Question 1

Which of the following equations is correct?

Accepted Answer

A) Y = C + I + G + NCO 
B) NX = NCO 
C) NCO = S - I 
D) All of the above are correct. 
A) Y = C + I + G + NCO 
B) NX = NCO 
C) NCO = S - I 
D) All of the above are correct.

Question 2

The theory of purchasing-power parity primarily explains

Accepted Answer

A) why trade deficits tend to move to zero over time. 
B) how foreign prices affect domestic prices. 
C) the determination of the real exchange rate. 
D) why a change in the real exchange rate changes a country's net exports. 
A) why trade deficits tend to move to zero over time. 
B) how foreign prices affect domestic prices. 
C) the determination of the real exchange rate. 
D) why a change in the real exchange rate changes a country's net exports.

Question 3

Last year a country had exports of $100 billion, imports of $70 billion, and purchased $60 billion worth of foreign assets. What was the value of domestic assets purchased by foreigners?

Accepted Answer

A) $70 billion 
B) $40 billion 
C) $30 billion 
D) $10 billion 
A) $70 billion 
B) $40 billion 
C) $30 billion 
D) $10 billion

Question 4

In which period was most of the change in U.S. net capital outflow due to an increase in investment in the U.S.?

Accepted Answer

A) 1980-1987 
B) 1991-2000 
C) 2000-2012 
D) None of the above are correct. 
A) 1980-1987 
B) 1991-2000 
C) 2000-2012 
D) None of the above are correct.

Question 5

Other things the same, an increase in the foreign price level leads to an increase in the real exchange rate.

Accepted Answer

A) True 
 B)False

Question 6

If purchasing-power parity holds, a dollar will buy

Accepted Answer

A) more goods in foreign countries than in the United States. 
B) as many goods in foreign countries as it does in the United States. 
C) fewer goods in foreign countries than it does in the United States. 
D) None of the above is implied by purchasing-power parity. 
A) more goods in foreign countries than in the United States. 
B) as many goods in foreign countries as it does in the United States. 
C) fewer goods in foreign countries than it does in the United States. 
D) None of the above is implied by purchasing-power parity.

Question 7

If the real exchange rate is greater than 1, then the

Accepted Answer

A) nominal exchange rate x U.S. price > foreign price. The dollars required to purchase a good in the U.S. would buy more then enough foreign currency to buy the same good overseas. B) nominal exchange rate x U.S. price > foreign price. The dollars required to purchase a good in the U.S. would not buy enough foreign currency to buy the same good overseas. C) nominal exchange rate x U.S. price < foreign price. The dollars required to purchase a good in the U.S. would buy more then enough foreign currency to buy the same good overseas. D) nominal exchange rate x U.S. price < foreign price. The dollars required to purchase a good in the U.S. would not buy enough foreign currency to buy the same good overseas. A) nominal exchange rate x U.S. price > foreign price. The dollars required to purchase a good in the U.S. would buy more then enough foreign currency to buy the same good overseas. B) nominal exchange rate x U.S. price > foreign price. The dollars required to purchase a good in the U.S. would not buy enough foreign currency to buy the same good overseas. C) nominal exchange rate x U.S. price < foreign price. The dollars required to purchase a good in the U.S. would buy more then enough foreign currency to buy the same good overseas. D) nominal exchange rate x U.S. price < foreign price. The dollars required to purchase a good in the U.S. would not buy enough foreign currency to buy the same good overseas.

Question 8

Paul, a Canadian citizen, purchases oranges grown in Florida. This purchase is an example of

Accepted Answer

A) a U.S. import and a Canadian export 
B) a U.S. export and a Canadian import 
C) an export for both the U.S. and Canada 
D) an import for both Canada and the U.S. 
A) a U.S. import and a Canadian export 
B) a U.S. export and a Canadian import 
C) an export for both the U.S. and Canada 
D) an import for both Canada and the U.S.

Question 9

Other things the same, if U.S. net capital outflow rises, so does U.S. saving.

Accepted Answer

A) True 
 B)False

Question 10

The nominal exchange rate is about 2 Aruban florin per dollar. If a basket of goods in the United States costs $40, how many florins must a basket of goods in Aruba cost for purchasing-power parity to hold?

Accepted Answer

A) 20 florin 
B) 40 florin 
C) 60 florin 
D) 80 florin 
A) 20 florin 
B) 40 florin 
C) 60 florin 
D) 80 florin

Question 11

Over the past six decades, the U.S. economy has experienced a dramatic increase in the relative importance of international trade and finance.

Accepted Answer

A) True 
 B)False

Question 12

One year a country has negative net exports. The next year it still has negative net exports and imports have risen more than exports.

