Question 1

If the exchange rate is 80 yen per dollar, then a hotel room in Tokyo that costs 25,000 yen costs $200.

Accepted Answer

A) True 
 B)False

Question 2

Other things the same, an increase in the real exchange rate raises U.S. net exports.

Accepted Answer

A) True 
 B)False

Question 3

The large trade deficits in the U.S. during the 1990's were primarily associated with a rise in domestic investment spending rather than a rise in the budget deficit.

Accepted Answer

A) True 
 B)False

Question 4

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

Accepted Answer

A) True 
 B)False

Question 5

If a nation produces less than it spends what do we know about:
A. its net exports?
B. its net capital outflow?
C. its saving in relation to its domestic investment?

Accepted Answer

A. Its net exports are negativ

Question 6

Last year a country had $700 billion of saving and $900 of investment. This year it had $1000 billion of saving and $800 billion of investment. By how much did net capital outflow change? By how much did net exports change? How is it possible for a country to have saving that is greater than investment?

Accepted Answer

Both net capital outflows and net export

Question 7

Which of the following equations is correct?

Accepted Answer

A) S = I + C 
B) S = I − NX 
C) S = I + NCO 
D) S = NX − NCO . 
A) S = I + C 
B) S = I − NX 
C) S = I + NCO 
D) S = NX − NCO .

Question 8

A pound of steak costs $10 in the U.S. and 56.25 riyals (the currency of Saudi Arabia) in Saudi Arabia. If the real exchange rate is 2/3, what is the nominal exchange rate? Show your work.

Accepted Answer

The real exchange rate 2/3 = $

Question 9

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

Accepted Answer

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

Question 10

A country's trade balance will fall if either

Accepted Answer

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

Question 11

Suppose that a U.S. dollar buys more gold in Australia than it buys in Russia. What does purchasing-power parity imply should happen?

Accepted Answer

People can make a profit by buying gold

Question 12

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 13

A company in Panama pays a U.S. architect to design a factory building. By itself this transaction

Accepted Answer

A) increases Panama's imports and so decreases the Panama's trade balance. 
B) increases Panama's exports and so decreases the Panama's trade balance. 
C) decreases Panama's imports and so increases the Panama's trade balance. 
D) decreases Panama's exports and so increases the Panama's trade balance. 
A) increases Panama's imports and so decreases the Panama's trade balance. 
B) increases Panama's exports and so decreases the Panama's trade balance. 
C) decreases Panama's imports and so increases the Panama's trade balance. 
D) decreases Panama's exports and so increases the Panama's trade balance.

Question 14

Under what circumstances does purchasing-power parity explain how exchange rates are determined, and why is it not completely accurate?

Accepted Answer

Purchasing-power parity works well in he

Question 15

Suppose that real interest rates in the U.S. rise relative to real interest rates in other countries. This increase would make foreigners

Accepted Answer

A) more willing to purchase U.S.bonds, so U.S.net capital outflow would fall. 
B) more willing to purchase U.S.bonds, so U.S.net capital outflow would rise. 
C) less willing to purchase U.S.bonds, so U.S.net capital outflow would fall. 
D) less willing to purchase U.S.bonds, so U.S.net capital outflow would rise. 
A) more willing to purchase U.S.bonds, so U.S.net capital outflow would fall. 
B) more willing to purchase U.S.bonds, so U.S.net capital outflow would rise. 
C) less willing to purchase U.S.bonds, so U.S.net capital outflow would fall. 
D) less willing to purchase U.S.bonds, so U.S.net capital outflow would rise.

Question 16

The purchase of U.S. government bonds by Japanese is an example of

Accepted Answer

A) U.S.imports. 
B) U.S.exports. 
C) foreign portfolio investment by Japanese. 
D) foreign direct investment by Japanese. 
A) U.S.imports. 
B) U.S.exports. 
C) foreign portfolio investment by Japanese. 
D) foreign direct investment by Japanese.

Question 17

A U.S. grocery store chain bought $800,000 worth of Kenyan currency from a bank in Kenya. It then used these funds to buy $800,000 worth of coffee from Kenyan coffee growers.
As a result of this exchange, by how much and in which direction did:
A. U.S. net exports change?
B. U.S. net capital outflow change?

Accepted Answer

A. U.S. net exports

Question 18

Reduced barriers to trade help explain an increase in U.S. exports and imports relative to GDP since 1950.

Accepted Answer

A) True 
 B)False

Question 19

The dollar is said to appreciate against the euro if the exchange rate

Accepted Answer

A) rises.Other things the same, it will cost fewer euros to buy U.S.goods. 
B) falls.Other things the same, it will cost more euros to buy U.S.goods. 
C) falls.Other things the same, it will cost fewer euros to buy U.S.goods. 
D) rises.Other things the same, it will cost more euros to buy U.S.goods. 
A) rises.Other things the same, it will cost fewer euros to buy U.S.goods. 
B) falls.Other things the same, it will cost more euros to buy U.S.goods. 
C) falls.Other things the same, it will cost fewer euros to buy U.S.goods. 
D) rises.Other things the same, it will cost more euros to buy U.S.goods.

Question 20

If the real exchange rate for coal is 1.5, the price of coal in the United States is $50 per ton, and the price of coal in Britain is 20 British pounds per ton, what is the nominal exchange rate?

Accepted Answer

A) 15/4 or 3.75 pounds per dollar 
B) 5/3 or 1.67 pounds per dollar 
C) 3/5 or 0.6 pounds per dollar 
D) 4/15 or 2.67 pounds per dollar 
A) 15/4 or 3.75 pounds per dollar 
B) 5/3 or 1.67 pounds per dollar 
C) 3/5 or 0.6 pounds per dollar 
D) 4/15 or 2.67 pounds per dollar

Exam 31: Open-Economy Macroeconomics: Basic Concepts

If the exchange rate is 80 yen per dollar, then a hotel room in Tokyo that costs 25,000 yen costs $200.

Other things the same, an increase in the real exchange rate raises U.S. net exports.

The large trade deficits in the U.S. during the 1990's were primarily associated with a rise in domestic investment spending rather than a rise in the budget deficit.

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

If a nation produces less than it spends what do we know about: A. its net exports? B. its net capital outflow? C. its saving in relation to its domestic investment?

Which of the following equations is correct?

A pound of steak costs $10 in the U.S. and 56.25 riyals (the currency of Saudi Arabia) in Saudi Arabia. If the real exchange rate is 2/3, what is the nominal exchange rate? Show your work.

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

A country's trade balance will fall if either

Suppose that a U.S. dollar buys more gold in Australia than it buys in Russia. What does purchasing-power parity imply should happen?

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?

A company in Panama pays a U.S. architect to design a factory building. By itself this transaction

Under what circumstances does purchasing-power parity explain how exchange rates are determined, and why is it not completely accurate?

Suppose that real interest rates in the U.S. rise relative to real interest rates in other countries. This increase would make foreigners

The purchase of U.S. government bonds by Japanese is an example of

Reduced barriers to trade help explain an increase in U.S. exports and imports relative to GDP since 1950.

The dollar is said to appreciate against the euro if the exchange rate

If the real exchange rate for coal is 1.5, the price of coal in the United States is $50 per ton, and the price of coal in Britain is 20 British pounds per ton, what is the nominal exchange rate?

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

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