Question 1

A country has $240 million of net exports and $150 million of saving. What is net capital outflow?

Accepted Answer

A)  -$90 million 
B)  $90 million 
C)  $240 million 
D)  $390 million 
A)  -$90 million 
B)  $90 million 
C)  $240 million 
D)  $390 million

Question 2

A country has $60 million of domestic investment and net capital outflow of -$10 million. What is saving?

Accepted Answer

A)  -$70 million 
B)  -$50 million 
C)  $50 million 
D)  $70 million 
A)  -$70 million 
B)  -$50 million 
C)  $50 million 
D)  $70 million

Question 3

What does a trade surplus imply?

Accepted Answer

A) saving is greater than domestic investment and Y > C + I + G B) saving is greater than domestic investment and Y C + I + G D) saving is less than domestic investment and Y < C + I + G A) saving is greater than domestic investment and Y > C + I + G B) saving is greater than domestic investment and Y C + I + G D) saving is less than domestic investment and Y < C + I + G

Question 4

Suppose Canadian wheat sells for $100 per bushel and Russian wheat sells for 2000 rubles per bushel.
a. If you believe that the purchasing-power parity theory holds, and if the current exchange rate is 16 rubles per dollar, would you expect the exchange rate to change? In what direction would it change?
b. If the current exchange rate is 16 rubles per dollar, how much is the real exchange rate, based on the prices of wheat?
c. If the exchange rate is 16, how could you make profit in this situation? How much profit per bushel could you make?

Accepted Answer

a. The PPP exchange rate is 2000/100 = 2

Question 5

Suppose that the real return from operating factories in Mexico rises relative to the real rate of return in Canada. What are the effects of this transaction?

Accepted Answer

A)  This will increase Canadian net capital outflow and decrease Mexican net capital outflow. 
B)  This will decrease Canadian net capital outflow and increase Mexican net capital outflow. 
C)  This will only affect Canadian net capital outflow. 
D)  This will only affect Mexican net capital outflow. 
A)  This will increase Canadian net capital outflow and decrease Mexican net capital outflow. 
B)  This will decrease Canadian net capital outflow and increase Mexican net capital outflow. 
C)  This will only affect Canadian net capital outflow. 
D)  This will only affect Mexican net capital outflow.

Question 6

What do net exports measure?

Accepted Answer

A)  income minus expenditure 
B)  exports minus imports 
C)  expenditure minus income 
D)  imports minus exports 
A)  income minus expenditure 
B)  exports minus imports 
C)  expenditure minus income 
D)  imports minus exports

Question 7

What is the formula for an open 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 8

A country has $30 million of domestic investment and net capital outflow of -$70 million. What is saving?

Accepted Answer

A)  -$100 million 
B)  -$40 million 
C)  $40 million 
D)  $100 million 
A)  -$100 million 
B)  -$40 million 
C)  $40 million 
D)  $100 million

Question 9

Suppose Katie, a Romanian citizen, builds a toy factory in Australia. What are the effects of these expenditures?

Accepted Answer

A)  They increase Romanian and Australian net capital outflow. 
B)  They increase Romanian net capital outflow, but decrease Australian net capital outflow. 
C)  They decrease Romanian net capital outflow, but increase Australian net capital outflow. 
D)  They increase Romanian net capital outflow, but Australian net capital outflow remains unchanged. 
A)  They increase Romanian and Australian net capital outflow. 
B)  They increase Romanian net capital outflow, but decrease Australian net capital outflow. 
C)  They decrease Romanian net capital outflow, but increase Australian net capital outflow. 
D)  They increase Romanian net capital outflow, but Australian net capital outflow remains unchanged.

Question 10

Paula, a citizen of Spain, decides to purchase bonds issued by Columbia instead of Canadian bonds, even though the Columbian bonds have a higher risk of default. What might be an economic reason for her decision?

