Question 1

The country of Elbia has a GDP of $2,000, consumption of $1,300, and government purchases of $400. Which of the following is equal to $300?

Accepted Answer

A) domestic investment 
B) domestic investment plus net capital outflow 
C) domestic investment minus net capital outflow 
D) None of the above is correct. 
A) domestic investment 
B) domestic investment plus net capital outflow 
C) domestic investment minus net capital outflow 
D) None of the above is correct.

Question 2

Consider an identical basket of goods in both the U.S. and Taiwan. For a given nominal exchange rate, in which case is it certain that the U.S. real exchange rate with Taiwan falls?

Accepted Answer

A) the price of the basket of goods rises in the U.S. and Taiwan. 
B) the price of the basket of goods rises in the U.S. and falls in Taiwan. 
C) the price of the basket of goods falls in the U.S. and rises in Taiwan. 
D) the price of the basket of goods falls in both the U.S. and Taiwan. 
A) the price of the basket of goods rises in the U.S. and Taiwan. 
B) the price of the basket of goods rises in the U.S. and falls in Taiwan. 
C) the price of the basket of goods falls in the U.S. and rises in Taiwan. 
D) the price of the basket of goods falls in both the U.S. and Taiwan.

Question 3

If purchasing-power parity holds, when a country's central bank increases the money supply, a unit of money

Accepted Answer

A) gains value both in terms of the domestic goods and services it can buy and in terms of the foreign currency it can buy. 
B) gains value in terms of the domestic goods and services it can buy, but loses value in terms of the foreign currency it can buy. 
C) loses value in terms of the domestic goods and services it can buy, but gains value in terms of the foreign currency it can buy. 
D) loses value both in terms of the domestic goods and services it can buy and in terms of the foreign currency it can buy. 
A) gains value both in terms of the domestic goods and services it can buy and in terms of the foreign currency it can buy. 
B) gains value in terms of the domestic goods and services it can buy, but loses value in terms of the foreign currency it can buy. 
C) loses value in terms of the domestic goods and services it can buy, but gains value in terms of the foreign currency it can buy. 
D) loses value both in terms of the domestic goods and services it can buy and in terms of the foreign currency it can buy.

Question 4

Prices in both the U.S. and China rise, but prices in China increase by a larger percentage. According to purchasing-power parity, the U.S. dollar

Accepted Answer

A) gains value both in terms of the domestic goods and services it can buy and in terms of the Chinese currency it can buy. 
B) gains value in terms of the domestic goods and services it can buy, but loses value in terms of the Chinese currency it can buy. 
C) loses value in terms of the domestic goods and services it can buy, but gains value in terms of the Chinese currency it can buy. 
D) loses value both in terms of the domestic goods and services it can buy and in terms of the Chinese currency it can buy. 
A) gains value both in terms of the domestic goods and services it can buy and in terms of the Chinese currency it can buy. 
B) gains value in terms of the domestic goods and services it can buy, but loses value in terms of the Chinese currency it can buy. 
C) loses value in terms of the domestic goods and services it can buy, but gains value in terms of the Chinese currency it can buy. 
D) loses value both in terms of the domestic goods and services it can buy and in terms of the Chinese currency it can buy.

Question 5

The price of a basket of goods is $2000 in the U.S. If purchasing-power parity holds, and the dollar buys two units of some country's currency, then how many units of foreign currency does the same basket of goods cost in that country?

Accepted Answer

A) 4000 
B) 2000 
C) 1000 
D) None of the above are correct. 
A) 4000 
B) 2000 
C) 1000 
D) None of the above are correct.

Question 6

A German mutual fund sells euros to a U.S. bank for $20,000. The mutual fund then uses these dollars to purchase a bond issued by United Express, a U.S. delivery company. As a result of these two transactions, what happened to U.S. net capital outflow?

Accepted Answer

A) It fell by $40,000. 
B) It fell by $20,000. 
C) It was unchanged. 
D) It rose by $20,000. 
A) It fell by $40,000. 
B) It fell by $20,000. 
C) It was unchanged. 
D) It rose by $20,000.

Question 7

When U.S. national saving rises, domestic investment also necessarily rises.

