Exam 12: Open-Economy Macroeconomics: Basic Concepts

Meagan is considering investing $1000 in Canada, where she expects an interest rate of 4 percent, or in the U.K., where the expected interest rate would be 6 percent. The current exchange rate is 0.6 £/$, which could take by the end of the year any value between 0.4 and 0.7£/$ with equal probability. What should Meagan do?

A Canadian computer maker sells computers to a Czech Republic firm. This company uses all of the revenues from this sale to purchase stock in a Czech Republic company. What happens to Canadian net exports and net foreign investment due to these transactions?

How do you measure the current account balance?

Which statement best describes how the Canadian economy has evolved over the past five decades?

When Deborah, a Canadian living in Canada, purchases Prada boots made in Florence, what is this purchase?

Why are net exports and net capital outflow always equal?

A German company sells vehicles to a dealership in Canada. Which statement best identifies the effects of these transactions?

If P = domestic prices, P* = foreign prices, and e is the nominal exchange rate, what is implied by purchasing-power parity?

A Norwegian firm purchases earth-moving equipment from a Canadian company and pays for it with domestic currency. What are the effects of this transaction?

Consider this statement: "Canada is characterized by perfect capital mobility." What does this mean in the language of economics?

Which of the following is an identity that always holds in an open economy?

John, a Canadian citizen, opens up a 70s-style dance club in Tokyo. What is this an example of?

Suppose a bottle of wine costs 25 euros in France and $20 in Canada. If the exchange rate is 1.25 euros per dollar, what is the real exchange rate?

How do the nominal exchange rate and the real exchange rate differ?

What is the formula for national saving?

According to purchasing-power parity theory, the real exchange rate should equal the nominal exchange rate.

Suppose that a Canadian dollar buys more gold in Australia than it buys in Burkina Faso. What does purchasing-power parity imply should happen?

Sue, a Canadian citizen, buys shares of stock in a French chain of boutiques. What is this an example of?

Ivan, a Russian citizen, sells several hundred cases of Russian caviar to a Canadian hotel chain. Which statement best identifies the effects of this transaction?

Suppose that the real exchange rate between Canada and Tanzania is defined in terms of baskets of goods. What will increase the real exchange rate (that is, increase the number of baskets of Tanzanian goods a basket of Canadian goods buys)?