Accepted Answer

A) its trade surplus fell. 
B) its trade surplus rose. 
C) its trade deficit fell. 
D) its trade deficit rose 
A) its trade surplus fell. 
B) its trade surplus rose. 
C) its trade deficit fell. 
D) its trade deficit rose

Question 13

A country recently had $800 billion worth of domestic investment and its residents purchased $400 billion worth of foreign assets. If foreigners purchased $100 billion of this country's assets, what was this country's saving? Explain how your found your answer.

Accepted Answer

This country had saving of $1,100 billio

Question 14

If a country were to save more, but its domestic investment remained the same, then which of the following would rise?

Accepted Answer

A) both net capital outflow and net exports 
B) net capital outflow but not net exports 
C) net exports but not net exports 
D) neither net exports nor net capital outflow 
A) both net capital outflow and net exports 
B) net capital outflow but not net exports 
C) net exports but not net exports 
D) neither net exports nor net capital outflow

Question 15

In the U.S. a television costs $400. In South Africa the same television costs 3000 rand (the currency of South Africa). The nominal exchange rate is 8 rand per dollar.
A. Find the real exchange rate. Show your work.
B. In terms of dollars where is the television cheapest?

Accepted Answer

The real exchange rate = 8 x 4

Question 16

According to purchasing-power parity, which of the following necessarily equals the ratio of the foreign price level divided by the domestic price level?

Accepted Answer

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

Question 17

Purchasing-power parity says that the nominal exchange rate must equal the real exchange rate.

Accepted Answer

A) True 
 B)False

Question 18

The real exchange rate is the nominal exchange rate, defined as foreign currency per dollar, times

Accepted Answer

A) U.S. prices minus foreign prices. 
B) U.S. prices divided by foreign prices. 
C) foreign prices divided by U.S. prices. 
D) None of the above is correct. 
A) U.S. prices minus foreign prices. 
B) U.S. prices divided by foreign prices. 
C) foreign prices divided by U.S. prices. 
D) None of the above is correct.

Question 19

A Turkish company exchanges liras for dollars and then uses the dollars to purchase medical equipment from a U.S. company. These transactions

Accepted Answer

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

Question 20

Net exports measures the difference between a country's

Accepted Answer

A) income and expenditures. 
B) sale of goods and services abroad and purchase of foreign goods and services. 
C) sale of domestic assets abroad and purchase of foreign assets. 
D) All of the above are correct. 
A) income and expenditures. 
B) sale of goods and services abroad and purchase of foreign goods and services. 
C) sale of domestic assets abroad and purchase of foreign assets. 
D) All of the above are correct.

Exam 31: Open-Economy Macroeconomics: Basic Concepts

Which of the following equations is correct?

The theory of purchasing-power parity primarily explains

Last year a country had exports of $100 billion, imports of $70 billion, and purchased $60 billion worth of foreign assets. What was the value of domestic assets purchased by foreigners?

In which period was most of the change in U.S. net capital outflow due to an increase in investment in the U.S.?

Other things the same, an increase in the foreign price level leads to an increase in the real exchange rate.

If purchasing-power parity holds, a dollar will buy

If the real exchange rate is greater than 1, then the

Paul, a Canadian citizen, purchases oranges grown in Florida. This purchase is an example of

Other things the same, if U.S. net capital outflow rises, so does U.S. saving.

The nominal exchange rate is about 2 Aruban florin per dollar. If a basket of goods in the United States costs $40, how many florins must a basket of goods in Aruba cost for purchasing-power parity to hold?

Over the past six decades, the U.S. economy has experienced a dramatic increase in the relative importance of international trade and finance.

One year a country has negative net exports. The next year it still has negative net exports and imports have risen more than exports.

A country recently had $800 billion worth of domestic investment and its residents purchased $400 billion worth of foreign assets. If foreigners purchased $100 billion of this country's assets, what was this country's saving? Explain how your found your answer.

If a country were to save more, but its domestic investment remained the same, then which of the following would rise?

In the U.S. a television costs $400. In South Africa the same television costs 3000 rand (the currency of South Africa). The nominal exchange rate is 8 rand per dollar. A. Find the real exchange rate. Show your work. B. In terms of dollars where is the television cheapest?

According to purchasing-power parity, which of the following necessarily equals the ratio of the foreign price level divided by the domestic price level?

Purchasing-power parity says that the nominal exchange rate must equal the real exchange rate.

The real exchange rate is the nominal exchange rate, defined as foreign currency per dollar, times

A Turkish company exchanges liras for dollars and then uses the dollars to purchase medical equipment from a U.S. company. These transactions

Net exports measures the difference between a country's

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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