Question 1

How are net exports of a country determined?

Accepted Answer

A)  the value of goods and services imported minus the value of goods and services exported 
B)  the value of goods and services exported minus the value of goods and services imported 
C)  the value of goods exported minus the value of goods imported 
D)  the value of goods imported minus the value of goods exported 
A)  the value of goods and services imported minus the value of goods and services exported 
B)  the value of goods and services exported minus the value of goods and services imported 
C)  the value of goods exported minus the value of goods imported 
D)  the value of goods imported minus the value of goods exported

Question 2

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 3

According to purchasing-power parity, what is the relationship between changes in price levels between two countries and changes in nominal exchange rates?

Accepted Answer

Purchasing-power parity asserts that the

Question 4

If a Canadian manufacturer of linens purchases cotton from Egypt, what are the effects of this transaction?

Accepted Answer

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

Question 5

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

Accepted Answer

The purchase of a foreign good by a Cana

Question 6

If the exchange rate changes from 40 Thai baht per dollar to 25 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 7

In which situation must national saving rise?

Accepted Answer

A)  Both domestic investment and net capital outflow increase. 
B)  Domestic investment increases, and net capital outflow decreases. 
C)  Domestic investment decreases, and net capital outflow increases. 
D)  Net exports decrease, and domestic investment is unchanged. 
A)  Both domestic investment and net capital outflow increase. 
B)  Domestic investment increases, and net capital outflow decreases. 
C)  Domestic investment decreases, and net capital outflow increases. 
D)  Net exports decrease, and domestic investment is unchanged.

Question 8

Guido, an Italian citizen, opens and operates a pasta factory in Canada. What is this an example of?

Accepted Answer

A)  Italian foreign direct investment that increases Italian net capital outflow 
B)  Italian foreign direct investment that decreases Italian net capital outflow 
C)  Italian foreign portfolio investment that increases Italian net capital outflow 
D)  Italian foreign portfolio investment that decreases Italian net capital outflow 
A)  Italian foreign direct investment that increases Italian net capital outflow 
B)  Italian foreign direct investment that decreases Italian net capital outflow 
C)  Italian foreign portfolio investment that increases Italian net capital outflow 
D)  Italian foreign portfolio investment that decreases Italian net capital outflow

Question 9

Suppose the price level in Canada (P) and the nominal exchange rate (e) between the Canadian dollar and the foreign currency remain the same, while the price level abroad increases from P₁* to P₂*. Let the real exchange rate be X. What is the percentage change in the real exchange rate?

Accepted Answer

The percentage change in the real exchan

Question 10

Suppose that the dollar buys more bananas in Honduras than in Costa Rica. How could traders make a profit?

Accepted Answer

A)  by buying bananas in Honduras and selling them in Costa Rica, which would tend to raise the price of bananas in Honduras 
B)  by buying bananas in Honduras and selling them in Costa Rica, which would tend to raise the price of bananas in Costa Rica 
C)  by buying bananas in Costa Rica and selling them in Honduras, which would tend to raise the price of bananas in Costa Rica 
D)  by buying bananas in Costa Rica and selling them in Honduras, which would tend to raise the price of bananas in Honduras 
A)  by buying bananas in Honduras and selling them in Costa Rica, which would tend to raise the price of bananas in Honduras 
B)  by buying bananas in Honduras and selling them in Costa Rica, which would tend to raise the price of bananas in Costa Rica 
C)  by buying bananas in Costa Rica and selling them in Honduras, which would tend to raise the price of bananas in Costa Rica 
D)  by buying bananas in Costa Rica and selling them in Honduras, which would tend to raise the price of bananas in Honduras

Question 11

How has Canadian national saving changed in recent history?

Accepted Answer

A)  It remained positive from 1999 to 2008. 
B)  It decreased below 10 percent toward the end of the 1990s. 
C)  It had a historic high in early 1990s. 
D)  It has been decreasing since 1991. 
A)  It remained positive from 1999 to 2008. 
B)  It decreased below 10 percent toward the end of the 1990s. 
C)  It had a historic high in early 1990s. 
D)  It has been decreasing since 1991.

