Question 1

Purchasing-power parity theory does not hold at all times because

Accepted Answer

A) many goods are not easily transported. 
B) the same goods produced in different countries may be imperfect substitutes for each other. 
C) Both a and b are correct. 
D) prices are different across countries. 
A) many goods are not easily transported. 
B) the same goods produced in different countries may be imperfect substitutes for each other. 
C) Both a and b are correct. 
D) prices are different across countries.

Question 2

Suppose that the real return from operating factories in Canada rises relative to the real rate of return in the United States. Other things the same,

Accepted Answer

A) this will increases U.S. net capital outflow and decrease Canadian net capital outflow. 
B) this will decreases U.S. net capital outflow and increase Canadian net capital outflow. 
C) this will only increase U.S. net capital outflow. 
D) this will only increase Canadian net capital outflow. 
A) this will increases U.S. net capital outflow and decrease Canadian net capital outflow. 
B) this will decreases U.S. net capital outflow and increase Canadian net capital outflow. 
C) this will only increase U.S. net capital outflow. 
D) this will only increase Canadian net capital outflow.

Question 3

While on a study abroad program you see a McDonald's in Paris. A combo meal costs 8 euros. The same meal costs $6 in the U.S. and the exchange rate is .75 euros per dollar.
A. Find the real exchange rate. Show your work.
B. In terms of dollars where is the combo meal cheaper?

Accepted Answer

The real exchange rate = .75 x

Question 4

A U.S. firm buys bonds issued by a technology center in India. This purchase is an example of U.S.

Accepted Answer

A) foreign portfolio investment. By itself it is an increase in U.S. holdings of foreign bonds and increases U.S. net capital outflow. 
B) foreign portfolio investment. By itself it is an increase in U.S. holdings of foreign bonds and decreases U.S. net capital outflow. 
C) foreign direct investment. By itself it is an increase in U.S. holdings of foreign bonds and increases U.S. net capital outflow. 
D) foreign direct investment. By itself it is an increase in U.S. holdings of foreign bonds and decreases U.S. net capital outflow. 
A) foreign portfolio investment. By itself it is an increase in U.S. holdings of foreign bonds and increases U.S. net capital outflow. 
B) foreign portfolio investment. By itself it is an increase in U.S. holdings of foreign bonds and decreases U.S. net capital outflow. 
C) foreign direct investment. By itself it is an increase in U.S. holdings of foreign bonds and increases U.S. net capital outflow. 
D) foreign direct investment. By itself it is an increase in U.S. holdings of foreign bonds and decreases U.S. net capital outflow.

Question 5

A Texas ranch sells beef to a U.S. company that sells it to a grocery chain in Japan. These sales

Accepted Answer

A) decrease U.S. exports but increase U.S. net exports. 
B) decrease both U.S. exports and U.S. net exports. 
C) increase both U.S. exports and U.S. net exports. 
D) increase U.S. exports but decrease U.S. net exports. 
A) decrease U.S. exports but increase U.S. net exports. 
B) decrease both U.S. exports and U.S. net exports. 
C) increase both U.S. exports and U.S. net exports. 
D) increase U.S. exports but decrease U.S. net exports.

Question 6

Assuming purchasing-power parity holds and that over a period of five years the dollar had appreciated relative to the currency of Country X, what would explain the appreciation of the dollar?

Accepted Answer

Money growth, and so

Question 7

If purchasing-power parity holds but then U.S. prices rise, which of the following move the exchange rate back towards purchasing-power parity?

Accepted Answer

A) foreign prices rise or the U.S. nominal exchange rate rises 
B) foreign prices rise or the U.S. nominal exchange rate falls 
C) foreign prices fall or the U.S. nominal exchange rate rises 
D) foreign prices fall or the U.S. nominal exchange rate falls 
A) foreign prices rise or the U.S. nominal exchange rate rises 
B) foreign prices rise or the U.S. nominal exchange rate falls 
C) foreign prices fall or the U.S. nominal exchange rate rises 
D) foreign prices fall or the U.S. nominal exchange rate falls

Question 8

Last year country A's residents purchased $700 billion of goods and services from and sold $500 billion of goods and services to residents of foreign countries. Its domestic investment was $1,100. What was country A's saving? Show your work.

