Question 1

A country's trade balance will fall if

Accepted Answer

A) either investment or saving rise. 
B) either investment falls or saving rises. 
C) either saving falls or investment rises. 
D) either investment or saving fall. 
A) either investment or saving rise. 
B) either investment falls or saving rises. 
C) either saving falls or investment rises. 
D) either investment or saving fall.

Question 2

A country has $60 million of saving and domestic investment of $40 million. Net exports are

Accepted Answer

A) $20 million. 
B) -$20 million. 
C) $100 million. 
D) -$100 million. 
A) $20 million. 
B) -$20 million. 
C) $100 million. 
D) -$100 million.

Question 3

Other things the same, if the U.S. real exchange rate appreciates, U.S. net exports

Accepted Answer

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

Question 4

Suppose the world had only two countries and domestic residents of country A purchased $50 billion of assets from country B and country B purchased $30 billion of assets from country A. What would the net capital outflows of both countries be?

Accepted Answer

A) $50 billion for country A and $30 billion for country B 
B) $30 billion for country A and $50 billion for country B 
C) $20 billion for country A and -$20 billion for country B 
D) -$20 billion for country A and $20 billion for country B 
A) $50 billion for country A and $30 billion for country B 
B) $30 billion for country A and $50 billion for country B 
C) $20 billion for country A and -$20 billion for country B 
D) -$20 billion for country A and $20 billion for country B

Question 5

If you are vacationing in France and the dollar depreciates relative to the euro, then

Accepted Answer

A) the dollar buys more euros. It will take fewer dollars to buy a good that costs 50 euros. 
B) the dollar buys more euros. It will take more dollars to buy a good that costs 50 euros. 
C) the dollar buys fewer euros. It will take fewer dollars to buy a good that costs 50 euros. 
D) the dollar buys fewer euros. It will take more dollars to buy a good that costs 50 euros. 
A) the dollar buys more euros. It will take fewer dollars to buy a good that costs 50 euros. 
B) the dollar buys more euros. It will take more dollars to buy a good that costs 50 euros. 
C) the dollar buys fewer euros. It will take fewer dollars to buy a good that costs 50 euros. 
D) the dollar buys fewer euros. It will take more dollars to buy a good that costs 50 euros.

Question 6

If purchases of foreign assets by U.S. residents exceed purchases of U.S. assets by foreign residents, then U.S. net capital outflow is positive.

Accepted Answer

A) True 
 B)False

Question 7

A basket of goods costs $800 in the U.S. In Belgium the basket of goods costs 640 euros and the exchange rate is .80 euros per U.S. dollar. In Japan the basket of goods costs 90,000 yen and the exchange rate is 90 yen per dollar. Which country has purchasing-power parity with the U.S.?

Accepted Answer

A) both Belgium and Japan 
B) Belgium but not Japan 
C) Japan but not Belgium 
D) neither Belgium nor Japan 
A) both Belgium and Japan 
B) Belgium but not Japan 
C) Japan but not Belgium 
D) neither Belgium nor Japan

Question 8

If over the next six months inflation is higher in the U.S. than in foreign countries, then according to purchasing-power parity

Accepted Answer

A) only the nominal exchange rate depreciates. 
B) both the real and nominal exchange rate appreciate. 
C) both the real and nominal exchange rate depreciate. 
D) only the real exchange rate appreciates. 
A) only the nominal exchange rate depreciates. 
B) both the real and nominal exchange rate appreciate. 
C) both the real and nominal exchange rate depreciate. 
D) only the real exchange rate appreciates.

Question 9

When the Mexican peso gets "stronger" relative to the dollar,

Accepted Answer

A) the U.S. trade deficit with Mexico rises. 
B) the U.S. trade deficit with Mexico falls. 
C) the U.S. trade deficit with Mexico is unchanged. 
D) None of the above necessarily happens. 
A) the U.S. trade deficit with Mexico rises. 
B) the U.S. trade deficit with Mexico falls. 
C) the U.S. trade deficit with Mexico is unchanged. 
D) None of the above necessarily happens.

Question 10

A U.S. firm exchanges dollars for yen and then uses them to buy Japanese goods. Overall as a result of these transactions

Accepted Answer

A) both U.S. net capital outflow and U.S. net exports rise. 
B) both U.S. net capital outflow and U.S. net exports fall. 
C) U.S. net capital outflow rises and U.S. net exports fall. 
D) U.S. net capital outflow falls and U.S. net exports rise. 
A) both U.S. net capital outflow and U.S. net exports rise. 
B) both U.S. net capital outflow and U.S. net exports fall. 
C) U.S. net capital outflow rises and U.S. net exports fall. 
D) U.S. net capital outflow falls and U.S. net exports rise.

Question 11

U.S. international trade has

Accepted Answer

A) decreased because of a decrease in the trade of goods with a high value per pound. 
B) decreased because of an increase in the trade of goods with a high value per pound. 
C) increased because of a decrease in trade of goods with a high value per pound. 
D) increased because of an increase in trade of goods with a high value per pound. 
A) decreased because of a decrease in the trade of goods with a high value per pound. 
B) decreased because of an increase in the trade of goods with a high value per pound. 
C) increased because of a decrease in trade of goods with a high value per pound. 
D) increased because of an increase in trade of goods with a high value per pound.

Question 12

Table 31-2
Colombian Trade Flows  
-Refer to Table 31-2.​ What are Colombian imports?

Accepted Answer

A) ​50 billion pesos 
B) ​60 billion pesos 
C) 80 billion pesos 
D) ​100 billion pesos 
A) ​50 billion pesos 
B) ​60 billion pesos 
C) 80 billion pesos 
D) ​100 billion pesos

Question 13

Which of the following is inconsistent with the others?