Accepted Answer

A)  Columbia has a lower inflation rate. 
B)  The Columbian bonds pay a higher rate of interest. 
C)  The Canadian government is more stable than the Columbian government. 
D)  Columbian bonds have shorter maturity periods than Canadian bonds. 
A)  Columbia has a lower inflation rate. 
B)  The Columbian bonds pay a higher rate of interest. 
C)  The Canadian government is more stable than the Columbian government. 
D)  Columbian bonds have shorter maturity periods than Canadian bonds.

Question 11

If Canada buys cell phones from China, both Canadian net exports and Canadian net capital outflow decrease.

Accepted Answer

A) True 
 B)False

Question 12

Sue, a Canadian citizen, buys shares of stock in a French chain of boutiques. What is this an example of?

Accepted Answer

A)  investment for Sue and Canadian foreign direct investment 
B)  investment for Sue and Canadian foreign portfolio investment 
C)  saving for Sue and Canadian foreign direct investment 
D)  saving for Sue and Canadian foreign portfolio investment 
A)  investment for Sue and Canadian foreign direct investment 
B)  investment for Sue and Canadian foreign portfolio investment 
C)  saving for Sue and Canadian foreign direct investment 
D)  saving for Sue and Canadian foreign portfolio investment

Question 13

If the purchasing power of the dollar is always the same at home and abroad, then the nominal exchange rate defined as foreign goods per unit of Canadian goods decreases if the Canadian price level rises more than the price level in foreign countries.

Accepted Answer

A) True 
 B)False

Question 14

The country of Sophilia has a GDP of $5000, investment of $1500, government purchases of $400, and net capital outflow of negative $300. What is consumption?

Accepted Answer

A)  $1700 
B)  $1800 
C)  $3400 
D)  $3700 
A)  $1700 
B)  $1800 
C)  $3400 
D)  $3700

Question 15

What does net capital outflow measure?

Accepted Answer

A)  foreign assets held by domestic residents minus domestic assets held by foreign residents 
B)  the imbalance between the amount of domestic assets bought by domestic residents and the amount of foreign assets bought by foreigners 
C)  the imbalance between the amount of foreign assets bought by domestic residents and the amount of domestic goods and services sold to foreigners 
D)  domestic assets held by foreigners minus foreign assets held by domestic residents 
A)  foreign assets held by domestic residents minus domestic assets held by foreign residents 
B)  the imbalance between the amount of domestic assets bought by domestic residents and the amount of foreign assets bought by foreigners 
C)  the imbalance between the amount of foreign assets bought by domestic residents and the amount of domestic goods and services sold to foreigners 
D)  domestic assets held by foreigners minus foreign assets held by domestic residents

Question 16

Which statement best defines the nominal exchange rate?

Accepted Answer

A)  It is the nominal interest rate in one country divided by the nominal interest rate in the other country. 
B)  It is the rate at which a person can trade the currency of one country for the currency of another. 
C)  It is the price of a good in one country divided by the price of the same good in another. 
D)  It is the number of goods a person can trade for a similar good in another country. 
A)  It is the nominal interest rate in one country divided by the nominal interest rate in the other country. 
B)  It is the rate at which a person can trade the currency of one country for the currency of another. 
C)  It is the price of a good in one country divided by the price of the same good in another. 
D)  It is the number of goods a person can trade for a similar good in another country.

Question 17

A Norwegian firm purchases earth-moving equipment from a Canadian company and pays for it with domestic currency. What are the effects of this transaction?

Accepted Answer

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

Question 18

Suppose a lobster supper in Nova Scotia costs fewer dollars than a lobster supper in Moscow. Explain why this is inconsistent with purchasing-power parity and explain why the inconsistency may exist.

Accepted Answer

According to purchasing-power parity, a

Question 19

What concept implies that the real interest rate in Canada should equal that in the rest of the world?

