Question 1

Derive the relation between savings, domestic investment, and net capital outflow using the national income accounting identity.

Accepted Answer

Start from the national income accounting identity,
(1) Y = C + I + G + NX.
Recall from Chapter 25 that national saving is the income that is left after paying for current consumption and government expenditure,
(2) S = Y - C - g.Rearranging, (1) we obtain Y - C - G = I + NX, and substituting in (2)
(3) S = I + NX.
Because net exports also equal net capital outflow, we can also write this equation as
(4) S = I + NCO.

Question 2

A country has a trade deficit. Its

Accepted Answer

A) net capital outflow must be positive, and saving is larger than investment. 
B) net capital outflow must be positive and saving is smaller than investment. 
C) net capital outflow must be negative and saving is larger than investment. 
D) net capital outflow must be negative and saving is smaller than investment. 
A) net capital outflow must be positive, and saving is larger than investment. 
B) net capital outflow must be positive and saving is smaller than investment. 
C) net capital outflow must be negative and saving is larger than investment. 
D) net capital outflow must be negative and saving is smaller than investment. D

Question 3

A U.S. firm called EcoWind produces windmills for households to generate electricity. It uses 25,000 recently obtained pesos to buy copper from a mining company in Argentina. As a result of this exchange, by how much, if at all, and in which direction did:
A. U.S. net exports change?
B. U.S. net capital outflow change?

Accepted Answer

A. U.S. net exports fell by 25,000 pesos.
B. U.S. net capital outflow fell by 25,000 pesos.

Question 4

While vacationing in Italy, you see an interesting meal on a menu. The price is 24 euros.
A. If the exchange rate is .80 euros per dollar, how many dollars would you have to give up to buy the meal?
B. If the dollar appreciated against the euro, but the price of the meal remained 24 euro, would the meal cost more or fewer dollars? Explain.

Accepted Answer

A. 24 euros = $x times .80 eur

Question 5

If purchasing-power parity holds, then the value of the

Accepted Answer

A) nominal exchange rate is equal to one. A dollar buys as many goods in the U.S. as it does overseas. 
B) nominal exchange rate is equal to one. A dollar buys the quantity of foreign currency equal to the U.S. price level divided by the foreign country's price level. 
C) real exchange rate is equal to one. A dollar buys as many goods in the U.S. as it does overseas. 
D) real exchange rate is equal to one. A dollar buys the quantity of foreign currency equal to the U.S. price level divided by the foreign country's price level. 
A) nominal exchange rate is equal to one. A dollar buys as many goods in the U.S. as it does overseas. 
B) nominal exchange rate is equal to one. A dollar buys the quantity of foreign currency equal to the U.S. price level divided by the foreign country's price level. 
C) real exchange rate is equal to one. A dollar buys as many goods in the U.S. as it does overseas. 
D) real exchange rate is equal to one. A dollar buys the quantity of foreign currency equal to the U.S. price level divided by the foreign country's price level.

Question 6

A Japanese flour mill buys wheat from the United States and pays for it with yen. Other things the same, Japanese

Accepted Answer

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

Question 7

Other things the same, an increase in foreign prices raises the real exchange rate.

Accepted Answer

A) True 
 B)False

Question 8

Suppose that a U.S. dollar buys more gold in Australia than it buys in Russia. What does purchasing-power parity imply should happen?

Accepted Answer

People can make a profit by buying gold

Question 9

Which of the following does purchasing-power parity conclude should equal 1?

Accepted Answer

A) both the nominal and the real exchange rate. 
B) the nominal exchange rate but not the real exchange rate 
C) the real exchange rate but not the nominal exchange rate 
D) neither the nominal exchange rate nor the real exchange rate 
A) both the nominal and the real exchange rate. 
B) the nominal exchange rate but not the real exchange rate 
C) the real exchange rate but not the nominal exchange rate 
D) neither the nominal exchange rate nor the real exchange rate

Question 10

List the factors that might influence a country's exports, imports, and trade balance.

