Question 1

As an open economy, Canadian national saving can be less than Canadian investment.

Accepted Answer

A) True 
 B)False

Question 2

Exchange rates are 0.75 U.S. dollars per Canadian dollar, 170 yen per Canadian dollar, 0.8 euro per Canadian dollar, and 20 pesos per Canadian dollar. A bottle of beer in New York costs 6 U.S. dollars, 1200 yen in Tokyo, 7 euros in Munich, and 100 pesos in Cancun. Where is the most expensive beer?

Accepted Answer

A)  Cancun 
B)  New York 
C)  Tokyo 
D)  Munich 
A)  Cancun 
B)  New York 
C)  Tokyo 
D)  Munich

Question 3

According to purchasing-power parity, if prices in Canada increase by a larger percentage than prices in Kenyan, 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 4

Which statement best describes Canadian net capital outflow and net exports from 1999 - 2009?

Accepted Answer

A)  Net capital outflow has been positive, and net exports have been negative. 
B)  Net capital outflow and net exports have been positive. 
C)  Net capital outflow and net exports have been negative. 
D)  Net capital outflow has been negative, and net exports have been positive. 
A)  Net capital outflow has been positive, and net exports have been negative. 
B)  Net capital outflow and net exports have been positive. 
C)  Net capital outflow and net exports have been negative. 
D)  Net capital outflow has been negative, and net exports have been positive.

Question 5

Consider this statement: "Canada is characterized by perfect capital mobility." What does this mean in the language of economics?

Accepted Answer

A)  that capital is free to move across provinces in Canada 
B)  that capital is free to move from one sector to another 
C)  that Canadians can invest abroad but foreigners cannot invest in Canada 
D)  that Canadians can invest abroad and foreigners can invest in Canada 
A)  that capital is free to move across provinces in Canada 
B)  that capital is free to move from one sector to another 
C)  that Canadians can invest abroad but foreigners cannot invest in Canada 
D)  that Canadians can invest abroad and foreigners can invest in Canada

Question 6

This problem considers the effect of currency conversion fees on foreign investment. Jonathan is considering investing $1000 in Canada, where he expects an interest rate of 5 percent, or in the U.K., where the expected interest rate would be 6 percent. The current exchange rate is £0.5/$, which could take by the end of the year any value between £0.4 and £0.6/$ with equal probability.
a) Where should Jonathan invest?
b) How does your answer change if there is a currency conversion fee of 3 percent?
c) What have you learned from this exercise?

Accepted Answer

a) Jonathan would have $1000(1 + 0.05) =

Question 7

Which of the following was of much concern regarding the Canadian economy in the 1960s and 1970s?

Accepted Answer

A)  increasing budget deficits 
B)  the extent of foreign investment in Canada 
C)  the fact that net exports were positive 
D)  Canadians purchasing too many foreign assets 
A)  increasing budget deficits 
B)  the extent of foreign investment in Canada 
C)  the fact that net exports were positive 
D)  Canadians purchasing too many foreign assets

Question 8

Which statement best describes the consequences that could occur if the Canadian real exchange rate appreciates relative to the euro?

Accepted Answer

A)  Canadian exports to Europe and European exports to Canada both rise. 
B)  Canadian exports to Europe and European exports to Canada both fall. 
C)  Canadian exports to Europe rise, and European exports to Canada fall. 
D)  Canadian exports to Europe fall, and European exports to Canada rise. 
A)  Canadian exports to Europe and European exports to Canada both rise. 
B)  Canadian exports to Europe and European exports to Canada both fall. 
C)  Canadian exports to Europe rise, and European exports to Canada fall. 
D)  Canadian exports to Europe fall, and European exports to Canada rise.

Question 9

Why are net exports and net capital outflow always equal?

Accepted Answer

Net exports and net capital outflow are

Question 10

Country A buys $300 of carrots from country B, and B buys $130 of cauliflower from A. Which of the following correctly indicates the two countries' net exports (in the order A, B)?

Accepted Answer

A)  -$170, $170 
B)  $170, -$170 
C)  $300, $130 
D)  $430, $0 
A)  -$170, $170 
B)  $170, -$170 
C)  $300, $130 
D)  $430, $0

Question 11

Suppose that a Canadian dollar buys more silver in Australia than it buys in Mexico. What does purchasing-power parity imply should happen?

Accepted Answer

People can make a profit by buying silve

Question 12

According to purchasing-power parity, what is the relationship between changes in price levels between two countries and changes in nominal exchange rates?

Accepted Answer

Purchasing-power parity asserts that the

Question 13

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

Accepted Answer

The logic behind purchasing-power parity

Question 14

A Canadian firm buys boomerangs from Australia and pays for it with Canadian dollars. What are the effects of this transaction?

Accepted Answer

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

Question 15

What would an appreciation 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 16

Negative net exports are the same as a trade surplus.

Accepted Answer

A) True 
 B)False

Question 17

In which situation must domestic saving equal investment?

