Question 1

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

Accepted Answer

A) P = e/P* 
B) 1 = e/P* 
C) e = P*/P 
D) None of the above is correct. 
A) P = e/P* 
B) 1 = e/P* 
C) e = P*/P 
D) None of the above is correct.

Question 2

From 2000-2004 net capital outflow as a percent of GDP became a

Accepted Answer

A) larger positive number. 
B) smaller positive number. 
C) larger negative number. 
D) smaller negative number 
A) larger positive number. 
B) smaller positive number. 
C) larger negative number. 
D) smaller negative number

Question 3

In Ireland,a pint of beer costs 2.2 Irish pounds.In Australia,a pint of beer costs 4 Australian dollars.If the exchange rate is .5 pounds per Australian dollar,what is the real exchange rate?

Accepted Answer

A) .91 pints of Irish beer per pint of Australian beer 
B) 1.1 pint of Irish beer per pint of Australian beer 
C) 3.64 pints of Irish beer per pint of Australian beer 
D) 4.4 pints of Irish beer per pint of Australian beer 
A) .91 pints of Irish beer per pint of Australian beer 
B) 1.1 pint of Irish beer per pint of Australian beer 
C) 3.64 pints of Irish beer per pint of Australian beer 
D) 4.4 pints of Irish beer per pint of Australian beer

Question 4

If the nominal exchange rate e is foreign currency per dollar,the domestic price is P,and the foreign price is P*,then the real exchange rate is defined as

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 5

An MP3 player in Singapore costs 200 Singaporean dollars.In the U.S.it costs 100 US dollars.Which of the following is correct?

Accepted Answer

A) if the nominal exchange rate is 2.0 Singaporean dollars per U.S.dollar, purchasing power parity holds. 
B) if the nominal exchange rate is 1 Singaporean dollars per U.S.dollar, purchasing power parity holds. 
C) if the nominal exchange rate is .50 Singaporean dollars per U.S.dollar, purchasing power parity holds. 
D) purchasing power parity does not hold at any of the above exchange rates. 
A) if the nominal exchange rate is 2.0 Singaporean dollars per U.S.dollar, purchasing power parity holds. 
B) if the nominal exchange rate is 1 Singaporean dollars per U.S.dollar, purchasing power parity holds. 
C) if the nominal exchange rate is .50 Singaporean dollars per U.S.dollar, purchasing power parity holds. 
D) purchasing power parity does not hold at any of the above exchange rates.

Question 6

Can purchasing-power parity be used to explain the fact that the U.S.dollar has depreciated by more than 50 percent against the German mark between 1970 and 1998,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 su

Question 7

Purchasing-power parity theory does not hold at all times because

Accepted Answer

A) many goods are not easily transported. 
B) the same goods produced in different countries may be imperfect substitutes for each other. 
C) Both a and b are correct. 
D) prices are different across countries. 
A) many goods are not easily transported. 
B) the same goods produced in different countries may be imperfect substitutes for each other. 
C) Both a and b are correct. 
D) prices are different across countries.

Question 8

The nominal exchange rate is 4 Saudi Arabian riyals,9 Moroccan dirham,45 Indian rupee,or .6 British pounds per U.S.dollar.A double latte espresso and a cinnamon biscotti costs $6 in the U.S.,24 riyals in Saudi Arabia,45 Moroccan dirham in Morocco,250 Indian rupees in India,and 5 British pounds in Britain.According to these numbers,where is the real exchange rate between American and foreign goods the lowest?

Accepted Answer

A) Saudi Arabia 
B) Morocco 
C) India 
D) Britain 
A) Saudi Arabia 
B) Morocco 
C) India 
D) Britain

Question 9

Suppose a Starbucks tall-latte cost $4.00 in the United States and 3.20 euros in the Euro area.Suppose a McDonald's Big Mac costs $3.50 in the United States and 2.45 euros in Euro area.If the nominal exchange rate is .75 euros per dollar,the prices of which goods have prices that are consistent with purchasing power parity?

Accepted Answer

A) Both the tall-latte and the Big Mac. 
B) Neither the tall-latte nor the Big Mac. 
C) The tall-latte but not the Big Mac. 
D) The Big Mac but not the tall-latte. 
A) Both the tall-latte and the Big Mac. 
B) Neither the tall-latte nor the Big Mac. 
C) The tall-latte but not the Big Mac. 
D) The Big Mac but not the tall-latte.