Accepted Answer

net capital outflow = net expo

Question 9

On behalf of your firm, you make frequent trips to Tokyo. You notice that you always have to pay more dollars to get your hair cut than you pay in the U.S. This observation is

Accepted Answer

A) consistent with purchasing-power parity if prices in Japan are rising more rapidly than prices in the United States. 
B) consistent with purchasing-power parity if prices in Japan are rising less rapidly than prices in the United States. 
C) inconsistent with purchasing-power parity, but might be explained by limited opportunities for arbitrage in haircuts across international borders. 
D) None of the above is correct. 
A) consistent with purchasing-power parity if prices in Japan are rising more rapidly than prices in the United States. 
B) consistent with purchasing-power parity if prices in Japan are rising less rapidly than prices in the United States. 
C) inconsistent with purchasing-power parity, but might be explained by limited opportunities for arbitrage in haircuts across international borders. 
D) None of the above is correct.

Question 10

Which of the following is correct?

Accepted Answer

A) NCO + C = NX 
B) NCO = NX 
C) NX - NCO = S 
D) NX + NCO = C 
A) NCO + C = NX 
B) NCO = NX 
C) NX - NCO = S 
D) NX + NCO = C

Question 11

A bushel of apples costs $15.00 in the U.S. The same apples cost 1,600 yen in Japan. If the exchange rate is 80 yen per dollar, is there a possibility for arbitrage? Explain and defend your answer. As part of your defense, find the real exchange rate.

Accepted Answer

There is a possibility for profit by buy

Question 12

Suppose that Bill, a resident of the U.S., buys software from a company in Japan. Explain why and in what directions this changes U.S. net exports and U.S. net capital outflow.

Accepted Answer

The purchase of a foreign good by a U.S.

Question 13

A U.S. company uses U.K. pounds it already owned to purchase bonds issued by a company in the U.K. Which of these countries has an increase in net capital outflow?

Accepted Answer

A) The U.S. and the U.K. 
B) The U.S. but not the U.K. 
C) The U.K. but not the U.S. 
D) Neither the U.S. nor the U.K. 
A) The U.S. and the U.K. 
B) The U.S. but not the U.K. 
C) The U.K. but not the U.S. 
D) Neither the U.S. nor the U.K.

Question 14

Which of the following does purchasing-power parity imply?

Accepted Answer

A) The purchasing power of the dollar is the same in the U.S. as in foreign countries. 
B) The price of domestic goods relative to foreign goods cannot change. 
C) The nominal exchange rate is the ratio of U.S. prices to foreign prices. 
D) All of the above are correct. 
A) The purchasing power of the dollar is the same in the U.S. as in foreign countries. 
B) The price of domestic goods relative to foreign goods cannot change. 
C) The nominal exchange rate is the ratio of U.S. prices to foreign prices. 
D) All of the above are correct.

Question 15

Other things the same, if a country has a trade deficit and saving rises,

Accepted Answer

A) net capital outflow rises, so the trade deficit increases. 
B) net capital outflow rises, so the trade deficit decreases. 
C) net capital outflow falls, so the trade deficit increases. 
D) net capital outflow falls, so the trade deficit decreases. 
A) net capital outflow rises, so the trade deficit increases. 
B) net capital outflow rises, so the trade deficit decreases. 
C) net capital outflow falls, so the trade deficit increases. 
D) net capital outflow falls, so the trade deficit decreases.

Question 16

The price of a basket of goods and services in the U.S. is $600. In Canada the same basket of goods costs 700 Canadian dollars. If the nominal exchange rate were 1.2 Canadian dollars per U.S. dollar, what would be the real exchange rate?

Accepted Answer

A) 700/600 
B) 600/700 
C) 700/720 
D) None of the above is correct. 
A) 700/600 
B) 600/700 
C) 700/720 
D) None of the above is correct.

