Exam 12: Open-Economy Macroeconomics: Basic Concepts

If the nominal exchange rate e is foreign currency per dollar, the domestic price is P, and the foreign price is P*, what is the definition of the real exchange rate?

What is the value of Chile's exports minus the value of Chile's imports called?

Suppose a bottle of wine costs 45 euros in France and $30 in Canada. If the exchange rate is 1.50 euros per dollar, what is the real exchange rate?

According to purchasing-power parity theory, if the same fast-food hamburger costs $4.00 in Canada and 8 euros in France, what should the nominal exchange rate be?

How do you measure the current account balance?

Which of the following might part of Canadian savings be counted as?

How can one derive the identity that saving equals the sum of domestic investment and net capital outflow from the national income accounting identity?

An Indonesian flour mill buys wheat from Canada and pays for it with rupiah. What are the effects of this transaction?

The nominal exchange rate is about 3 Brazilian real per dollar. If a basket of goods in Canada costs $40, how many real must a basket of goods in Brazil cost for purchasing-power parity to hold?

-Refer to Table 12-1. What countries in the table does purchasing-power parity hold for?

For an economy as a whole, net exports must equal minus one times net capital outflow.

Which of the following best describes the cross-border net flow of dividends and interest payments?

Through the first half of the 2000s, Canada had positive net exports. What does this fact imply?

Suppose the real exchange rate is 3/5 kilograms of Chilean beef per kilogram of Canadian beef, a kilogram of Canadian beef costs $3, and the nominal exchange rate is 500 Chilean pesos per dollar. What does Chilean beef cost?

What is the formula for investment in an open economy?

A rational investor will always purchase the bond that pays the highest real interest rate.

If the exchange rate is 5 pesos per dollar, it is also 0.2 dollars per peso.

Martin, a Canadian citizen, uses some previously obtained Lithuanian currency (litas) to purchase a bond issued by a Lithuanian company. How does this transaction affect Canadian net capital outflow?

Consider the following table, adapted from the Big Mac Index computed by The Economist magazine. The table shows prices of a Big Mac in local currencies and the current nominal exchange rate between the local currency and the Canadian dollar. a. Compute the Big Mac prices in Canadian dollars for each country. b. Compute the PPP exchange rate. c. Compute the overvaluation or undervaluation of each country's currency with respect to the Canadian dollar. A currency is considered to be overvalued if the nominal exchange rate is less than the PPP exchange rate. Overvaluation is the percentage difference between the nominal and the PPP exchange rate, computed using the following formula: [(PPP exchange rate - Nominal exchange rate) / Nominal exchange rate]*100. ​

The theory of purchasing-power parity states that a unit of any given currency should be able to buy the same quantity of goods in all countries.