Accepted Answer

a.the tastes of consumers for domestic a

Question 11

The ability to profit by purchasing wheat in the U.S. and selling it in China implies that the

Accepted Answer

A) nominal exchange rate is less than 1. 
B) nominal exchange rate is greater than 1. 
C) real exchange rate is less than 1. 
D) real exchange rate is greater than 1. 
A) nominal exchange rate is less than 1. 
B) nominal exchange rate is greater than 1. 
C) real exchange rate is less than 1. 
D) real exchange rate is greater than 1.

Question 12

If the exchange rate is 60 Indian rupees per dollar and a bushel of rice costs 200 rupees in India and $3 in the U.S., then the real exchange rate is

Accepted Answer

A) greater than one and arbitrageurs could profit by buying rice in the U.S. and selling it in India. 
B) greater than one and arbitrageurs could profit by buying rice in India and selling it in the U.S.. 
C) less than one and arbitrageurs could profit by buying rice in the U.S. and selling it in India. 
D) less than one and arbitrageurs could profit by buying rice in India and selling it in the U.S.. 
A) greater than one and arbitrageurs could profit by buying rice in the U.S. and selling it in India. 
B) greater than one and arbitrageurs could profit by buying rice in India and selling it in the U.S.. 
C) less than one and arbitrageurs could profit by buying rice in the U.S. and selling it in India. 
D) less than one and arbitrageurs could profit by buying rice in India and selling it in the U.S..

Question 13

Suppose a McDonalds Big Mac costs $4.40 in the United States and 3.30 euros in the euro area and 5.72 Australian dollars in Australia. If exchange rates are .75 euros per dollar and 1.3 Australian dollars per dollar, where does purchasing-power parity hold?

Accepted Answer

A) both the euro area and Australia 
B) the euro area but not Australia 
C) Australia but not the euro area 
D) neither the euro area nor Australia 
A) both the euro area and Australia 
B) the euro area but not Australia 
C) Australia but not the euro area 
D) neither the euro area nor Australia

Question 14

An open economy's GDP is always given by

Accepted Answer

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

Question 15

If Canada's national saving exceeds its domestic investment, then Canada has

Accepted Answer

A) positive net capital outflows and negative net exports. 
B) positive net capital outflows and positive net exports. 
C) negative net capital outflows and negative net exports. 
D) negative net capital outflows and positive net exports. 
A) positive net capital outflows and negative net exports. 
B) positive net capital outflows and positive net exports. 
C) negative net capital outflows and negative net exports. 
D) negative net capital outflows and positive net exports.

Question 16

You are planning a graduation trip to Mexico. Other things the same, if the dollar appreciates relative to the peso, then

Accepted Answer

A) the dollar buys fewer pesos. Your hotel room in Mexico will require fewer dollars. 
B) the dollar buys fewer pesos. Your hotel room in Mexico will require more dollars. 
C) the dollar buys more pesos. Your hotel room in Mexico will require fewer dollars. 
D) the dollar buys more pesos. Your hotel room in Mexico will require more dollars. 
A) the dollar buys fewer pesos. Your hotel room in Mexico will require fewer dollars. 
B) the dollar buys fewer pesos. Your hotel room in Mexico will require more dollars. 
C) the dollar buys more pesos. Your hotel room in Mexico will require fewer dollars. 
D) the dollar buys more pesos. Your hotel room in Mexico will require more dollars.

Question 17

The increase in international trade in the United States is partly due to

Accepted Answer

A) improvements in transportation. 
B) advances in telecommunications. 
C) increased trade of goods with a high value per pound. 
D) All of the above are correct. 
A) improvements in transportation. 
B) advances in telecommunications. 
C) increased trade of goods with a high value per pound. 
D) All of the above are correct.

