Question 1

Assume the exchange rate is about 292 Kazakhstan tenge per dollar. According to purchasing-power parity, when would this exchange rate rise?

Accepted Answer

A)  if the price level in either Canada or Kazakhstan rose 
B)  if the price level in either Canada or Kazakhstan fell 
C)  if the price level in Canada rose or the price level in Kazakhstan fell 
D)  if the price level in Canada fell or the price level in Kazakhstan rose 
A)  if the price level in either Canada or Kazakhstan rose 
B)  if the price level in either Canada or Kazakhstan fell 
C)  if the price level in Canada rose or the price level in Kazakhstan fell 
D)  if the price level in Canada fell or the price level in Kazakhstan rose

Question 2

On behalf of your firm, you make frequent trips to Hong Kong. You notice that you always have to pay more dollars to get enough local currency to get your suits dry-cleaned than you have to pay to get your suits dry-cleaned in Canada. Is this consistent with purchasing-power parity?

Accepted Answer

A)  No, but it might be explained by limited opportunities for arbitrage across international borders. 
B)  Yes, if prices in Hong Kong are rising more rapidly than prices in Canada. 
C)  Yes, if prices in Hong Kong are rising less rapidly than prices in Canada. 
D)  No, but it can be explained by arbitrage across international borders. 
A)  No, but it might be explained by limited opportunities for arbitrage across international borders. 
B)  Yes, if prices in Hong Kong are rising more rapidly than prices in Canada. 
C)  Yes, if prices in Hong Kong are rising less rapidly than prices in Canada. 
D)  No, but it can be explained by arbitrage across international borders.

Question 3

In which situation must national saving rise?

Accepted Answer

A)  Both domestic investment and net capital outflow increase. 
B)  Domestic investment increases, and net capital outflow decreases. 
C)  Domestic investment decreases, and net capital outflow increases. 
D)  Net exports decrease, and domestic investment is unchanged. 
A)  Both domestic investment and net capital outflow increase. 
B)  Domestic investment increases, and net capital outflow decreases. 
C)  Domestic investment decreases, and net capital outflow increases. 
D)  Net exports decrease, and domestic investment is unchanged.

Question 4

An American pharmacy buys drugs from a Canadian company and pays for them with American dollars. What are the effects of this transaction?

Accepted Answer

A)  It increases American net exports and increases Canadian capital outflow. 
B)  It increases American net exports and decreases Canadian capital outflow. 
C)  It decreases American net exports and increases Canadian capital outflow. 
D)  It decreases American net exports and decreases Canadian capital outflow. 
A)  It increases American net exports and increases Canadian capital outflow. 
B)  It increases American net exports and decreases Canadian capital outflow. 
C)  It decreases American net exports and increases Canadian capital outflow. 
D)  It decreases American net exports and decreases Canadian capital outflow.

Question 5

According to purchasing-power parity, if prices in Canada increase by a smaller percentage than prices in Kenya, how does the exchange rate change?

Accepted Answer

A)  The real exchange rate, defined as Kenyan goods per unit of Canadian goods, rises. 
B)  The real exchange rate, defined as Kenyan goods per unit of Canadian goods, falls. 
C)  The nominal exchange rate, defined as Kenyan currency per dollar, rises. 
D)  The nominal exchange rate, defined as Kenyan currency per dollar, falls. 
A)  The real exchange rate, defined as Kenyan goods per unit of Canadian goods, rises. 
B)  The real exchange rate, defined as Kenyan goods per unit of Canadian goods, falls. 
C)  The nominal exchange rate, defined as Kenyan currency per dollar, rises. 
D)  The nominal exchange rate, defined as Kenyan currency per dollar, falls.

Question 6

Hungary buys railroad engines from a Canadian firm and pays for them with forints (Hungarian currency). What happens to Canadian net exports and net foreign investment due to this transaction?

Accepted Answer

A)  It increases both Canadian net exports and Canadian net foreign investment. 
B)  It decreases both Canadian net exports and Canadian net foreign investment. 
C)  It increases Canadian net exports and decreases Canadian net foreign investment. 
D)  It decreases Canadian net exports and increases Canadian net foreign investment. 
A)  It increases both Canadian net exports and Canadian net foreign investment. 
B)  It decreases both Canadian net exports and Canadian net foreign investment. 
C)  It increases Canadian net exports and decreases Canadian net foreign investment. 
D)  It decreases Canadian net exports and increases Canadian net foreign investment.

Question 7

Suppose the nominal exchange rate is 95 yen/dollar, the price of beef in Japan is ¥1200, and the price of beef in Canada is $12. Using the purchasing-power parity theory, approximately how much should you expect the exchange rate to change by?

Accepted Answer

A)  -12.6 yen/dollar 
B)  -5 yen/dollar 
C)  5 yen/dollar 
D)  12.6 yen/dollar 
A)  -12.6 yen/dollar 
B)  -5 yen/dollar 
C)  5 yen/dollar 
D)  12.6 yen/dollar

Question 8

How do we find the real exchange rate from the nominal exchange rate?