Accepted Answer

A) True 
 B)False

Question 8

Other things the same, which of the following could be a consequence of an appreciation of the U.S. real exchange rate?

Accepted Answer

A) John, a French citizen, decides that Iowa pork is now relatively less expensive and orders more for his restaurant. 
B) Nick, a U.S. citizen, decides that the trip to Nepal he's been thinking about is now affordable. 
C) Roberta, a U.S. citizen, decides to import fewer windshield wipers for her auto parts company. 
D) All of the above are correct. 
A) John, a French citizen, decides that Iowa pork is now relatively less expensive and orders more for his restaurant. 
B) Nick, a U.S. citizen, decides that the trip to Nepal he's been thinking about is now affordable. 
C) Roberta, a U.S. citizen, decides to import fewer windshield wipers for her auto parts company. 
D) All of the above are correct.

Question 9

A nation's domestic investment is greater than its savings. Which of the following is correct?

Accepted Answer

A) This nation has a negative net capital outflow. 
B) This nation has a trade surplus. 
C) Purchases of foreign assets by domestic residents exceed purchases of domestic assets by foreigners. 
D) All of the above are correct. 
A) This nation has a negative net capital outflow. 
B) This nation has a trade surplus. 
C) Purchases of foreign assets by domestic residents exceed purchases of domestic assets by foreigners. 
D) All of the above are correct.

Question 10

A certain cell phone sells for 2400 yuan in China and for $300 in the U.S. The nominal exchange rate is 6.5 yuan per dollar.
A. Find the real exchange rate. Show your work.
B. In terms of dollars where is the cell phone cheaper?

Accepted Answer

The real exchange rate = $300

Question 11

U.S. exports make up less than 20 percent of GDP.

Accepted Answer

A) True 
 B)False

Question 12

If a country has a trade deficit then

Accepted Answer

A) S > I and Y > C + I + G. B) S > I and Y C + I + G. D) S < I and Y < C + I + G. A) S > I and Y > C + I + G. B) S > I and Y C + I + G. D) S < I and Y < C + I + G.

Question 13

If a U.S. firm buys Chinese toys using previously obtained Chinese currency, then both U.S. net exports and U.S. net capital outflow decrease.

Accepted Answer

A) True 
 B)False

Question 14

An Italian company builds and operates a pasta factory in the United States. This is an example of Italian

Accepted Answer

A) foreign direct investment that increases Italian net capital outflow. 
B) foreign direct investment that decreases Italian net capital outflow. 
C) foreign portfolio investment that increases Italian net capital outflow. 
D) foreign portfolio investment that decreases Italian net capital outflow. 
A) foreign direct investment that increases Italian net capital outflow. 
B) foreign direct investment that decreases Italian net capital outflow. 
C) foreign portfolio investment that increases Italian net capital outflow. 
D) foreign portfolio investment that decreases Italian net capital outflow.

Question 15

You buy a new car built in Sweden. Other things the same, your purchase by itself

Accepted Answer

A) raises both U.S. exports and U.S. net exports. 
B) raises U.S. exports and lowers U.S. net exports. 
C) raises both U.S. imports and U.S. net exports. 
D) raises U.S. imports and lowers U.S. net exports. 
A) raises both U.S. exports and U.S. net exports. 
B) raises U.S. exports and lowers U.S. net exports. 
C) raises both U.S. imports and U.S. net exports. 
D) raises U.S. imports and lowers U.S. net exports.

Question 16

Oceania buys $100 of wine from Escudia and Escudia buys $80 of wool from Oceania. Suppose this is the only trade that these countries do. What are the net exports of Oceania and Escudia, in that order?

Accepted Answer

A) $80 and $100 
B) $-20 and $20 
C) $20 and -$20 
D) None of the above is correct. 
A) $80 and $100 
B) $-20 and $20 
C) $20 and -$20 
D) None of the above is correct.

Question 17

If a country sells more goods and services abroad than it purchases abroad, it has positive net exports and a trade surplus.

