capital outflow both increase. 
D)  Net exports and net capital outflow both decrease. 
A)  Net exports increase, and net capital outflow decreases. 
B)  Net exports decrease, and net capital outflow increases. 
C)  Net exports and net capital outflow both increase. 
D)  Net exports and net capital outflow both decrease.

Question 10

Suppose Canada sells goose down parkas to the United States. What are the effects of this transaction?

Accepted Answer

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

Question 11

What does purchasing-power parity imply?

Accepted Answer

A)  that real incomes should be the same in all countries 
B)  that the nominal exchange rates should be equal to 1 for all currencies 
C)  that the price of a standard hamburger should be the same everywhere 
D)  that the rent for an apartment should be the same everywhere 
A)  that real incomes should be the same in all countries 
B)  that the nominal exchange rates should be equal to 1 for all currencies 
C)  that the price of a standard hamburger should be the same everywhere 
D)  that the rent for an apartment should be the same everywhere

Question 12

In Canada, a cup of hot chocolate costs $6. In Australia, the same hot chocolate costs 6 Australian dollars. If the exchange rate is $2 Australian dollars per Canadian dollar, what is the real exchange rate?

Accepted Answer

A)  1/2 cup of Australian hot chocolate per cup of Canadian hot chocolate 
B)  1 cup of Australian hot chocolate per cup of Canadian hot chocolate 
C)  2 cups of Australian hot chocolate per cup of Canadian hot chocolate 
D)  3 cups of Australian hot chocolate per cup of Canadian hot chocolate 
A)  1/2 cup of Australian hot chocolate per cup of Canadian hot chocolate 
B)  1 cup of Australian hot chocolate per cup of Canadian hot chocolate 
C)  2 cups of Australian hot chocolate per cup of Canadian hot chocolate 
D)  3 cups of Australian hot chocolate per cup of Canadian hot chocolate

Question 13

What would a depreciation of the Canadian real exchange rate induce Canadian consumers to buy?

Accepted Answer

A)  fewer domestic goods and foreign goods 
B)  more domestic goods, but fewer foreign goods 
C)  fewer domestic goods, but more foreign goods 
D)  more domestic goods and foreign goods 
A)  fewer domestic goods and foreign goods 
B)  more domestic goods, but fewer foreign goods 
C)  fewer domestic goods, but more foreign goods 
D)  more domestic goods and foreign goods

Question 14

Which of the following best describes net capital outflow in Canada from 1961 to about 1998?

Accepted Answer

A)  small but always positive 
B)  small and sometimes negative and sometimes positive 
C)  large and positive 
D)  large and negative in all but three years 
A)  small but always positive 
B)  small and sometimes negative and sometimes positive 
C)  large and positive 
D)  large and negative in all but three years

Question 15

Suppose the price level in Canada was P = 124 last year; it is up by 3 points this year. In the U.S., the price level was 112 last year; it is up by 2 points this year. The exchange rate was US$0.96 per C$1 last year. (For part a, approximate all results to two decimals.)
a) Compare the rate of change in the exchange rate with the difference between the foreign and domestic inflation rates. Are they equal?
b) In theory, the rate of change in the nominal exchange rate should be about the same as the inflation difference. Redo the calculations from part a, retaining this time at least four decimals in your intermediate results. Does your answer to the question in part a change?
c) What have you learned from this exercise?

Accepted Answer

a) The inflation rate in Canada = (127 -

Question 16

If the Canadian real exchange rate appreciates, what will most likely happen?

Accepted Answer

A)  Exports increase and imports decrease. 
B)  Exports decrease and imports increase. 
C)  Exports and imports both increase. 
D)  Exports and imports both decrease. 
A)  Exports increase and imports decrease. 
B)  Exports decrease and imports increase. 
C)  Exports and imports both increase. 
D)  Exports and imports both decrease.

Question 17

What does purchasing-power parity explain?

Accepted Answer

A)  It explains prices in the short run. 
B)  It explains prices in the long run. 
C)  It explains exchange rates in the short run. 
D)  It explains exchange rates in the long run. 
A)  It explains prices in the short run. 
B)  It explains prices in the long run. 
C)  It explains exchange rates in the short run. 
D)  It explains exchange rates in the long run.

Question 18

When making investment decisions, which of the following are investors most likely to do?

Accepted Answer

A)  They compare the real interest rates offered on different bonds. 
B)  They compare the nominal, but not the real, interest rates offered on different bonds. 
C)  They purchase the highest-priced bond available. 
D)  They purchase the highest-interest bonds available. 
A)  They compare the real interest rates offered on different bonds. 
B)  They compare the nominal, but not the real, interest rates offered on different bonds. 
C)  They purchase the highest-priced bond available. 
D)  They purchase the highest-interest bonds available.

Question 19

According to the theory of purchasing-power parity, the real exchange rate defined as foreign goods per unit of Canadian goods will equal the domestic price level divided by the foreign price level.