Accepted Answer

A)  Fisher effect 
B)  Ricardian equivalence 
C)  purchasing-power parity 
D)  interest rate parity 
A)  Fisher effect 
B)  Ricardian equivalence 
C)  purchasing-power parity 
D)  interest rate parity

Question 20

If a Canadian manufacturer of linens purchases cotton from Egypt, 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.

A country has $240 million of net exports and $150 million of saving. What is net capital outflow?

A country has $60 million of domestic investment and net capital outflow of -$10 million. What is saving?

What does a trade surplus imply?

Suppose that the real return from operating factories in Mexico rises relative to the real rate of return in Canada. What are the effects of this transaction?

What do net exports measure?

What is the formula for an open economy's GDP?

A country has $30 million of domestic investment and net capital outflow of -$70 million. What is saving?

Suppose Katie, a Romanian citizen, builds a toy factory in Australia. What are the effects of these expenditures?

Paula, a citizen of Spain, decides to purchase bonds issued by Columbia instead of Canadian bonds, even though the Columbian bonds have a higher risk of default. What might be an economic reason for her decision?

If Canada buys cell phones from China, both Canadian net exports and Canadian net capital outflow decrease.

Sue, a Canadian citizen, buys shares of stock in a French chain of boutiques. What is this an example of?

If the purchasing power of the dollar is always the same at home and abroad, then the nominal exchange rate defined as foreign goods per unit of Canadian goods decreases if the Canadian price level rises more than the price level in foreign countries.

The country of Sophilia has a GDP of $5000, investment of $1500, government purchases of $400, and net capital outflow of negative $300. What is consumption?

What does net capital outflow measure?

Which statement best defines the nominal exchange rate?

A Norwegian firm purchases earth-moving equipment from a Canadian company and pays for it with domestic currency. What are the effects of this transaction?

Suppose a lobster supper in Nova Scotia costs fewer dollars than a lobster supper in Moscow. Explain why this is inconsistent with purchasing-power parity and explain why the inconsistency may exist.

What concept implies that the real interest rate in Canada should equal that in the rest of the world?

If a Canadian manufacturer of linens purchases cotton from Egypt, what are the effects of this transaction?

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

Exam 12: Open-Economy Macroeconomics: Basic Concepts

A country has $240 million of net exports and $150 million of saving. What is net capital outflow?

A country has $60 million of domestic investment and net capital outflow of -$10 million. What is saving?

What does a trade surplus imply?

Suppose that the real return from operating factories in Mexico rises relative to the real rate of return in Canada. What are the effects of this transaction?

What do net exports measure?

What is the formula for an open economy's GDP?

A country has $30 million of domestic investment and net capital outflow of -$70 million. What is saving?

Suppose Katie, a Romanian citizen, builds a toy factory in Australia. What are the effects of these expenditures?

Paula, a citizen of Spain, decides to purchase bonds issued by Columbia instead of Canadian bonds, even though the Columbian bonds have a higher risk of default. What might be an economic reason for her decision?

If Canada buys cell phones from China, both Canadian net exports and Canadian net capital outflow decrease.

Sue, a Canadian citizen, buys shares of stock in a French chain of boutiques. What is this an example of?

If the purchasing power of the dollar is always the same at home and abroad, then the nominal exchange rate defined as foreign goods per unit of Canadian goods decreases if the Canadian price level rises more than the price level in foreign countries.

The country of Sophilia has a GDP of $5000, investment of $1500, government purchases of $400, and net capital outflow of negative $300. What is consumption?

What does net capital outflow measure?

Which statement best defines the nominal exchange rate?

A Norwegian firm purchases earth-moving equipment from a Canadian company and pays for it with domestic currency. What are the effects of this transaction?

Suppose a lobster supper in Nova Scotia costs fewer dollars than a lobster supper in Moscow. Explain why this is inconsistent with purchasing-power parity and explain why the inconsistency may exist.

What concept implies that the real interest rate in Canada should equal that in the rest of the world?

If a Canadian manufacturer of linens purchases cotton from Egypt, what are the effects of this transaction?

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