Accepted Answer

A) True 
 B)False

Question 18

According to purchasing-power parity, if the Federal Reserve increased the money supply

Accepted Answer

A) U.S. prices would rise and the nominal exchange rate would rise. 
B) U.S. prices would rise and the nominal exchange rate would fall. 
C) U.S. prices would fall and the nominal exchange rate would rise. 
D) U.S. prices and the nominal exchange rate would fall. 
A) U.S. prices would rise and the nominal exchange rate would rise. 
B) U.S. prices would rise and the nominal exchange rate would fall. 
C) U.S. prices would fall and the nominal exchange rate would rise. 
D) U.S. prices and the nominal exchange rate would fall.

Question 19

Other things the same, if a country saves less, then

Accepted Answer

A) net capital outflow rises, so net exports rise. 
B) net capital outflow rises, so net exports fall. 
C) net capital outflow falls, so net exports rise. 
D) net capital outflow falls, so net exports fall. 
A) net capital outflow rises, so net exports rise. 
B) net capital outflow rises, so net exports fall. 
C) net capital outflow falls, so net exports rise. 
D) net capital outflow falls, so net exports fall.

Question 20

An Italian company exchanges euros for dollars from U.S. residents and then uses the dollars to buy U.S. products to sell in its stores in Rome. U.S. residents who exchanged their dollars for euros use the euros to buy bonds issued by French corporations. At this point

Accepted Answer

A) both U.S. net exports and U.S. net capital outflows have risen. 
B) both U.S. net exports and U.S. net capital outflow have fallen. 
C) U.S. net exports have risen and U.S. net capital outflow have fallen. 
D) U.S. net exports have fallen and U.S. net capital outflow have risen. 
A) both U.S. net exports and U.S. net capital outflows have risen. 
B) both U.S. net exports and U.S. net capital outflow have fallen. 
C) U.S. net exports have risen and U.S. net capital outflow have fallen. 
D) U.S. net exports have fallen and U.S. net capital outflow have risen.

Exam 31: Open-Economy Macroeconomics: Basic Concepts

The country of Elbia has a GDP of $2,000, consumption of $1,300, and government purchases of $400. Which of the following is equal to $300?

Consider an identical basket of goods in both the U.S. and Taiwan. For a given nominal exchange rate, in which case is it certain that the U.S. real exchange rate with Taiwan falls?

If purchasing-power parity holds, when a country's central bank increases the money supply, a unit of money

Prices in both the U.S. and China rise, but prices in China increase by a larger percentage. According to purchasing-power parity, the U.S. dollar

The price of a basket of goods is $2000 in the U.S. If purchasing-power parity holds, and the dollar buys two units of some country's currency, then how many units of foreign currency does the same basket of goods cost in that country?

A German mutual fund sells euros to a U.S. bank for $20,000. The mutual fund then uses these dollars to purchase a bond issued by United Express, a U.S. delivery company. As a result of these two transactions, what happened to U.S. net capital outflow?

When U.S. national saving rises, domestic investment also necessarily rises.

Other things the same, which of the following could be a consequence of an appreciation of the U.S. real exchange rate?

A nation's domestic investment is greater than its savings. Which of the following is correct?

A certain cell phone sells for 2400 yuan in China and for $300 in the U.S. The nominal exchange rate is 6.5 yuan per dollar. A. Find the real exchange rate. Show your work. B. In terms of dollars where is the cell phone cheaper?

U.S. exports make up less than 20 percent of GDP.

If a country has a trade deficit then

If a U.S. firm buys Chinese toys using previously obtained Chinese currency, then both U.S. net exports and U.S. net capital outflow decrease.

An Italian company builds and operates a pasta factory in the United States. This is an example of Italian

You buy a new car built in Sweden. Other things the same, your purchase by itself

Oceania buys $100 of wine from Escudia and Escudia buys $80 of wool from Oceania. Suppose this is the only trade that these countries do. What are the net exports of Oceania and Escudia, in that order?

If a country sells more goods and services abroad than it purchases abroad, it has positive net exports and a trade surplus.

According to purchasing-power parity, if the Federal Reserve increased the money supply

Other things the same, if a country saves less, then

An Italian company exchanges euros for dollars from U.S. residents and then uses the dollars to buy U.S. products to sell in its stores in Rome. U.S. residents who exchanged their dollars for euros use the euros to buy bonds issued by French corporations. At this point

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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