Question 1

Between 1981 and 1988, what happened to Canadian net capital outflow as a percent of GDP?

Accepted Answer

A)  It became a larger, positive number. 
B)  It became a smaller, positive number. 
C)  It became a larger, negative number. 
D)  It became a smaller, negative number. 
A)  It became a larger, positive number. 
B)  It became a smaller, positive number. 
C)  It became a larger, negative number. 
D)  It became a smaller, negative number.

Question 2

If the nominal exchange rate e is foreign currency per dollar, the domestic price is P, and the foreign price is P*, what is the definition of the real exchange rate?

Accepted Answer

A)  e(P*/P) 
B)  e(P/P*) 
C)  e + P/P 
D)  e - P/P* 
A)  e(P*/P) 
B)  e(P/P*) 
C)  e + P/P 
D)  e - P/P*

Question 3

Which unit 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 4

What does net capital outflow measure?

Accepted Answer

A)  foreign assets held by domestic residents minus domestic assets held by foreign residents 
B)  the imbalance between the amount of domestic assets bought by domestic residents and the amount of foreign assets bought by foreigners 
C)  the imbalance between the amount of foreign assets bought by domestic residents and the amount of domestic goods and services sold to foreigners 
D)  domestic assets held by foreigners minus foreign assets held by domestic residents 
A)  foreign assets held by domestic residents minus domestic assets held by foreign residents 
B)  the imbalance between the amount of domestic assets bought by domestic residents and the amount of foreign assets bought by foreigners 
C)  the imbalance between the amount of foreign assets bought by domestic residents and the amount of domestic goods and services sold to foreigners 
D)  domestic assets held by foreigners minus foreign assets held by domestic residents

Question 5

What is the formula for investment in an open economy?

Accepted Answer

A)  I = Y - C 
B)  I = Y - C - NX 
C)  I = S - NCO 
D)  I = S + NX 
A)  I = Y - C 
B)  I = Y - C - NX 
C)  I = S - NCO 
D)  I = S + NX

Question 6

A rational investor will always purchase the bond that pays the highest real interest rate.

Accepted Answer

A) True 
 B)False

Question 7

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 suits dry-cleaned than you have to pay to get your suits dry-cleaned 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.

Question 8

-Refer to the Table 12-1. What countries in the table does purchasing-power parity hold for?

Accepted Answer

A)  Bolivia and Japan 
B)  Bolivia and Morocco 
C)  Norway and Thailand 
D)  Thailand and Morocco 
A)  Bolivia and Japan 
B)  Bolivia and Morocco 
C)  Norway and Thailand 
D)  Thailand and Morocco

Question 9

Larry, a Canadian citizen, opens and operates a bookstore in England. What is this an example of?

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 10

Which of the following best describes net capital outflow in Canada from 1961 to about 1998?

Accepted Answer

A)  small but always positive 
B)  small and sometimes negative and sometimes positive 
C)  large and positive 
D)  large and negative in all but three years 
A)  small but always positive 
B)  small and sometimes negative and sometimes positive 
C)  large and positive 
D)  large and negative in all but three years

Question 11

Which statement best explains the relationship among price levels, nominal and real exchange rates, and money supply in Canada and Ireland when purchasing-power parity holds?

Accepted Answer

A)  When the price level in Canada falls more rapidly than that in Ireland, the real exchange rate, defined as Irish goods per unit of Canadian goods, stays the same. 
B)  When the money supply in Canada rises more rapidly than in Ireland, the nominal exchange rate, defined as euros (the currency used in Ireland) per dollar, increases. 
C)  When prices for the same goods are the same in Canadian dollars in Canada and Ireland, the nominal exchange rate does not change. 
D)  When prices in both countries stay the same and the nominal exchange rate increases, the real exchange rate decreases. 
A)  When the price level in Canada falls more rapidly than that in Ireland, the real exchange rate, defined as Irish goods per unit of Canadian goods, stays the same. 
B)  When the money supply in Canada rises more rapidly than in Ireland, the nominal exchange rate, defined as euros (the currency used in Ireland) per dollar, increases. 
C)  When prices for the same goods are the same in Canadian dollars in Canada and Ireland, the nominal exchange rate does not change. 
D)  When prices in both countries stay the same and the nominal exchange rate increases, the real exchange rate decreases.

