Question 1

Which of the following units of measurement would be appropriate for a real exchange rate?

Accepted Answer

A) 9 euros per dollar 
B) 15 euros per basket of Canadian goods 
C) 1/2 case of German beer per case of Canadian beer 
D) 1/2 case of German beer per dollar of Canadian beer 
A) 9 euros per dollar 
B) 15 euros per basket of Canadian goods 
C) 1/2 case of German beer per case of Canadian beer 
D) 1/2 case of German beer per dollar of Canadian beer

Question 2

Assume the exchange rate is about 153 Kazakhstan tenge per dollar.According to purchasing-power parity,when would this exchange rate rise?

Accepted Answer

A) if the price level in either Canada or Kazakhstan rose 
B) if the price level in either Canada or Kazakhstan fell 
C) if the price level in Canada rose or the price level in Kazakhstan fell 
D) if the price level in Canada fell or the price level in Kazakhstan rose 
A) if the price level in either Canada or Kazakhstan rose 
B) if the price level in either Canada or Kazakhstan fell 
C) if the price level in Canada rose or the price level in Kazakhstan fell 
D) if the price level in Canada fell or the price level in Kazakhstan rose

Question 3

A Canadian firm opens a factory that produces camping equipment in Albania.Which of the following correctly identifies the effects of this transaction?

Accepted Answer

A) Canadian net capital outflow increases, and Albanian net capital outflow decreases. 
B) Canadian net capital outflow decreases, and Albanian net capital outflow increases. 
C) Only Canadian net capital outflow increases. 
D) Only Albanian net capital outflow increases. 
A) Canadian net capital outflow increases, and Albanian net capital outflow decreases. 
B) Canadian net capital outflow decreases, and Albanian net capital outflow increases. 
C) Only Canadian net capital outflow increases. 
D) Only Albanian net capital outflow increases.

Question 4

What is the formula for saving in an open economy?

Accepted Answer

A) Saving = Foreign saving + Net capital outflow 
B) Saving = Domestic investment - Net capital outflow 
C) Saving = Domestic saving + Net capital outflow 
D) Saving = Domestic investment + Net capital outflow 
A) Saving = Foreign saving + Net capital outflow 
B) Saving = Domestic investment - Net capital outflow 
C) Saving = Domestic saving + Net capital outflow 
D) Saving = Domestic investment + Net capital outflow

Question 5

If the exchange rate changes from 40 Thai baht per dollar to 35 Thai baht per dollar,what has happened to the dollar?

Accepted Answer

A) It has appreciated and so buys more Thai goods. 
B) It has appreciated and so buys fewer Thai goods. 
C) It has depreciated and so buys more Thai goods. 
D) It has depreciated and so buys fewer Thai goods. 
A) It has appreciated and so buys more Thai goods. 
B) It has appreciated and so buys fewer Thai goods. 
C) It has depreciated and so buys more Thai goods. 
D) It has depreciated and so buys fewer Thai goods.

Question 6

Larry,a Canadian citizen,opens and operates a bookstore in Spain.Which of the following does this counts as?

Accepted Answer

A) investment for Larry and Canadian foreign direct investment 
B) investment for Larry and Canadian foreign portfolio investment 
C) Canadian foreign direct investment and Canadian domestic investment 
D) Canadian foreign portfolio investment and Canadian domestic investment 
A) investment for Larry and Canadian foreign direct investment 
B) investment for Larry and Canadian foreign portfolio investment 
C) Canadian foreign direct investment and Canadian domestic investment 
D) Canadian foreign portfolio investment and Canadian domestic investment

Question 7

Between 1981 and 1988,what caused most of the change in Canadian net capital outflow as a percent of GDP?

Accepted Answer

A) decline in public saving 
B) decline in private saving 
C) increase in public saving 
D) increase in private saving 
A) decline in public saving 
B) decline in private saving 
C) increase in public saving 
D) increase in private saving

Question 8

Suppose Canada sells chocolate to the United States.Which of the following correctly identifies the effects of this transaction?

Accepted Answer

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

Question 9

Suppose the price of a standard pair of sport shoes is €40 in Spain and $75 in Canada,and the current exchange rate is 0.75 euro for one dollar.What is the purchasing-power parity exchange rate of the dollar?

Accepted Answer

A) 0.40 euro/dollar 
B) 0.53 euro/dollar 
C) 0.75 euro/dollar 
D) 1.53 euro/dollar 
A) 0.40 euro/dollar 
B) 0.53 euro/dollar 
C) 0.75 euro/dollar 
D) 1.53 euro/dollar

Question 10

In Ireland,a pint of beer costs 4 Irish punts.In Australia,a pint of beer costs 6 Australian dollars.If the exchange rate is 0.6 punts per Australian dollar,what is the real exchange rate?