Accepted Answer

Real exchange rate =

Question 9

What type of economy does Canada have?

Accepted Answer

A)  a large closed economy 
B)  a small closed economy 
C)  a large open economy 
D)  a small open economy 
A)  a large closed economy 
B)  a small closed economy 
C)  a large open economy 
D)  a small open economy

Question 10

If the exchange rate changes from 57 Indian rupee per dollar to 53 Indian rupee per dollar, what has happened to the dollar?

Accepted Answer

A)  It has appreciated and so buys more Indian goods. 
B)  It has appreciated and so buys fewer Indian goods. 
C)  It has depreciated and so buys more Indian goods. 
D)  It has depreciated and so buys fewer Indian goods. 
A)  It has appreciated and so buys more Indian goods. 
B)  It has appreciated and so buys fewer Indian goods. 
C)  It has depreciated and so buys more Indian goods. 
D)  It has depreciated and so buys fewer Indian goods.

Question 11

A U.S. textbook publishing company sells texts to Canadian students. What are the effects of these sales?

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 12

Suppose that in 2015 you could purchase about 6 Egyptian pounds for a dollar. In 2019, you could purchase about 13 Egyptian pounds for a dollar. Which statement best explains the changes that could have taken place between 2015 and 2019?

Accepted Answer

A)  The dollar appreciated, increasing the trade balance. 
B)  The dollar depreciated, decreasing the trade balance. 
C)  The dollar appreciated, decreasing the trade balance. 
D)  The dollar depreciated, increasing the trade balance. 
A)  The dollar appreciated, increasing the trade balance. 
B)  The dollar depreciated, decreasing the trade balance. 
C)  The dollar appreciated, decreasing the trade balance. 
D)  The dollar depreciated, increasing the trade balance.

Question 13

Which of the following would be Canadian foreign direct investment?

Accepted Answer

A)  Your Canadian-based mutual fund buys shares of stock in Eastern European companies. 
B)  A Canadian citizen opens a Tim Hortons franchise in Hong Kong. 
C)  A Swiss bank buys a Canadian government bond. 
D)  A German tractor factory opens a plant in Victoria, British Columbia. 
A)  Your Canadian-based mutual fund buys shares of stock in Eastern European companies. 
B)  A Canadian citizen opens a Tim Hortons franchise in Hong Kong. 
C)  A Swiss bank buys a Canadian government bond. 
D)  A German tractor factory opens a plant in Victoria, British Columbia.

Question 14

Suppose that a kilogram can of coffee costs about $16 in Canada. Suppose the exchange rate is 0.7 euro per dollar and that a kilogram can of coffee in Belgium costs about 5.6 euros. What is the real exchange rate?

Accepted Answer

A)  3/4 cans of Belgian coffee per can of Canadian coffee 
B)  2 cans of Belgian coffee per can of Canadian coffee 
C)  2.45 cans of Belgian coffee per can of Canadian coffee 
D)  3.5 cans of Belgian coffee per can of Canadian coffee 
A)  3/4 cans of Belgian coffee per can of Canadian coffee 
B)  2 cans of Belgian coffee per can of Canadian coffee 
C)  2.45 cans of Belgian coffee per can of Canadian coffee 
D)  3.5 cans of Belgian coffee per can of Canadian coffee

Question 15

How has the introduction of the euro affected arbitrage?

Accepted Answer

A)  It has eliminated the possibility of arbitrage within Europe. 
B)  It has eliminated the possibility of arbitrage based on exchange-rate differences within Europe. 
C)  It has increased the possibilities for arbitrage within Europe. 
D)  It has not affected the possibilities for arbitrage within Europe. 
A)  It has eliminated the possibility of arbitrage within Europe. 
B)  It has eliminated the possibility of arbitrage based on exchange-rate differences within Europe. 
C)  It has increased the possibilities for arbitrage within Europe. 
D)  It has not affected the possibilities for arbitrage within Europe.

Question 16

Which of the following shows that any trade transaction must have a financial counterpart?

Accepted Answer

A)  NCO = NX 
B)  NCO + I = NX 
C)  NX + NCO = Y 
D)  Y = NCO - I 
A)  NCO = NX 
B)  NCO + I = NX 
C)  NX + NCO = Y 
D)  Y = NCO - I

Question 17

What is the formula for a closed economy's GDP?

Accepted Answer

A)  Y = C + I + G 
B)  Y = (C - T) + I + G 
C)  Y = C + I + G + S 
D)  Y = C + I + G + NX 
A)  Y = C + I + G 
B)  Y = (C - T) + I + G 
C)  Y = C + I + G + S 
D)  Y = C + I + G + NX

Question 18

When a company from South Korea builds an automobile factory in Canada, the South Korean firm has engaged in foreign direct investment.

Accepted Answer

A) True 
 B)False

Question 19

Canadian exports make up less than 20 percent of GDP.

Accepted Answer

A) True 
 B)False

Question 20

Alberto, an Italian citizen, opens and operates a motorcycle parts plant in Canada. What is this an example of?

