Question 1

When a company from Germany builds an automobile factory in the United States, the German firm has engaged in foreign direct investment.

Accepted Answer

A) True 
 B)False

Question 2

Reductions in transportation costs help explain the increase in U.S. trade flows.

Accepted Answer

A) True 
 B)False

Question 3

If foreign residents purchase 30 billion pesos of Mexican assets and Mexican residents purchase 25 billion pesos of foreign assets, then Mexico has a net capital outflow of 5 billion pesos.

Accepted Answer

A) True 
 B)False

Question 4

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

Accepted Answer

A) True 
 B)False

Question 5

The nominal exchange rate is 32 Russian rubles per dollar. The price of a bushel of wheat is 260 rubles in Russia and $7 in the U.S.
A. What is the real exchange rate? Show your work.
B. Can arbitragers make a profit?
C. If your answer to B is yes, where would arbitragers buy and where would they sell.

Accepted Answer

A. The real exchange rate = $7

Question 6

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

Accepted Answer

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

Question 7

Assuming purchasing-power parity holds and that over a period of five years the dollar had appreciated relative to the currency of Country X, what would explain the appreciation of the dollar?

Accepted Answer

Money growth, and so

Question 8

A Chinese company exchanges yuan (Chinese currency) for dollars. It uses these dollars to purchase scrap metal from a U.S. company. As a result of these transactions, Chinese net exports

Accepted Answer

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

Question 9

A country purchases $110 billion of foreign-produced goods and services and sells $120 billion of domestically produced goods and services to foreign countries. It has imports of

Accepted Answer

A) $120 billion and a trade deficit of $10 billion. 
B) $120 billion and a trade surplus of $10 billion. 
C) $110 billion and a trade deficit of $10 billion. 
D) $110 billion and a trade surplus of $10 billion. 
A) $120 billion and a trade deficit of $10 billion. 
B) $120 billion and a trade surplus of $10 billion. 
C) $110 billion and a trade deficit of $10 billion. 
D) $110 billion and a trade surplus of $10 billion.

Question 10

Which of the following is correct? Since 1950

Accepted Answer

A) U.S.exports and U.S.imports each have increased slightly. 
B) U.S.exports and U.S.imports each have increased significantly. 
C) U.S.exports increased only slightly and U.S.imports have increased significantly. 
D) U.S.exports have decreased and U.S.imports have increased. 
A) U.S.exports and U.S.imports each have increased slightly. 
B) U.S.exports and U.S.imports each have increased significantly. 
C) U.S.exports increased only slightly and U.S.imports have increased significantly. 
D) U.S.exports have decreased and U.S.imports have increased.

Question 11

If the nominal exchange rate e is foreign currency per dollar, the domestic price is P, and the foreign price is P*, then the real exchange rate is defined as

Accepted Answer

A) (eP*)/P. 
B) (eP)/P*. 
C) e + P*/P. 
D) e − P/P*. 
A) (eP*)/P. 
B) (eP)/P*. 
C) e + P*/P. 
D) e − P/P*.

Question 12

A Turkish firm exchanges lira (Turkish currency) for dollars. It then uses these dollars to purchase computers from the U.S. These actions decrease U.S. net capital outflow and increase U.S. net exports.

Accepted Answer

A) True 
 B)False

Question 13

A U.S. bank loaned a Canadian oil company 1 million U.S. dollars. The Canadian company then used the entire loan to buy mining equipment from a U.S. company.
As a result of these transactions, 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 14

If saving is greater than domestic investment, then there is a trade

Accepted Answer

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

Question 15

A U.S. firm called EcoWind produces windmills for households to generate electricity. It uses 25,000 recently obtained pesos to buy copper from a mining company in Argentina. As a result of this exchange, by how much, if at all, 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 16

If a nation is selling more goods and services to foreigners than it is buying from them, then on net it must be selling assets abroad.

Accepted Answer

A) True 
 B)False

Question 17

If a country has positive net capital outflows, then its net exports are

Accepted Answer

A) positive, and its saving is larger than its domestic investment. 
B) positive, and its saving is smaller than its domestic investment. 
C) negative, and its saving is larger than its domestic investment. 
D) negative, and its saving is smaller than its domestic investment. 
A) positive, and its saving is larger than its domestic investment. 
B) positive, and its saving is smaller than its domestic investment. 
C) negative, and its saving is larger than its domestic investment. 
D) negative, and its saving is smaller than its domestic investment.

Question 18

Last year residents of country A purchased $400 billion of foreign assets and $200 of foreign goods. Foreigners purchased $300 billion dollars of country A's assets. What was the value of country A's exports?

Accepted Answer

The value of country

Question 19

How do we find the real exchange rate from the nominal exchange rate?

Accepted Answer

Real Exchange Rate =

Question 20

Suppose that Bill, a resident of the U.S., buys software from a company in Japan. Explain why and in what directions this changes U.S. net exports and U.S. net capital outflow.

Accepted Answer

The purchase of a foreign good by a U.S.

Exam 31: Open-Economy Macroeconomics: Basic Concepts

When a company from Germany builds an automobile factory in the United States, the German firm has engaged in foreign direct investment.

Reductions in transportation costs help explain the increase in U.S. trade flows.

If foreign residents purchase 30 billion pesos of Mexican assets and Mexican residents purchase 25 billion pesos of foreign assets, then Mexico has a net capital outflow of 5 billion pesos.

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

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

Assuming purchasing-power parity holds and that over a period of five years the dollar had appreciated relative to the currency of Country X, what would explain the appreciation of the dollar?

A Chinese company exchanges yuan (Chinese currency) for dollars. It uses these dollars to purchase scrap metal from a U.S. company. As a result of these transactions, Chinese net exports

A country purchases $110 billion of foreign-produced goods and services and sells $120 billion of domestically produced goods and services to foreign countries. It has imports of

Which of the following is correct? Since 1950

If the nominal exchange rate e is foreign currency per dollar, the domestic price is P, and the foreign price is P*, then the real exchange rate is defined as

A Turkish firm exchanges lira (Turkish currency) for dollars. It then uses these dollars to purchase computers from the U.S. These actions decrease U.S. net capital outflow and increase U.S. net exports.

A U.S. bank loaned a Canadian oil company 1 million U.S. dollars. The Canadian company then used the entire loan to buy mining equipment from a U.S. company. As a result of these transactions, by how much and in which direction did: A. U.S. net exports change? B. U.S. net capital outflow change?

If saving is greater than domestic investment, then there is a trade

If a nation is selling more goods and services to foreigners than it is buying from them, then on net it must be selling assets abroad.

If a country has positive net capital outflows, then its net exports are

Last year residents of country A purchased $400 billion of foreign assets and $200 of foreign goods. Foreigners purchased $300 billion dollars of country A's assets. What was the value of country A's exports?

How do we find the real exchange rate from the nominal exchange rate?

Suppose that Bill, a resident of the U.S., buys software from a company in Japan. Explain why and in what directions this changes U.S. net exports and 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

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