Accepted Answer

A) 0.8 pints of Irish beer per pint of Australian beer 
B) 0.9 pints of Irish beer per pint of Australian beer 
C) 1.11 pints of Irish beer per pint of Australian beer 
D) 1.25 pints of Irish beer per pint of Australian beer 
A) 0.8 pints of Irish beer per pint of Australian beer 
B) 0.9 pints of Irish beer per pint of Australian beer 
C) 1.11 pints of Irish beer per pint of Australian beer 
D) 1.25 pints of Irish beer per pint of Australian beer

Question 11

If a U.S.textbook publishing company sells texts to Canadian students,which of the following correctly identifies the effects of these sales?

Accepted Answer

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

Question 12

The theory of purchasing-power parity states that a unit of any given currency should be able to buy the same quantity of goods in all countries.

Accepted Answer

A) True 
 B)False

Question 13

Can purchasing-power parity be used to explain the fact that the Canadian dollar depreciated by more than 50 percent against the German mark from 1970 to 2001,but appreciated by more than 100 percent against the Italian lira during the same period? Defend your answer.

Accepted Answer

The theory of purchasing-power parity wo

Question 14

Consider the following table,adapted from the Big Mac Index computed by The Economist magazine.The table shows prices of a Big Mac in local currencies and the current nominal exchange rate between the local currency and the Canadian dollar.
   
a. Compute the Big Mac prices in Canadian dollars for each country.
b. Compute the PPP exchange rate.
c. Compute the overvaluation or undervaluation of each country's currency with respect to the Canadian dollar. A currency is considered to be overvalued if the nominal exchange rate is less than the PPP exchange rate. Overvaluation is the percentage difference between the nominal and the PPP exchange rate, computed using the following formula: [(PPP exchange rate - Nominal exchange rate) / Nominal exchange rate]*100.

Accepted Answer

The answer of Consider the following table,adapted from the Big...

Question 15

How do nominal exchange rates change over time?

Accepted Answer

A) They vary little over time. 
B) They vary substantially over time. 
C) They appreciate over time for most countries. 
D) They depreciate over time for most countries. 
A) They vary little over time. 
B) They vary substantially over time. 
C) They appreciate over time for most countries. 
D) They depreciate over time for most countries.

Question 16

What does purchasing-power parity imply for the exchange rate?

Accepted Answer

A) that the real exchange rate is equal to one 
B) that the nominal exchange rate is equal to one 
C) that the real exchange rate is equal to the nominal exchange rate 
D) that the real exchange rate is equal to the difference in inflation rates between the two countries 
A) that the real exchange rate is equal to one 
B) that the nominal exchange rate is equal to one 
C) that the real exchange rate is equal to the nominal exchange rate 
D) that the real exchange rate is equal to the difference in inflation rates between the two countries

Question 17

Which of the following would a depreciation of the Canadian real exchange rate induce Canadian consumers to buy?

Accepted Answer

A) fewer domestic goods and foreign goods 
B) more domestic goods, but fewer foreign goods 
C) fewer domestic goods, but more foreign goods 
D) more domestic goods and foreign goods 
A) fewer domestic goods and foreign goods 
B) more domestic goods, but fewer foreign goods 
C) fewer domestic goods, but more foreign goods 
D) more domestic goods and foreign goods

Question 18

Suppose that money-supply growth continues to be higher in Turkey than it is in Canada.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 19

Canadian exports make up less than 20 percent of GDP.

Accepted Answer

A) True 
 B)False

Question 20

On behalf of your firm,you make frequent trips to Hong Kong.You notice that you always have to pay more dollars to get enough local currency to get your hair styled than you have to pay to get your hair styled in Canada.Is this consistent with purchasing-power parity?

Accepted Answer

A) No, but it might be explained by limited opportunities for arbitrage across international borders. 
B) Yes, if prices in Hong Kong are rising more rapidly than prices in Canada. 
C) Yes, if prices in Hong Kong are rising less rapidly than prices in Canada. 
D) No, but it can be explained by arbitrage across international borders. 
A) No, but it might be explained by limited opportunities for arbitrage across international borders. 
B) Yes, if prices in Hong Kong are rising more rapidly than prices in Canada. 
C) Yes, if prices in Hong Kong are rising less rapidly than prices in Canada. 
D) No, but it can be explained by arbitrage across international borders.

Which of the following units of measurement would be appropriate for a real exchange rate?

Assume the exchange rate is about 153 Kazakhstan tenge per dollar.According to purchasing-power parity,when would this exchange rate rise?

A Canadian firm opens a factory that produces camping equipment in Albania.Which of the following correctly identifies the effects of this transaction?

What is the formula for saving in an open economy?

If the exchange rate changes from 40 Thai baht per dollar to 35 Thai baht per dollar,what has happened to the dollar?