Question 12

What would an appreciation 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 13

If the exchange rate is 175 yen = $1, what is the cost of a bottle of rice wine that costs 7875 yen?

Accepted Answer

A)  $40 
B)  $45 
C)  $52 
D)  $54 
A)  $40 
B)  $45 
C)  $52 
D)  $54

Question 14

When a country's central bank increases the money supply, what happens to a unit of that country's money?

Accepted Answer

A)  It gains value both in terms of the domestic goods and services it can buy and in terms of the foreign currency it can buy. 
B)  It gains value in terms of the domestic goods and services it can buy, but loses value in terms of the foreign currency it can buy. 
C)  It loses value in terms of the domestic goods and services it can buy, but gains value in terms of the foreign currency it can buy. 
D)  It loses value both in terms of the domestic goods and services it can buy and in terms of the foreign currency it can buy. 
A)  It gains value both in terms of the domestic goods and services it can buy and in terms of the foreign currency it can buy. 
B)  It gains value in terms of the domestic goods and services it can buy, but loses value in terms of the foreign currency it can buy. 
C)  It loses value in terms of the domestic goods and services it can buy, but gains value in terms of the foreign currency it can buy. 
D)  It loses value both in terms of the domestic goods and services it can buy and in terms of the foreign currency it can buy.

Question 15

Suppose that in 1999 you could purchase about 400 Greek drachmas (the former Greek currency, replaced by the euro in 2002) for a dollar. In 2000, you could purchase about 350 drachmas for a dollar. Which statement best explains the changes that could have taken place between 1999 and 2000?

Accepted Answer

A)  The dollar appreciated, increasing the trade balance. 
B)  The dollar depreciated, decreasing the trade balance. 
C)  The dollar appreciated, decreasing the trade balance. 
D)  The dollar depreciated, increasing the trade balance. 
A)  The dollar appreciated, increasing the trade balance. 
B)  The dollar depreciated, decreasing the trade balance. 
C)  The dollar appreciated, decreasing the trade balance. 
D)  The dollar depreciated, increasing the trade balance.

Question 16

According to the theory of purchasing-power parity, the real exchange rate defined as foreign goods per unit of Canadian goods will equal the domestic price level divided by the foreign price level.

Accepted Answer

A) True 
 B)False

Question 17

If the real exchange rate of the Canadian dollar falls, Canadian net exports will fall.

Accepted Answer

A) True 
 B)False

Question 18

Suppose the exchange rate is 5 units of Peruvian currency per dollar, and a hotel room in Lima, Peru, costs 450 units of Peruvian currency. How many dollars do you need to get a room in Lima?

Accepted Answer

A)  $45 
B)  $90 
C)  $455 
D)  $2250 
A)  $45 
B)  $90 
C)  $455 
D)  $2250

Question 19

Suppose the nominal exchange rate is 95 yen/dollar, the price of beef in Japan is ¥1200, and the price of beef in Canada is $14. Using the purchasing-power parity theory, approximately how much should you expect the exchange rate to change by?

Accepted Answer

A)  -9 yen/dollar 
B)  -1.1 yen/dollar 
C)  1.1 yen/dollar 
D)  9 yen/dollar 
A)  -9 yen/dollar 
B)  -1.1 yen/dollar 
C)  1.1 yen/dollar 
D)  9 yen/dollar

Question 20

If the exchange rate is 10 pesos per dollar, it is also 0.10 dollars per peso.

Accepted Answer

A) True 
 B)False

How are net exports of a country determined?

What is the formula for saving in an open economy?

According to purchasing-power parity, what is the relationship between changes in price levels between two countries and changes in nominal exchange rates?

If a Canadian manufacturer of linens purchases cotton from Egypt, what are the effects of this transaction?

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

If the exchange rate changes from 40 Thai baht per dollar to 25 Thai baht per dollar, what has happened to the dollar?