Accepted Answer

A) True 
 B)False

Question 20

John, a Canadian citizen, opens up a 70s-style dance club in Tokyo. What is this an example of?

Accepted Answer

A)  Canadian exports 
B)  Canadian imports 
C)  Canadian foreign portfolio investment 
D)  Canadian foreign direct investment 
A)  Canadian exports 
B)  Canadian imports 
C)  Canadian foreign portfolio investment 
D)  Canadian foreign direct investment

Roger lives in the Netherlands and purchases ice skates manufactured in Canada. What is this purchase?

When a country's central bank increases the money supply, which statement best predicts the consequences?

What is Canada's position in world financial markets?

The country of Freedonia has a GDP of $4000, consumption of $1500, and government purchases of $900. What does this situation imply?

Which of the following would be Canadian foreign direct investment?

-Refer to Table 12-1. What country's good are less expensive than Canadian goods?

When a country's central bank decreases the money supply, which statement best predicts the consequences?

A country sells more to people overseas than it buys from them. Which statement best identifies the effects of these transactions?

If the Canadian real exchange rate appreciates, what will most likely happen?

Suppose Canada sells goose down parkas to the United States. What are the effects of this transaction?

What does purchasing-power parity imply?

In Canada, a cup of hot chocolate costs $6. In Australia, the same hot chocolate costs 6 Australian dollars. If the exchange rate is $2 Australian dollars per Canadian dollar, what is the real exchange rate?

What would a depreciation of the Canadian real exchange rate induce Canadian consumers to buy?

Which of the following best describes net capital outflow in Canada from 1961 to about 1998?

If the Canadian real exchange rate appreciates, what will most likely happen?

What does purchasing-power parity explain?

When making investment decisions, which of the following are investors most likely to do?

According to the theory of purchasing-power parity, the real exchange rate defined as foreign goods per unit of Canadian goods will equal the domestic price level divided by the foreign price level.

John, a Canadian citizen, opens up a 70s-style dance club in Tokyo. What is this an example of?

Ten Principles of Economics

Thinking Like an Economist

Interdependence and the Gains From Trade

The Market Forces of Supply and Demand

Measuring a Nations Income

Measuring the Cost of Living

Production and Growth

Saving, Investment, and the Financial System

Unemployment and Its Natural Rate

The Monetary System

Money Growth and Inflation

A Macroeconomic Theory of the Small Open Economy

Aggregate Demand and Aggregate Supply

The Influence of Monetary Policy on Aggregate Demand

The Influence of Fiscal Policy on Aggregate Demand

The Short-Run Tradeoff Between Inflation and Unemployment

Five Debates Over Macroeconomic Policy

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Exam 12: Open-Economy Macroeconomics: Basic Concepts

Roger lives in the Netherlands and purchases ice skates manufactured in Canada. What is this purchase?

When a country's central bank increases the money supply, which statement best predicts the consequences?

What is Canada's position in world financial markets?

The country of Freedonia has a GDP of $4000, consumption of $1500, and government purchases of $900. What does this situation imply?

Which of the following would be Canadian foreign direct investment?

-Refer to Table 12-1. What country's good are less expensive than Canadian goods?

When a country's central bank decreases the money supply, which statement best predicts the consequences?

A country sells more to people overseas than it buys from them. Which statement best identifies the effects of these transactions?

If the Canadian real exchange rate appreciates, what will most likely happen?

Suppose Canada sells goose down parkas to the United States. What are the effects of this transaction?

What does purchasing-power parity imply?

In Canada, a cup of hot chocolate costs $6. In Australia, the same hot chocolate costs 6 Australian dollars. If the exchange rate is $2 Australian dollars per Canadian dollar, what is the real exchange rate?

What would a depreciation of the Canadian real exchange rate induce Canadian consumers to buy?

Which of the following best describes net capital outflow in Canada from 1961 to about 1998?

If the Canadian real exchange rate appreciates, what will most likely happen?

What does purchasing-power parity explain?

When making investment decisions, which of the following are investors most likely to do?

According to the theory of purchasing-power parity, the real exchange rate defined as foreign goods per unit of Canadian goods will equal the domestic price level divided by the foreign price level.

John, a Canadian citizen, opens up a 70s-style dance club in Tokyo. What is this an example of?

Ten Principles of Economics

Thinking Like an Economist

Interdependence and the Gains From Trade

The Market Forces of Supply and Demand

Measuring a Nations Income

Measuring the Cost of Living

Production and Growth

Saving, Investment, and the Financial System

Unemployment and Its Natural Rate

The Monetary System

Money Growth and Inflation

A Macroeconomic Theory of the Small Open Economy

Aggregate Demand and Aggregate Supply

The Influence of Monetary Policy on Aggregate Demand

The Influence of Fiscal Policy on Aggregate Demand

The Short-Run Tradeoff Between Inflation and Unemployment

Five Debates Over Macroeconomic Policy

Filters