Larry,a Canadian citizen,opens and operates a bookstore in Spain.Which of the following does this counts as?

Between 1981 and 1988,what caused most of the change in Canadian net capital outflow as a percent of GDP?

Suppose Canada sells chocolate to the United States.Which of the following correctly identifies the effects of this transaction?

Suppose the price of a standard pair of sport shoes is €40 in Spain and $75 in Canada,and the current exchange rate is 0.75 euro for one dollar.What is the purchasing-power parity exchange rate of the dollar?

In Ireland,a pint of beer costs 4 Irish punts.In Australia,a pint of beer costs 6 Australian dollars.If the exchange rate is 0.6 punts per Australian dollar,what is the real exchange rate?

If a U.S.textbook publishing company sells texts to Canadian students,which of the following correctly identifies the effects of these sales?

The theory of purchasing-power parity states that a unit of any given currency should be able to buy the same quantity of goods in all countries.

Can purchasing-power parity be used to explain the fact that the Canadian dollar depreciated by more than 50 percent against the German mark from 1970 to 2001,but appreciated by more than 100 percent against the Italian lira during the same period? Defend your answer.

How do nominal exchange rates change over time?

What does purchasing-power parity imply for the exchange rate?

Which of the following would a depreciation of the Canadian real exchange rate induce Canadian consumers to buy?

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

Canadian exports make up less than 20 percent of GDP.

On behalf of your firm,you make frequent trips to Hong Kong.You notice that you always have to pay more dollars to get enough local currency to get your hair styled than you have to pay to get your hair styled in Canada.Is this consistent with purchasing-power parity?

Ten Principles of Economics

Thinking Like an Economist

Interdependence and the Gains from Trade

The Market Forces of Supply and Demand (PART 1)

The Market Forces of Supply and Demand (PART 2)

Measuring a Nation's Income

Measuring the Cost of Living

Production and Growth

Saving,Investment,and the Financial System

Unemployment and Its Natural Rate

The Monetary System

Money Growth and Inflation

A Macroeconomic Theory of the Small 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

Five Debates over Macroeconomic Policy

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Exam 12: Open-Economy Macroeconomics: Basic Concepts

Which of the following units of measurement would be appropriate for a real exchange rate?

Assume the exchange rate is about 153 Kazakhstan tenge per dollar.According to purchasing-power parity,when would this exchange rate rise?

A Canadian firm opens a factory that produces camping equipment in Albania.Which of the following correctly identifies the effects of this transaction?

What is the formula for saving in an open economy?

If the exchange rate changes from 40 Thai baht per dollar to 35 Thai baht per dollar,what has happened to the dollar?

Larry,a Canadian citizen,opens and operates a bookstore in Spain.Which of the following does this counts as?

Between 1981 and 1988,what caused most of the change in Canadian net capital outflow as a percent of GDP?

Suppose Canada sells chocolate to the United States.Which of the following correctly identifies the effects of this transaction?

Suppose the price of a standard pair of sport shoes is €40 in Spain and $75 in Canada,and the current exchange rate is 0.75 euro for one dollar.What is the purchasing-power parity exchange rate of the dollar?

In Ireland,a pint of beer costs 4 Irish punts.In Australia,a pint of beer costs 6 Australian dollars.If the exchange rate is 0.6 punts per Australian dollar,what is the real exchange rate?

If a U.S.textbook publishing company sells texts to Canadian students,which of the following correctly identifies the effects of these sales?

The theory of purchasing-power parity states that a unit of any given currency should be able to buy the same quantity of goods in all countries.

Can purchasing-power parity be used to explain the fact that the Canadian dollar depreciated by more than 50 percent against the German mark from 1970 to 2001,but appreciated by more than 100 percent against the Italian lira during the same period? Defend your answer.

How do nominal exchange rates change over time?

What does purchasing-power parity imply for the exchange rate?

Which of the following would a depreciation of the Canadian real exchange rate induce Canadian consumers to buy?

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

Canadian exports make up less than 20 percent of GDP.

On behalf of your firm,you make frequent trips to Hong Kong.You notice that you always have to pay more dollars to get enough local currency to get your hair styled than you have to pay to get your hair styled in Canada.Is this consistent with purchasing-power parity?

Ten Principles of Economics

Thinking Like an Economist

Interdependence and the Gains from Trade

The Market Forces of Supply and Demand (PART 1)

The Market Forces of Supply and Demand (PART 2)

Measuring a Nation's Income

Measuring the Cost of Living

Production and Growth

Saving,Investment,and the Financial System

Unemployment and Its Natural Rate

The Monetary System

Money Growth and Inflation

A Macroeconomic Theory of the Small 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

Five Debates over Macroeconomic Policy

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