Question 1

A depreciation of the U.S. real exchange rate induces U.S. consumers to buy

Accepted Answer

A) fewer domestic goods and fewer foreign goods. 
B) more domestic goods and fewer foreign goods. 
C) fewer domestic goods and more foreign goods. 
D) more domestic goods and more foreign goods. 
A) fewer domestic goods and fewer foreign goods. 
B) more domestic goods and fewer foreign goods. 
C) fewer domestic goods and more foreign goods. 
D) more domestic goods and more foreign goods.

Question 2

Over the last 5 years the amount of country A's currency it took to buy a unit of country B's currency more than doubled.
A. Did country A's currency depreciate or appreciate?
B. According to purchasing-power parity, what explains the change in the value of country B's currency?

Accepted Answer

A. It depreciated.
B

Question 3

If prices in the U.S. rise faster than prices in the United Kingdom, then according to the doctrine of purchasing-power parity the U.S. nominal exchange rate should rise

Accepted Answer

A) True 
 B)False

Question 4

In the 1970s and 1980s the U.S. dollar depreciated against the German mark and appreciated against the Italian lira because U.S. inflation was lower than in Germany but higher than in Italy.

Accepted Answer

A) True 
 B)False

Question 5

Suppose that money supply growth continues to be higher in Turkey than it is in the United States. What does purchasing-power parity imply will happen to the real and to the nominal exchange rate?

Accepted Answer

Higher money growth leads to higher pric

Question 6

While vacationing in Agra, India, the price of one night's stay at your hotel room rises from 6600 rupees to 7200 rupees. If the exchange rate was previously 55 rupees per dollar, what would the exchange rate need to be now in order for the number of dollars you pay for your room to remain the same? Does this imply the rupee depreciated or appreciated against the dollar?

Accepted Answer

At an exchange rate of 55 rupees the roo

Question 7

According to purchasing-power parity, inflation in the United States causes the dollar to

Accepted Answer

A) depreciate relative to all other currencies. 
B) depreciate relative to currencies of countries that have lower inflation rates. 
C) appreciate relative to all other countries. 
D) appreciate relative to currencies of countries that have lower inflation rates. 
A) depreciate relative to all other currencies. 
B) depreciate relative to currencies of countries that have lower inflation rates. 
C) appreciate relative to all other countries. 
D) appreciate relative to currencies of countries that have lower inflation rates.

Question 8

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

Accepted Answer

A) True 
 B)False

Question 9

The increase in the trade deficit in the 1980's reflected a decrease in national saving that is associated with an increase in the government budget deficit.

Accepted Answer

A) True 
 B)False

Question 10

Suppose a country's net capital outflow does not change, but its investment declines by $420 billion. Its saving must have

Accepted Answer

A) fallen by $420 billion, so its net exports have risen. 
B) fallen by $420 billion, but its net exports are unchanged. 
C) risen by $420 billion, so its net exports have fallen. 
D) risen by $420 billion, but its net exports are unchanged. 
A) fallen by $420 billion, so its net exports have risen. 
B) fallen by $420 billion, but its net exports are unchanged. 
C) risen by $420 billion, so its net exports have fallen. 
D) risen by $420 billion, but its net exports are unchanged.

Question 11

Other things the same, an increase in the U.S. real exchange rate makes U.S. goods more expensive relative to foreign goods.

Accepted Answer

A) True 
 B)False

Question 12

For an economy as a whole, net exports must equal minus one times net capital outflow.

Accepted Answer

A) True 
 B)False

Question 13

To increase domestic investment, a country must increase its saving.

Accepted Answer

A) True 
 B)False

Question 14

If prices in Mexico rise at a higher rate than prices in the U.S., then according to purchasing-power parity the U.S. nominal exchange rate with Mexico should rise.

Accepted Answer

A) True 
 B)False

Question 15

If a country's imports exceed its exports it has a trade surplus.

Accepted Answer

A) True 
 B)False

Question 16

According to purchasing-power parity, when a country's central bank decreases 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 17

According to purchasing power parity, the nominal exchange rate between the U.S. and another country should equal the price level of foreign goods divided by the price level of U.S. goods.

Accepted Answer

A) True 
 B)False

Question 18

What does purchasing-power parity imply about the real exchange rate? Explain what this means.

Accepted Answer

That it is equal to one. The n

Question 19

The theory of purchasing-power parity states that a unit of a country's currency should be able to buy the same quantity of goods in foreign countries as it does in the domestic economy.

Accepted Answer

A) True 
 B)False

Question 20

Both foreign direct investment and foreign portfolio investment by U.S. residents increase U.S. net capital outflow.

Accepted Answer

A) True 
 B)False

Exam 31: Open-Economy Macroeconomics: Basic Concepts

A depreciation of the U.S. real exchange rate induces U.S. consumers to buy

Over the last 5 years the amount of country A's currency it took to buy a unit of country B's currency more than doubled. A. Did country A's currency depreciate or appreciate? B. According to purchasing-power parity, what explains the change in the value of country B's currency?

If prices in the U.S. rise faster than prices in the United Kingdom, then according to the doctrine of purchasing-power parity the U.S. nominal exchange rate should rise

In the 1970s and 1980s the U.S. dollar depreciated against the German mark and appreciated against the Italian lira because U.S. inflation was lower than in Germany but higher than in Italy.

Suppose that money supply growth continues to be higher in Turkey than it is in the United States. What does purchasing-power parity imply will happen to the real and to the nominal exchange rate?

According to purchasing-power parity, inflation in the United States causes the dollar to

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

The increase in the trade deficit in the 1980's reflected a decrease in national saving that is associated with an increase in the government budget deficit.

Suppose a country's net capital outflow does not change, but its investment declines by $420 billion. Its saving must have

Other things the same, an increase in the U.S. real exchange rate makes U.S. goods more expensive relative to foreign goods.

For an economy as a whole, net exports must equal minus one times net capital outflow.

To increase domestic investment, a country must increase its saving.

If prices in Mexico rise at a higher rate than prices in the U.S., then according to purchasing-power parity the U.S. nominal exchange rate with Mexico should rise.

If a country's imports exceed its exports it has a trade surplus.

According to purchasing-power parity, when a country's central bank decreases the money supply, a unit of money

According to purchasing power parity, the nominal exchange rate between the U.S. and another country should equal the price level of foreign goods divided by the price level of U.S. goods.

What does purchasing-power parity imply about the real exchange rate? Explain what this means.

The theory of purchasing-power parity states that a unit of a country's currency should be able to buy the same quantity of goods in foreign countries as it does in the domestic economy.

Both foreign direct investment and foreign portfolio investment by U.S. residents increase U.S. net capital outflow.

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 Nations 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