Accepted Answer

A) Y - C - G > I 
B) this country had a trade surplus 
C) the purchase of foreign assets by this country's residents exceed foreigner's purchases of this country's assets 
D) this country's investment exceeded its domestic saving 
A) Y - C - G > I 
B) this country had a trade surplus 
C) the purchase of foreign assets by this country's residents exceed foreigner's purchases of this country's assets 
D) this country's investment exceeded its domestic saving

Question 14

You are the CEO of a U.S. firm considering building a factory in Chile. If the dollar appreciates relative to the Chilean peso, then other things the same

Accepted Answer

A) it takes fewer dollars to build the factory. By itself building the factory increases U.S. net capital outflow. 
B) it takes fewer dollars to build the factory. By itself building the factory decreases U.S. net capital outflow. 
C) it takes more dollars to build the factory. By itself building the factory increases U.S. net capital outflow. 
D) it takes more dollars to build the factory. By itself building the factory decreases U.S. net capital outflow. 
A) it takes fewer dollars to build the factory. By itself building the factory increases U.S. net capital outflow. 
B) it takes fewer dollars to build the factory. By itself building the factory decreases U.S. net capital outflow. 
C) it takes more dollars to build the factory. By itself building the factory increases U.S. net capital outflow. 
D) it takes more dollars to build the factory. By itself building the factory decreases U.S. net capital outflow.

Question 15

Many economists believe that the theory of purchasing-power parity describes the forces that determine exchange rates in the long run.

Accepted Answer

A) True 
 B)False

Question 16

If the U.S. real exchange rate appreciates, U.S. exports to Europe

Accepted Answer

A) and European exports to the U.S. both rise. 
B) and European exports to the U.S. both fall. 
C) rise, and European exports to the U.S. fall. 
D) fall, and European exports to the U.S. rise. 
A) and European exports to the U.S. both rise. 
B) and European exports to the U.S. both fall. 
C) rise, and European exports to the U.S. fall. 
D) fall, and European exports to the U.S. rise.

Question 17

If a country has a trade surplus 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 18

Citizens in India buy music from the U.S. To do so they use Indian rupees to purchase U.S. dollars. If U.S. citizens hold these rupees rather than spending them, what happens to U.S. net exports and U.S. net capital outflows?

Accepted Answer

A) both U.S. net exports and U.S. net capital outflow rise 
B) both U.S. net exports and U.S. net capital outflow fall 
C) U.S. net exports rise and U.S. net capital outflow fall 
D) U.S. net exports fall and U.S. net capital outflow rise 
A) both U.S. net exports and U.S. net capital outflow rise 
B) both U.S. net exports and U.S. net capital outflow fall 
C) U.S. net exports rise and U.S. net capital outflow fall 
D) U.S. net exports fall and U.S. net capital outflow rise

Question 19

Which of the following is an example of U.S. foreign direct investment?

Accepted Answer

A) A Chinese company opens a restaurant in the U.S. 
B) An Australian bank buys stocks issued by a U.S. corporation. 
C) A U.S. bank buys bonds issued by an Australian corporation. 
D) A U.S. company opens an auto parts factory in Canada. 
A) A Chinese company opens a restaurant in the U.S. 
B) An Australian bank buys stocks issued by a U.S. corporation. 
C) A U.S. bank buys bonds issued by an Australian corporation. 
D) A U.S. company opens an auto parts factory in Canada.

Question 20

Suppose a lobster supper in Maine costs fewer dollars than a Lobster supper in Paris, France. Explain why this is inconsistent with purchasing-power parity and explain why the inconsistency may exist.

Accepted Answer

According to purchasing-power parity, a

Exam 31: Open-Economy Macroeconomics: Basic Concepts

A country's trade balance will fall if

A country has $60 million of saving and domestic investment of $40 million. Net exports are

Other things the same, if the U.S. real exchange rate appreciates, U.S. net exports

Suppose the world had only two countries and domestic residents of country A purchased $50 billion of assets from country B and country B purchased $30 billion of assets from country A. What would the net capital outflows of both countries be?

If you are vacationing in France and the dollar depreciates relative to the euro, then

If purchases of foreign assets by U.S. residents exceed purchases of U.S. assets by foreign residents, then U.S. net capital outflow is positive.

A basket of goods costs $800 in the U.S. In Belgium the basket of goods costs 640 euros and the exchange rate is .80 euros per U.S. dollar. In Japan the basket of goods costs 90,000 yen and the exchange rate is 90 yen per dollar. Which country has purchasing-power parity with the U.S.?

If over the next six months inflation is higher in the U.S. than in foreign countries, then according to purchasing-power parity

When the Mexican peso gets "stronger" relative to the dollar,

A U.S. firm exchanges dollars for yen and then uses them to buy Japanese goods. Overall as a result of these transactions

U.S. international trade has

Table 31-2 Colombian Trade Flows -Refer to Table 31-2.​ What are Colombian imports?

Which of the following is inconsistent with the others?

You are the CEO of a U.S. firm considering building a factory in Chile. If the dollar appreciates relative to the Chilean peso, then other things the same

Many economists believe that the theory of purchasing-power parity describes the forces that determine exchange rates in the long run.

If the U.S. real exchange rate appreciates, U.S. exports to Europe

If a country has a trade surplus then

Citizens in India buy music from the U.S. To do so they use Indian rupees to purchase U.S. dollars. If U.S. citizens hold these rupees rather than spending them, what happens to U.S. net exports and U.S. net capital outflows?

Which of the following is an example of U.S. foreign direct investment?

Suppose a lobster supper in Maine costs fewer dollars than a Lobster supper in Paris, France. Explain why this is inconsistent with purchasing-power parity and explain why the inconsistency may exist.

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

Table 31-2 Colombian Trade Flows -Refer to Table 31-2. What are Colombian imports?