Question 17

A country recently had GDP of $1,200 billion. Its consumption expenditures were $700 billion, its government spent $200 billion, and it had domestic investment of $175 billion. What was the value of this country's net capital outflow? Show your work.

Accepted Answer

Y = C + I + G + NX
$1,200 bill

Question 18

After 1980 in the United States,

Accepted Answer

A) national saving fell below investment and net capital outflow was a large positive number. 
B) national saving fell below investment and net capital outflow was a large negative number. 
C) investment fell below saving and net capital outflow was a large positive number. 
D) investment fell below saving, so net capital outflow was a large negative number. 
A) national saving fell below investment and net capital outflow was a large positive number. 
B) national saving fell below investment and net capital outflow was a large negative number. 
C) investment fell below saving and net capital outflow was a large positive number. 
D) investment fell below saving, so net capital outflow was a large negative number.

Question 19

In an open economy national saving equals domestic investment plus net capital outflow.

Accepted Answer

A) True 
 B)False

Question 20

If a country has negative net capital outflows, then its net exports are

Accepted Answer

A) positive and its saving is larger than its domestic investment. 
B) positive and its saving is smaller than its domestic investment. 
C) negative and its saving is larger than its domestic investment. 
D) negative and its saving is smaller than its domestic investment. 
A) positive and its saving is larger than its domestic investment. 
B) positive and its saving is smaller than its domestic investment. 
C) negative and its saving is larger than its domestic investment. 
D) negative and its saving is smaller than its domestic investment.

Exam 31: Open-Economy Macroeconomics: Basic Concepts

Purchasing-power parity theory does not hold at all times because

Suppose that the real return from operating factories in Canada rises relative to the real rate of return in the United States. Other things the same,

While on a study abroad program you see a McDonald's in Paris. A combo meal costs 8 euros. The same meal costs $6 in the U.S. and the exchange rate is .75 euros per dollar. A. Find the real exchange rate. Show your work. B. In terms of dollars where is the combo meal cheaper?

A U.S. firm buys bonds issued by a technology center in India. This purchase is an example of U.S.

A Texas ranch sells beef to a U.S. company that sells it to a grocery chain in Japan. These sales

Assuming purchasing-power parity holds and that over a period of five years the dollar had appreciated relative to the currency of Country X, what would explain the appreciation of the dollar?

If purchasing-power parity holds but then U.S. prices rise, which of the following move the exchange rate back towards purchasing-power parity?

Last year country A's residents purchased $700 billion of goods and services from and sold $500 billion of goods and services to residents of foreign countries. Its domestic investment was $1,100. What was country A's saving? Show your work.

On behalf of your firm, you make frequent trips to Tokyo. You notice that you always have to pay more dollars to get your hair cut than you pay in the U.S. This observation is

Which of the following is correct?

A bushel of apples costs $15.00 in the U.S. The same apples cost 1,600 yen in Japan. If the exchange rate is 80 yen per dollar, is there a possibility for arbitrage? Explain and defend your answer. As part of your defense, find the real exchange rate.

Suppose that Bill, a resident of the U.S., buys software from a company in Japan. Explain why and in what directions this changes U.S. net exports and U.S. net capital outflow.

A U.S. company uses U.K. pounds it already owned to purchase bonds issued by a company in the U.K. Which of these countries has an increase in net capital outflow?

Which of the following does purchasing-power parity imply?

Other things the same, if a country has a trade deficit and saving rises,

The price of a basket of goods and services in the U.S. is $600. In Canada the same basket of goods costs 700 Canadian dollars. If the nominal exchange rate were 1.2 Canadian dollars per U.S. dollar, what would be the real exchange rate?

A country recently had GDP of $1,200 billion. Its consumption expenditures were $700 billion, its government spent $200 billion, and it had domestic investment of $175 billion. What was the value of this country's net capital outflow? Show your work.

After 1980 in the United States,

In an open economy national saving equals domestic investment plus net capital outflow.

If a country has negative net capital outflows, then its net exports are

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

Filters