Accepted Answer

A)  Italian foreign direct investment that increases Italian net capital outflow 
B)  Italian foreign direct investment that decreases Italian net capital outflow 
C)  Italian foreign portfolio investment that increases Italian net capital outflow 
D)  Italian foreign portfolio investment that decreases Italian net capital outflow 
A)  Italian foreign direct investment that increases Italian net capital outflow 
B)  Italian foreign direct investment that decreases Italian net capital outflow 
C)  Italian foreign portfolio investment that increases Italian net capital outflow 
D)  Italian foreign portfolio investment that decreases Italian net capital outflow

Assume the exchange rate is about 292 Kazakhstan tenge per dollar. According to purchasing-power parity, when would this exchange rate rise?

On behalf of your firm, you make frequent trips to Hong Kong. You notice that you always have to pay more dollars to get enough local currency to get your suits dry-cleaned than you have to pay to get your suits dry-cleaned in Canada. Is this consistent with purchasing-power parity?

In which situation must national saving rise?

An American pharmacy buys drugs from a Canadian company and pays for them with American dollars. What are the effects of this transaction?

According to purchasing-power parity, if prices in Canada increase by a smaller percentage than prices in Kenya, how does the exchange rate change?

Hungary buys railroad engines from a Canadian firm and pays for them with forints (Hungarian currency). What happens to Canadian net exports and net foreign investment due to this transaction?

Suppose the nominal exchange rate is 95 yen/dollar, the price of beef in Japan is ¥1200, and the price of beef in Canada is $12. Using the purchasing-power parity theory, approximately how much should you expect the exchange rate to change by?

How do we find the real exchange rate from the nominal exchange rate?

What type of economy does Canada have?

If the exchange rate changes from 57 Indian rupee per dollar to 53 Indian rupee per dollar, what has happened to the dollar?

A U.S. textbook publishing company sells texts to Canadian students. What are the effects of these sales?

Suppose that in 2015 you could purchase about 6 Egyptian pounds for a dollar. In 2019, you could purchase about 13 Egyptian pounds for a dollar. Which statement best explains the changes that could have taken place between 2015 and 2019?

Which of the following would be Canadian foreign direct investment?

Suppose that a kilogram can of coffee costs about $16 in Canada. Suppose the exchange rate is 0.7 euro per dollar and that a kilogram can of coffee in Belgium costs about 5.6 euros. What is the real exchange rate?

How has the introduction of the euro affected arbitrage?

Which of the following shows that any trade transaction must have a financial counterpart?

What is the formula for a closed economy's GDP?

When a company from South Korea builds an automobile factory in Canada, the South Korean firm has engaged in foreign direct investment.

Canadian exports make up less than 20 percent of GDP.

Alberto, an Italian citizen, opens and operates a motorcycle parts plant in Canada. 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

Assume the exchange rate is about 292 Kazakhstan tenge per dollar. According to purchasing-power parity, when would this exchange rate rise?

On behalf of your firm, you make frequent trips to Hong Kong. You notice that you always have to pay more dollars to get enough local currency to get your suits dry-cleaned than you have to pay to get your suits dry-cleaned in Canada. Is this consistent with purchasing-power parity?

In which situation must national saving rise?

An American pharmacy buys drugs from a Canadian company and pays for them with American dollars. What are the effects of this transaction?

According to purchasing-power parity, if prices in Canada increase by a smaller percentage than prices in Kenya, how does the exchange rate change?

Hungary buys railroad engines from a Canadian firm and pays for them with forints (Hungarian currency). What happens to Canadian net exports and net foreign investment due to this transaction?

Suppose the nominal exchange rate is 95 yen/dollar, the price of beef in Japan is ¥1200, and the price of beef in Canada is $12. Using the purchasing-power parity theory, approximately how much should you expect the exchange rate to change by?

How do we find the real exchange rate from the nominal exchange rate?

What type of economy does Canada have?

If the exchange rate changes from 57 Indian rupee per dollar to 53 Indian rupee per dollar, what has happened to the dollar?

A U.S. textbook publishing company sells texts to Canadian students. What are the effects of these sales?

Suppose that in 2015 you could purchase about 6 Egyptian pounds for a dollar. In 2019, you could purchase about 13 Egyptian pounds for a dollar. Which statement best explains the changes that could have taken place between 2015 and 2019?

Which of the following would be Canadian foreign direct investment?

Suppose that a kilogram can of coffee costs about $16 in Canada. Suppose the exchange rate is 0.7 euro per dollar and that a kilogram can of coffee in Belgium costs about 5.6 euros. What is the real exchange rate?

How has the introduction of the euro affected arbitrage?

Which of the following shows that any trade transaction must have a financial counterpart?

What is the formula for a closed economy's GDP?

When a company from South Korea builds an automobile factory in Canada, the South Korean firm has engaged in foreign direct investment.

Canadian exports make up less than 20 percent of GDP.

Alberto, an Italian citizen, opens and operates a motorcycle parts plant in Canada. 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