Question 1

What is the relationship between purchasing power parity and transport costs?

Accepted Answer

The purchasing power parity works better for tradable goods, with relatively low transport costs, than for nontrade goods, where transport costs are prohibitive.

Question 2

When the Big Mac in the euro costs more than it does in converted US dollars we can say the currency _____.

Accepted Answer

A) should not be measured in this way 
B) is difficult to value, as currencies are volatile 
C) is undervalued 
D) is overvalued 
A) should not be measured in this way 
B) is difficult to value, as currencies are volatile 
C) is undervalued 
D) is overvalued D

Question 3

When a country's central bank increases the money supply:

Accepted Answer

A) the price level rises and the country's currency depreciates relative to other currencies in the world 
B) the price level falls and the country's currency depreciates relative to other currencies in the world 
C) the price level rises and the country's currency appreciates relative to other currencies in the world 
D) the price level falls and the country's currency appreciates relative to other currencies in the world 
E) the price level rises and the country's currency is unaffected 
A) the price level rises and the country's currency depreciates relative to other currencies in the world 
B) the price level falls and the country's currency depreciates relative to other currencies in the world 
C) the price level rises and the country's currency appreciates relative to other currencies in the world 
D) the price level falls and the country's currency appreciates relative to other currencies in the world 
E) the price level rises and the country's currency is unaffected A

Question 4

If the law of one price holds, and a tonne of rice costs $25 in Australia and 4000 yen in Japan, then the nominal exchange rate is:

Accepted Answer

A) 160 yen/$ and $.10/ yen 
B) 1000 yen/$ and $1.00/ yen 
C) 400 yen/$ and $.25/ yen 
D) 160 yen/$ and $.01/ yen 
A) 160 yen/$ and $.10/ yen 
B) 1000 yen/$ and $1.00/ yen 
C) 400 yen/$ and $.25/ yen 
D) 160 yen/$ and $.01/ yen

Question 5

If the nominal exchange, defined as the number of units of domestic currency per unit of foreign currency, decreases, then the domestic currency has (been considered):

Accepted Answer

A) appreciated 
B) depreciated 
C) overvalued 
D) undervalued 
A) appreciated 
B) depreciated 
C) overvalued 
D) undervalued

Question 6

A closed economy is where an economy does not interact with other economies in the world.

Accepted Answer

A) True 
 B)False

Question 7

If a country sells more goods and services abroad than it purchases from foreign countries, then its exports are:

Accepted Answer

A) greater than its imports, and its net exports are negative 
B) greater than its imports, and its net exports are positive 
C) smaller than its imports, and its net exports are positive 
D) smaller than its imports, and its net exports are negative 
A) greater than its imports, and its net exports are negative 
B) greater than its imports, and its net exports are positive 
C) smaller than its imports, and its net exports are positive 
D) smaller than its imports, and its net exports are negative

Question 8

Net foreign investment measures:

Accepted Answer

A) foreign assets held by domestic residents 
B) investment plus saving 
C) the imbalance between the amount of foreign assets bought by domestic residents and the amount of domestic assets bought by foreigners 
D) none of the above 
A) foreign assets held by domestic residents 
B) investment plus saving 
C) the imbalance between the amount of foreign assets bought by domestic residents and the amount of domestic assets bought by foreigners 
D) none of the above

Question 9

Which of the following represents the account identity?

Accepted Answer

A) NFI + I = NX 
B) NFI = CAB 
C) NX + NFI = Y 
D) Y = NFI - NX 
A) NFI + I = NX 
B) NFI = CAB 
C) NX + NFI = Y 
D) Y = NFI - NX

Question 10

If the exchange rate changes from 100 yen per dollar to 120 yen per dollar, then the yen has:

Accepted Answer

A) depreciated 
B) appreciated 
C) devalued 
D) revalued 
A) depreciated 
B) appreciated 
C) devalued 
D) revalued

Question 11

General price levels in any country change to:

Accepted Answer

A) balance demand for goods and supply of goods 
B) balance demand for services and supply of services 
C) balance demand for money and supply of money 
D) balance demand for goods and services, and supply of goods and services 
A) balance demand for goods and supply of goods 
B) balance demand for services and supply of services 
C) balance demand for money and supply of money 
D) balance demand for goods and services, and supply of goods and services

Question 12

During every period of hyperinflation, the money supply and the price level increase rapidly, and the nominal exchange rate depreciates rapidly.