Accepted Answer

A)  when NX is negative 
B)  when NX is zero 
C)  when NCO is negative 
D)  when imports are zero 
A)  when NX is negative 
B)  when NX is zero 
C)  when NCO is negative 
D)  when imports are zero

Question 18

Suppose Connie, a Canadian citizen, buys bonds issued by an automobile manufacturer in Sweden. What would her expenditure be?

Accepted Answer

A)  Canadian foreign direct investment that would increase Canadian net capital outflow 
B)  Canadian foreign direct investment that would decrease Canadian net capital outflow 
C)  Canadian foreign portfolio investment that would increase Canadian net capital outflow 
D)  Canadian foreign portfolio investment that would decrease Canadian net capital outflow 
A)  Canadian foreign direct investment that would increase Canadian net capital outflow 
B)  Canadian foreign direct investment that would decrease Canadian net capital outflow 
C)  Canadian foreign portfolio investment that would increase Canadian net capital outflow 
D)  Canadian foreign portfolio investment that would decrease Canadian net capital outflow

Question 19

Suppose that a bushel of wheat costs $5 in Canada and costs 40 pesos in Mexico. If the nominal exchange rate is 20 pesos per dollar, what is the real exchange rate?

Accepted Answer

A)  .04 
B)  2 
C)  2.5 
D)  8 
A)  .04 
B)  2 
C)  2.5 
D)  8

Question 20

Suppose that money-supply growth continues to be higher in Turkey than it is in Canada. 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

As an open economy, Canadian national saving can be less than Canadian investment.

Exchange rates are 0.75 U.S. dollars per Canadian dollar, 170 yen per Canadian dollar, 0.8 euro per Canadian dollar, and 20 pesos per Canadian dollar. A bottle of beer in New York costs 6 U.S. dollars, 1200 yen in Tokyo, 7 euros in Munich, and 100 pesos in Cancun. Where is the most expensive beer?

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

Which statement best describes Canadian net capital outflow and net exports from 1999 - 2009?

Consider this statement: "Canada is characterized by perfect capital mobility." What does this mean in the language of economics?

Which of the following was of much concern regarding the Canadian economy in the 1960s and 1970s?

Which statement best describes the consequences that could occur if the Canadian real exchange rate appreciates relative to the euro?

Why are net exports and net capital outflow always equal?

Country A buys $300 of carrots from country B, and B buys $130 of cauliflower from A. Which of the following correctly indicates the two countries' net exports (in the order A, B)?

Suppose that a Canadian dollar buys more silver in Australia than it buys in Mexico. What does purchasing-power parity imply should happen?

According to purchasing-power parity, what is the relationship between changes in price levels between two countries and changes in nominal exchange rates?

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

A Canadian firm buys boomerangs from Australia and pays for it with Canadian dollars. What are the effects of this transaction?

What would an appreciation of the Canadian real exchange rate induce Canadian consumers to buy?

Negative net exports are the same as a trade surplus.

In which situation must domestic saving equal investment?

Suppose Connie, a Canadian citizen, buys bonds issued by an automobile manufacturer in Sweden. What would her expenditure be?

Suppose that a bushel of wheat costs $5 in Canada and costs 40 pesos in Mexico. If the nominal exchange rate is 20 pesos per dollar, what is the real exchange rate?

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

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

As an open economy, Canadian national saving can be less than Canadian investment.

Exchange rates are 0.75 U.S. dollars per Canadian dollar, 170 yen per Canadian dollar, 0.8 euro per Canadian dollar, and 20 pesos per Canadian dollar. A bottle of beer in New York costs 6 U.S. dollars, 1200 yen in Tokyo, 7 euros in Munich, and 100 pesos in Cancun. Where is the most expensive beer?

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

Which statement best describes Canadian net capital outflow and net exports from 1999 - 2009?

Consider this statement: "Canada is characterized by perfect capital mobility." What does this mean in the language of economics?

Which of the following was of much concern regarding the Canadian economy in the 1960s and 1970s?

Which statement best describes the consequences that could occur if the Canadian real exchange rate appreciates relative to the euro?

Why are net exports and net capital outflow always equal?

Country A buys $300 of carrots from country B, and B buys $130 of cauliflower from A. Which of the following correctly indicates the two countries' net exports (in the order A, B)?

Suppose that a Canadian dollar buys more silver in Australia than it buys in Mexico. What does purchasing-power parity imply should happen?

According to purchasing-power parity, what is the relationship between changes in price levels between two countries and changes in nominal exchange rates?

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

A Canadian firm buys boomerangs from Australia and pays for it with Canadian dollars. What are the effects of this transaction?

What would an appreciation of the Canadian real exchange rate induce Canadian consumers to buy?

Negative net exports are the same as a trade surplus.

In which situation must domestic saving equal investment?

Suppose Connie, a Canadian citizen, buys bonds issued by an automobile manufacturer in Sweden. What would her expenditure be?

Suppose that a bushel of wheat costs $5 in Canada and costs 40 pesos in Mexico. If the nominal exchange rate is 20 pesos per dollar, what is the real exchange rate?

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

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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