Exam 31: Open-Economy Macroeconomics: Basic Concepts

Suppose a Starbucks tall-latte cost $4.00 in the United States and 5.00 euros in the euro area and $2.50 Australian dollars in Australia.Nominal exchange rates are .80 euros per dollar and 1.6 Australian dollars per U.S.dollar.Where does purchasing power parity hold according to the Big Mac index?

Suppose a lobster supper in Maine costs fewer dollars than a Lobster supper in Paris,France.Explain why this is inconsistent with purchasing-power parity and explain why the inconsistency may exist.

When the Sykes Corporation (an American company)buys shares of Audi stock (a German company)for its pension fund,U.S.net capital outflow

A Japanese firm buys lumber from the United States and pays for it with yen.Other things the same,Japanese

Domestic saving must equal investment in

On behalf of your firm,you make frequent trips to Singapore.You notice that you always have to pay more dollars to get enough local currency to get your nails manicured than you have to pay to get manicured in the United States.This is

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

In the 1970s and 1980s the U.S.dollar depreciated against the German mark and appreciated against the Italian lira because the United States experienced more inflation than Germany but less inflation than Italy.

When making investment decisions,investors

During a hyperinflation the real domestic value of a country's currency

Suppose that the dollar buys less cotton in Egypt than in the United States.Traders could make a profit by

Suppose the Kenyan nominal exchange rate declines,and prices are unchanged in Kenya and abroad.Based on this information,the Kenyan real exchange rate

Other things the same,the real exchange rate between American and British goods would be higher if

If inflation is higher in the United States over the next few months than in foreign countries and exchange rates are given in terms of how much foreign currency a dollar buys or how many foreign goods U.S.goods buy,then according to purchasing-power parity we should expect to see

When the United States imports more than it exports,it must also buy domestic assets from foreigners.

Bob traps lobsters in Maine and sells them to a restaurant in Egypt.Other things the same,these sales

Purchasing-power parity describes the forces that determine

Exchange rates are 120 yen per dollar,0.8 euro per dollar,and 10 pesos per dollar.A bottle of beer in New York costs 6 dollars,1,200 yen in Tokyo,7.2 euro in Munich,and 50 pesos in Cancun.Where is the most expensive and the cheapest beer in that order?

Use the (hypothetical) information in the following table to answer the following questions. Table 31-1 -Refer to Table 31-1.Which currency(ies)is(are)less valuable than predicted by the doctrine of purchasing-power parity?

Nominal exchange rates