Question 12

What is the formula for an open economy's GDP?

Accepted Answer

A)  Y = C + I + G 
B)  Y = (C - T) + I + G 
C)  Y = C + I + G + S 
D)  Y = C + I + G + NX 
A)  Y = C + I + G 
B)  Y = (C - T) + I + G 
C)  Y = C + I + G + S 
D)  Y = C + I + G + NX

Question 13

What terms refers to the process of taking advantage of different prices for a good in different markets?

Accepted Answer

A)  arbitrage 
B)  currency exchange 
C)  capitalism 
D)  the law of one price 
A)  arbitrage 
B)  currency exchange 
C)  capitalism 
D)  the law of one price

Question 14

Suppose Paul, a Romanian citizen, builds a telescope factory in Israel. What are the effects of these expenditures?

Accepted Answer

A)  They increase Romanian and Israeli net capital outflow. 
B)  They increase Romanian net capital outflow, but decrease Israeli net capital outflow. 
C)  They decrease Romanian net capital outflow, but increase Israeli net capital outflow. 
D)  They increase Romanian net capital outflow, but Israeli net capital outflow remains unchanged. 
A)  They increase Romanian and Israeli net capital outflow. 
B)  They increase Romanian net capital outflow, but decrease Israeli net capital outflow. 
C)  They decrease Romanian net capital outflow, but increase Israeli net capital outflow. 
D)  They increase Romanian net capital outflow, but Israeli net capital outflow remains unchanged.

Question 15

According to the theory of purchasing-power parity, what must the nominal exchange rate between two countries reflect?

Accepted Answer

A)  the different price levels in those countries 
B)  the different resource endowments in those countries 
C)  the different income levels in those countries 
D)  the different standards of living between those countries 
A)  the different price levels in those countries 
B)  the different resource endowments in those countries 
C)  the different income levels in those countries 
D)  the different standards of living between those countries

Question 16

Perhaps the most dramatic change in the Canadian economy over the past five decades has been the increasing relative importance of international trade and finance.

Accepted Answer

A) True 
 B)False

Question 17

Which of the following would be Canadian foreign direct investment?

Accepted Answer

A)  A Swedish car manufacturer opens a plant in Sherbrooke, Quebec. 
B)  A Dutch citizen buys shares of stock in a Canadian company. 
C)  Lululemon, a Canadian company, opens an athleticwear store in Jamaica. 
D)  A Canadian citizen buys shares of stock in companies located in Japan. 
A)  A Swedish car manufacturer opens a plant in Sherbrooke, Quebec. 
B)  A Dutch citizen buys shares of stock in a Canadian company. 
C)  Lululemon, a Canadian company, opens an athleticwear store in Jamaica. 
D)  A Canadian citizen buys shares of stock in companies located in Japan.

Question 18

Suppose the nominal exchange rate between the yen and the U.S. dollar is 260 yen per U.S. dollar, and that the nominal exchange rate between the Canadian dollar and the U.S. dollar is 1.30 Canadian dollars per U.S. dollar. How many yen would it take to buy a Canadian dollar?

Accepted Answer

A)  0.005 
B)  0.5 
C)  200. 
D)  200 
A)  0.005 
B)  0.5 
C)  200. 
D)  200

Question 19

Healthy Grain Farms, a Canadian manufacturer of dried peas and lentils, sells cases of its product to stores overseas. Which statement best identifies the effects of these transactions?

Accepted Answer

A)  They decrease Canadian exports but increase Canadian net exports. 
B)  They decrease both Canadian exports and Canadian net exports. 
C)  They increase both Canadian exports and Canadian net exports. 
D)  They increase Canadian exports but decrease Canadian net exports. 
A)  They decrease Canadian exports but increase Canadian net exports. 
B)  They decrease both Canadian exports and Canadian net exports. 
C)  They increase both Canadian exports and Canadian net exports. 
D)  They increase Canadian exports but decrease Canadian net exports.

Question 20

What is the logic behind the theory of purchasing-power parity?