Question 18

Bob, a Greek citizen, opens a restaurant in Chicago. His expenditures

Accepted Answer

A) increase U.S. net capital outflow and have no affect on Greek net capital outflow. 
B) increase U.S. net capital outflow and increase Greek net capital outflow. 
C) increase U.S. net capital outflow, but decrease Greek net capital outflow. 
D) decrease U.S. net capital outflow, but increase Greek net capital outflow. 
A) increase U.S. net capital outflow and have no affect on Greek net capital outflow. 
B) increase U.S. net capital outflow and increase Greek net capital outflow. 
C) increase U.S. net capital outflow, but decrease Greek net capital outflow. 
D) decrease U.S. net capital outflow, but increase Greek net capital outflow.

Question 19

How do the nominal exchange rate and the real exchange rate differ?

Accepted Answer

The nominal exchange rate is the rate at

Question 20

From 1970 to 1998 the U.S. dollar

Accepted Answer

A) gained value compared to the German mark because inflation was higher in Germany. 
B) gained value compared to the German mark because inflation was lower in Germany. 
C) lost value compared to the German mark because inflation was higher in Germany. 
D) lost value compared to the German mark because inflation was lower in Germany. 
A) gained value compared to the German mark because inflation was higher in Germany. 
B) gained value compared to the German mark because inflation was lower in Germany. 
C) lost value compared to the German mark because inflation was higher in Germany. 
D) lost value compared to the German mark because inflation was lower in Germany.

Exam 31: Open-Economy Macroeconomics: Basic Concepts

Derive the relation between savings, domestic investment, and net capital outflow using the national income accounting identity.

A country has a trade deficit. Its

If purchasing-power parity holds, then the value of the

A Japanese flour mill buys wheat from the United States and pays for it with yen. Other things the same, Japanese

Other things the same, an increase in foreign prices raises the real exchange rate.

Suppose that a U.S. dollar buys more gold in Australia than it buys in Russia. What does purchasing-power parity imply should happen?

Which of the following does purchasing-power parity conclude should equal 1?

List the factors that might influence a country's exports, imports, and trade balance.

The ability to profit by purchasing wheat in the U.S. and selling it in China implies that the

If the exchange rate is 60 Indian rupees per dollar and a bushel of rice costs 200 rupees in India and $3 in the U.S., then the real exchange rate is

Suppose a McDonalds Big Mac costs $4.40 in the United States and 3.30 euros in the euro area and 5.72 Australian dollars in Australia. If exchange rates are .75 euros per dollar and 1.3 Australian dollars per dollar, where does purchasing-power parity hold?

An open economy's GDP is always given by

If Canada's national saving exceeds its domestic investment, then Canada has

You are planning a graduation trip to Mexico. Other things the same, if the dollar appreciates relative to the peso, then

The increase in international trade in the United States is partly due to

Bob, a Greek citizen, opens a restaurant in Chicago. His expenditures

How do the nominal exchange rate and the real exchange rate differ?

From 1970 to 1998 the U.S. dollar

Ten Principles of Economics

Thinking Like an Economist

Interdependence and the Gains From Trade

The Market Forces of Supply and Demand

Elasticity and Its Application

Supply, Demand, and Government Policies

Consumers, Producers, and the Efficiency of Markets

Applications: the Costs of Taxation

Application: International Trade

Externalities

Public Goods and Common Resources

The Design of the Tax System

The Costs of Production

Firms in Competitive Markets

Monopoly

Monopolistic Competition

Oligopoly

The Markets for the Factors of Production

Earnings and Discrimination

Income Inequality and Poverty

The Theory of Consumer Choice

Frontiers in Microeconomics

Measuring a Nation S Income

Measuring the Cost of Living

Production and Growth

Saving, Investment, and the Financial System

Tools of Finance

Unemployment and Its Natural Rate

The Monetary System

Money Growth and Inflation

A Macroeconomic Theory of the Open Economy

Aggregate Demand and Aggregate Supply

The Influence of Monetary and Fiscal Policy on Aggregate Demand

The Short-Run Tradeoff Between Inflation and Unemployment

Six Debates Over Macroeconomic Policy

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