In which situation must national saving rise?

Guido, an Italian citizen, opens and operates a pasta factory in Canada. What is this an example of?

Suppose the price level in Canada (P) and the nominal exchange rate (e) between the Canadian dollar and the foreign currency remain the same, while the price level abroad increases from P₁* to P₂*. Let the real exchange rate be X. What is the percentage change in the real exchange rate?

Suppose that the dollar buys more bananas in Honduras than in Costa Rica. How could traders make a profit?

How has Canadian national saving changed in recent history?

What would an appreciation of the Canadian real exchange rate induce Canadian consumers to buy?

If the exchange rate is 175 yen = $1, what is the cost of a bottle of rice wine that costs 7875 yen?

When a country's central bank increases the money supply, what happens to a unit of that country's money?

Suppose that in 1999 you could purchase about 400 Greek drachmas (the former Greek currency, replaced by the euro in 2002) for a dollar. In 2000, you could purchase about 350 drachmas for a dollar. Which statement best explains the changes that could have taken place between 1999 and 2000?

According to the theory of purchasing-power parity, the real exchange rate defined as foreign goods per unit of Canadian goods will equal the domestic price level divided by the foreign price level.

If the real exchange rate of the Canadian dollar falls, Canadian net exports will fall.

Suppose the exchange rate is 5 units of Peruvian currency per dollar, and a hotel room in Lima, Peru, costs 450 units of Peruvian currency. How many dollars do you need to get a room in Lima?

Suppose the nominal exchange rate is 95 yen/dollar, the price of beef in Japan is ¥1200, and the price of beef in Canada is $14. Using the purchasing-power parity theory, approximately how much should you expect the exchange rate to change by?

If the exchange rate is 10 pesos per dollar, it is also 0.10 dollars per peso.

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

How are net exports of a country determined?

What is the formula for saving in an open economy?

According to purchasing-power parity, what is the relationship between changes in price levels between two countries and changes in nominal exchange rates?

If a Canadian manufacturer of linens purchases cotton from Egypt, what are the effects of this transaction?

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

If the exchange rate changes from 40 Thai baht per dollar to 25 Thai baht per dollar, what has happened to the dollar?

In which situation must national saving rise?

Guido, an Italian citizen, opens and operates a pasta factory in Canada. What is this an example of?

Suppose the price level in Canada (P) and the nominal exchange rate (e) between the Canadian dollar and the foreign currency remain the same, while the price level abroad increases from P₁* to P₂*. Let the real exchange rate be X. What is the percentage change in the real exchange rate?

Suppose that the dollar buys more bananas in Honduras than in Costa Rica. How could traders make a profit?

How has Canadian national saving changed in recent history?

What would an appreciation of the Canadian real exchange rate induce Canadian consumers to buy?

If the exchange rate is 175 yen = $1, what is the cost of a bottle of rice wine that costs 7875 yen?

When a country's central bank increases the money supply, what happens to a unit of that country's money?

Suppose that in 1999 you could purchase about 400 Greek drachmas (the former Greek currency, replaced by the euro in 2002) for a dollar. In 2000, you could purchase about 350 drachmas for a dollar. Which statement best explains the changes that could have taken place between 1999 and 2000?

According to the theory of purchasing-power parity, the real exchange rate defined as foreign goods per unit of Canadian goods will equal the domestic price level divided by the foreign price level.

If the real exchange rate of the Canadian dollar falls, Canadian net exports will fall.

Suppose the exchange rate is 5 units of Peruvian currency per dollar, and a hotel room in Lima, Peru, costs 450 units of Peruvian currency. How many dollars do you need to get a room in Lima?

Suppose the nominal exchange rate is 95 yen/dollar, the price of beef in Japan is ¥1200, and the price of beef in Canada is $14. Using the purchasing-power parity theory, approximately how much should you expect the exchange rate to change by?

If the exchange rate is 10 pesos per dollar, it is also 0.10 dollars per peso.

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