Accepted Answer

The logic behind purchasing-power parity

Between 1981 and 1988, what happened to Canadian net capital outflow as a percent of GDP?

If the nominal exchange rate e is foreign currency per dollar, the domestic price is P, and the foreign price is P*, what is the definition of the real exchange rate?

Which unit of measurement would be appropriate for a real exchange rate?

What does net capital outflow measure?

What is the formula for investment in an open economy?

A rational investor will always purchase the bond that pays the highest real interest rate.

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 suits dry-cleaned than you have to pay to get your suits dry-cleaned in Canada. Is this consistent with purchasing-power parity?

-Refer to the Table 12-1. What countries in the table does purchasing-power parity hold for?

Larry, a Canadian citizen, opens and operates a bookstore in England. What is this an example of?

Which of the following best describes net capital outflow in Canada from 1961 to about 1998?

Which statement best explains the relationship among price levels, nominal and real exchange rates, and money supply in Canada and Ireland when purchasing-power parity holds?

What is the formula for an open economy's GDP?

What terms refers to the process of taking advantage of different prices for a good in different markets?

Suppose Paul, a Romanian citizen, builds a telescope factory in Israel. What are the effects of these expenditures?

According to the theory of purchasing-power parity, what must the nominal exchange rate between two countries reflect?

Perhaps the most dramatic change in the Canadian economy over the past five decades has been the increasing relative importance of international trade and finance.

Which of the following would be Canadian foreign direct investment?

Suppose the nominal exchange rate between the yen and the U.S. dollar is 260 yen per U.S. dollar, and that the nominal exchange rate between the Canadian dollar and the U.S. dollar is 1.30 Canadian dollars per U.S. dollar. How many yen would it take to buy a Canadian dollar?

Healthy Grain Farms, a Canadian manufacturer of dried peas and lentils, sells cases of its product to stores overseas. Which statement best identifies the effects of these transactions?

What is the logic behind the theory of purchasing-power parity?

Ten Principles of Economics

Thinking Like an Economist

Interdependence and the Gains From Trade

The Market Forces of Supply and Demand

Measuring a Nations 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

Between 1981 and 1988, what happened to Canadian net capital outflow as a percent of GDP?

If the nominal exchange rate e is foreign currency per dollar, the domestic price is P, and the foreign price is P*, what is the definition of the real exchange rate?

Which unit of measurement would be appropriate for a real exchange rate?

What does net capital outflow measure?

What is the formula for investment in an open economy?

A rational investor will always purchase the bond that pays the highest real interest rate.

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 suits dry-cleaned than you have to pay to get your suits dry-cleaned in Canada. Is this consistent with purchasing-power parity?

-Refer to the Table 12-1. What countries in the table does purchasing-power parity hold for?

Larry, a Canadian citizen, opens and operates a bookstore in England. What is this an example of?

Which of the following best describes net capital outflow in Canada from 1961 to about 1998?

Which statement best explains the relationship among price levels, nominal and real exchange rates, and money supply in Canada and Ireland when purchasing-power parity holds?

What is the formula for an open economy's GDP?

What terms refers to the process of taking advantage of different prices for a good in different markets?

Suppose Paul, a Romanian citizen, builds a telescope factory in Israel. What are the effects of these expenditures?

According to the theory of purchasing-power parity, what must the nominal exchange rate between two countries reflect?

Perhaps the most dramatic change in the Canadian economy over the past five decades has been the increasing relative importance of international trade and finance.

Which of the following would be Canadian foreign direct investment?

Suppose the nominal exchange rate between the yen and the U.S. dollar is 260 yen per U.S. dollar, and that the nominal exchange rate between the Canadian dollar and the U.S. dollar is 1.30 Canadian dollars per U.S. dollar. How many yen would it take to buy a Canadian dollar?

Healthy Grain Farms, a Canadian manufacturer of dried peas and lentils, sells cases of its product to stores overseas. Which statement best identifies the effects of these transactions?

What is the logic behind the theory of purchasing-power parity?

Ten Principles of Economics

Thinking Like an Economist

Interdependence and the Gains From Trade

The Market Forces of Supply and Demand

Measuring a Nations 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

Filters