Accepted Answer

A) True 
 B)False

Question 13

Which of the following statements is correct? In an open economy:

Accepted Answer

A) the country engages in trade but always has balanced trade 
B) the country does not import at all and therefore always has a trade surplus 
C) the country may have a deficit, surplus or zero balance in its trade balance 
D) none of the above 
A) the country engages in trade but always has balanced trade 
B) the country does not import at all and therefore always has a trade surplus 
C) the country may have a deficit, surplus or zero balance in its trade balance 
D) none of the above

Question 14

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

Accepted Answer

Purchasing-power parity works well in he

Question 15

Which of the following statements about the current account and the capital account is correct?

Accepted Answer

A) The value of goods or services exported equals the value of the asset given up to pay for this import 
B) The net value of the goods or services sold by a country and the net income it earns from overseas must equal the net value of the asset acquired 
C) The international flow of goods and services and income, and the international flow of capital are two sides of the same coin 
D) None of the above 
A) The value of goods or services exported equals the value of the asset given up to pay for this import 
B) The net value of the goods or services sold by a country and the net income it earns from overseas must equal the net value of the asset acquired 
C) The international flow of goods and services and income, and the international flow of capital are two sides of the same coin 
D) None of the above

Question 16

International trade has been much more significant for Australia than for many other nations.

Accepted Answer

A) True 
 B)False

Question 17

The value of exports minus the value of imports in a period is called the:

Accepted Answer

A) budget balance 
B) the value of a country's exports minus the value of its production 
C) the value of a country's imports minus the value of its consumption 
D) none of the above 
A) budget balance 
B) the value of a country's exports minus the value of its production 
C) the value of a country's imports minus the value of its consumption 
D) none of the above

Question 18

The Big Mac index shows the markets when the foreign exchange markets are not a fair reflection of the value of the currency, and ensures that there is change.

Accepted Answer

A) True 
 B)False

Question 19

When an Australian buys stock in a French company, from the perspective of Australia this is a(n):

Accepted Answer

A) import 
B) export 
C) balance on merchandise trade 
D) capital outflow 
A) import 
B) export 
C) balance on merchandise trade 
D) capital outflow

Question 20

According to the World Bank, trade has been the only force that has enabled poorer countries to increase their uptake of technology.

Accepted Answer

A) True 
 B)False

Exam 31: Open-Economy Macroeconomics: Basic Concepts

What is the relationship between purchasing power parity and transport costs?

When the Big Mac in the euro costs more than it does in converted US dollars we can say the currency _____.

When a country's central bank increases the money supply:

If the law of one price holds, and a tonne of rice costs $25 in Australia and 4000 yen in Japan, then the nominal exchange rate is:

If the nominal exchange, defined as the number of units of domestic currency per unit of foreign currency, decreases, then the domestic currency has (been considered):

A closed economy is where an economy does not interact with other economies in the world.

If a country sells more goods and services abroad than it purchases from foreign countries, then its exports are:

Net foreign investment measures:

Which of the following represents the account identity?

If the exchange rate changes from 100 yen per dollar to 120 yen per dollar, then the yen has:

General price levels in any country change to:

During every period of hyperinflation, the money supply and the price level increase rapidly, and the nominal exchange rate depreciates rapidly.

Which of the following statements is correct? In an open economy:

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

Which of the following statements about the current account and the capital account is correct?

International trade has been much more significant for Australia than for many other nations.

The value of exports minus the value of imports in a period is called the:

The Big Mac index shows the markets when the foreign exchange markets are not a fair reflection of the value of the currency, and ensures that there is change.

When an Australian buys stock in a French company, from the perspective of Australia this is a(n):

According to the World Bank, trade has been the only force that has enabled poorer countries to increase their uptake of technology.

Ten Lessons From 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

Application: 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

Business Strategy and Oligopoly

Competition Policy

The Markets for the Factors of Production

Earnings, Unions and Discrimination

Income Inequity and Poverty

The Theory of Consumer Choice

Frontiers of Microeconomics

Measuring a Nations Income

Measuring the Cost of Living

Production and Growth

Saving, Investment and the Financial System

The Natural Rate of Unemployment

The Monetary System

Inflation: Its Causes and Costs

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 Trade-Off Between Inflation and Unemployment

Global Financial Crisis of 2008 and Beyond

Five Debates Over Macroeconomic Policy

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