Question 10

Other things the same,the real exchange rate between U.S.and South African goods would be higher if

Accepted Answer

A) prices in the U.S.were higher, or the number of South African rand the dollar purchased were higher. 
B) prices in the U.S.were higher, or the number of South African rand the dollar purchased were lower. 
C) prices in the U.S.were lower, or the number of South African rand the dollar purchased were higher. 
D) prices in the U.S.were lower, or the number of South African rand the dollar purchased were lower. 
A) prices in the U.S.were higher, or the number of South African rand the dollar purchased were higher. 
B) prices in the U.S.were higher, or the number of South African rand the dollar purchased were lower. 
C) prices in the U.S.were lower, or the number of South African rand the dollar purchased were higher. 
D) prices in the U.S.were lower, or the number of South African rand the dollar purchased were lower.

Question 11

From 1970 to 1998 the U.S.dollar

Accepted Answer

A) gained value compared to the Italian lira because inflation was higher in the U.S. 
B) gained value compared to the Italian lira because inflation was lower in the U.S. 
C) lost value compared to the Italian lira because inflation was higher in the U.S. 
D) lost value compared to the Italian lira because inflation was lower in the U.S. 
A) gained value compared to the Italian lira because inflation was higher in the U.S. 
B) gained value compared to the Italian lira because inflation was lower in the U.S. 
C) lost value compared to the Italian lira because inflation was higher in the U.S. 
D) lost value compared to the Italian lira because inflation was lower in the U.S.

Question 12

Suppose that the real exchange rate between the United States and Zambia is defined in terms of baskets of goods.Other things the same,which of the following will increase the real exchange rate (that is increase the number of baskets of Zambian goods a basket of U.S.goods buys)?

Accepted Answer

A) a decrease in the number of Zambian Kwacha that can be purchased with a dollar 
B) a decrease in the price of U.S.baskets of goods 
C) a decrease in the price in Zambian Kwacha of Zambian goods 
D) None of the above is correct. 
A) a decrease in the number of Zambian Kwacha that can be purchased with a dollar 
B) a decrease in the price of U.S.baskets of goods 
C) a decrease in the price in Zambian Kwacha of Zambian goods 
D) None of the above is correct.

Question 13

Which of the following equations is always correct in an open economy?

Accepted Answer

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

Question 14

If a U.S.textbook publishing company sells texts overseas,U.S.net exports

Accepted Answer

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

Question 15

Foreign-produced goods and services that are sold domestically are called

Accepted Answer

A) imports. 
B) exports. 
C) net imports. 
D) net exports. 
A) imports. 
B) exports. 
C) net imports. 
D) net exports.

Question 16

A country has $200 billion of domestic investment and net capital outflow of $100 billion.What is saving?

Accepted Answer

A) $100 billion 
B) $300 billion 
C) -$200 billion 
D) -$300 billion 
A) $100 billion 
B) $300 billion 
C) -$200 billion 
D) -$300 billion

Exam 31: Open-Economy Macroeconomics: Basic Concepts

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

From 2000-2004 net capital outflow as a percent of GDP became a

In Ireland,a pint of beer costs 2.2 Irish pounds.In Australia,a pint of beer costs 4 Australian dollars.If the exchange rate is .5 pounds per Australian dollar,what is the real exchange rate?

If the nominal exchange rate e is foreign currency per dollar,the domestic price is P,and the foreign price is P*,then the real exchange rate is defined as

An MP3 player in Singapore costs 200 Singaporean dollars.In the U.S.it costs 100 US dollars.Which of the following is correct?

Can purchasing-power parity be used to explain the fact that the U.S.dollar has depreciated by more than 50 percent against the German mark between 1970 and 1998,but appreciated by more than 100 percent against the Italian lira during the same period? Defend your answer.

Purchasing-power parity theory does not hold at all times because

Other things the same,the real exchange rate between U.S.and South African goods would be higher if

From 1970 to 1998 the U.S.dollar

Suppose that the real exchange rate between the United States and Zambia is defined in terms of baskets of goods.Other things the same,which of the following will increase the real exchange rate (that is increase the number of baskets of Zambian goods a basket of U.S.goods buys)?

Which of the following equations is always correct in an open economy?

If a U.S.textbook publishing company sells texts overseas,U.S.net exports

Foreign-produced goods and services that are sold domestically are called

A country has $200 billion of domestic investment and net capital outflow of $100 billion.What is saving?

Ten Principles of Economics

Thinking Like an Economist

Interdependence and the Gains From Trade

The Market Forces of Supply and Demand

Elasticity and Its Applications

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

Oligopoly

Monopolistic Competition

The Markets for the Factors of Production

Earnings and Discrimination

Income Inequality 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 Basic Tools of Finance

Unemployment

The Monetary System

Money Growth and Inflation

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

Five Debates Over Macroeconomic Policy

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