Question 1

Which of the following statements is correct for an open economy with a trade surplus?

Accepted Answer

A) The trade surplus cannot last for very many years. 
B) The trade surplus must be offset by negative net capital outflow. 
C) The trade surplus implies that the country's national saving is greater than domestic investment. 
D) None of the above is correct. 
A) The trade surplus cannot last for very many years. 
B) The trade surplus must be offset by negative net capital outflow. 
C) The trade surplus implies that the country's national saving is greater than domestic investment. 
D) None of the above is correct.

Question 2

From 1960 to about 1975 in the United States,net capital outflow was

Accepted Answer

A) small but always positive. 
B) small and sometimes negative and sometimes positive. 
C) large and positive. 
D) large but sometimes negative and sometimes positive. 
A) small but always positive. 
B) small and sometimes negative and sometimes positive. 
C) large and positive. 
D) large but sometimes negative and sometimes positive.

Question 3

A country has $45 million of domestic investment and net capital outflow of -$60 million.What is saving?

Accepted Answer

A) $15 million. 
B) -$15 million. 
C) $105 million. 
D) -$105 million. 
A) $15 million. 
B) -$15 million. 
C) $105 million. 
D) -$105 million.

Question 4

Suppose that the real return from operating factories in Ghana rises relative to the real rate of return in the United States.Other things the same,

Accepted Answer

A) this will increases U.S.net capital outflow and decrease Ghanan net capital outflow. 
B) this will decreases U.S.net capital outflow and increase Ghanan net capital outflow. 
C) this will only increase U.S.net capital outflow. 
D) this will only increase Ghanan net capital outflow. 
A) this will increases U.S.net capital outflow and decrease Ghanan net capital outflow. 
B) this will decreases U.S.net capital outflow and increase Ghanan net capital outflow. 
C) this will only increase U.S.net capital outflow. 
D) this will only increase Ghanan net capital outflow.

Question 5

Which of the following would be U.S.foreign direct investment?

Accepted Answer

A) A Polish company opens a shipbuilding plant in the United States. 
B) A Bolivian bank buys U.S.corporate bonds. 
C) A U.S.bank buys Bolivian corporate bonds. 
D) A U.S.furniture maker opens a plant in Mexico. 
A) A Polish company opens a shipbuilding plant in the United States. 
B) A Bolivian bank buys U.S.corporate bonds. 
C) A U.S.bank buys Bolivian corporate bonds. 
D) A U.S.furniture maker opens a plant in Mexico.

Question 6

If the U.S.price level is increasing by 3 percent annually and the Swiss price level is increasing by 5 percent annually,by what percent would the dollar price of francs need to change according to purchasing power parity?

Accepted Answer

A) decrease by 5 percent 
B) decrease by 2 percent 
C) increase by 5 percent 
D) increase by 2 percent 
A) decrease by 5 percent 
B) decrease by 2 percent 
C) increase by 5 percent 
D) increase by 2 percent

Question 7

Which of the following is correct?

Accepted Answer

A) NCO + C = NX 
B) NCO = NX 
C) NX - NCO = C 
D) NX + NCO = C 
A) NCO + C = NX 
B) NCO = NX 
C) NX - NCO = C 
D) NX + NCO = C

Question 8

Which of the following does purchasing-power parity imply?

Accepted Answer

A) The purchasing power of the dollar is the same in the U.S.as in foreign countries. 
B) The price of domestic goods relative to foreign goods cannot change. 
C) The nominal exchange rate is the ratio of U.S.prices to foreign prices. 
D) All of the above are correct. 
A) The purchasing power of the dollar is the same in the U.S.as in foreign countries. 
B) The price of domestic goods relative to foreign goods cannot change. 
C) The nominal exchange rate is the ratio of U.S.prices to foreign prices. 
D) All of the above are correct.

Question 9

In the U.S.a candy bar costs 50 cents.The nominal exchange rate is 6 Chinese yuan per dollar.If the real exchange rate is .60,what is the price of a candy bar in China?

Accepted Answer

A) 7.2 yuan 
B) 6 yuan 
C) 5 yuan 
D) 3.6 yuan 
A) 7.2 yuan 
B) 6 yuan 
C) 5 yuan 
D) 3.6 yuan

Question 10

In an open economy,gross domestic product equals $2,450 billion,consumption expenditure equals $1,390 billion,government expenditure equals $325 billion,investment equals $510 and net capital outflow equals $225 billion.What is national saving?

Accepted Answer

A) $225 billion 
B) $510 billion 
C) $735 billion 
D) $1,390 billion 
A) $225 billion 
B) $510 billion 
C) $735 billion 
D) $1,390 billion

Question 11

Why are net exports and net capital outflow always equal?

Accepted Answer

Net exports and net capital outflow are

Question 12

Mike,a U.S.citizen,buys $1,000 worth of cheese from France.His action alone

Accepted Answer

A) increases U.S.imports by $1,000 and increases U.S.net exports by $1,000. 
B) increases U.S.imports by $1,000 and decreases U.S.net exports by $1,000. 
C) increases U.S.exports by $1,000 and increases U.S.net exports by $1,000. 
D) increases U.S.exports by $1,000 and decreases U.S.net exports by $1,000. 
A) increases U.S.imports by $1,000 and increases U.S.net exports by $1,000. 
B) increases U.S.imports by $1,000 and decreases U.S.net exports by $1,000. 
C) increases U.S.exports by $1,000 and increases U.S.net exports by $1,000. 
D) increases U.S.exports by $1,000 and decreases U.S.net exports by $1,000.

Question 13

Suppose that the exchange rate is 66 Bangladesh taka per dollar,that a bushel of rice costs 186 taka in Bangladesh and $3 in the United States.Then the real exchange rate is

Accepted Answer

A) greater than one and arbitrageurs could profit by buying rice in the United States and selling it in Bangladesh. 
B) greater than one and arbitrageurs could profit by buying rice in Bangladesh and selling it in the United States. 
C) less than one and arbitrageurs could profit by buying rice in the United States and selling it in Bangladesh. 
D) less than one and arbitrageurs could profit by buying rice in Bangladesh and selling it in the United States. 
A) greater than one and arbitrageurs could profit by buying rice in the United States and selling it in Bangladesh. 
B) greater than one and arbitrageurs could profit by buying rice in Bangladesh and selling it in the United States. 
C) less than one and arbitrageurs could profit by buying rice in the United States and selling it in Bangladesh. 
D) less than one and arbitrageurs could profit by buying rice in Bangladesh and selling it in the United States.

Question 14

Assuming all other things equal,what would happen to the U.S.dollar real exchange rate under each of the following circumstances?
a.The U.S.nominal exchange rate depreciates.
b.U.S.domestic prices increase.
c.Prices in the rest of the world rise.

Accepted Answer

a. The U.S.dollar real exchang

Question 15

If people in the United States buy MP3 players made in Japan,both U.S.net exports and U.S.net capital outflow decrease.

Accepted Answer

A) True 
 B)False

Question 16

You are staying in London over the summer and you have a number of dollars with you.If the dollar appreciated relative to the British pound then,other things the same,

Accepted Answer

A) the dollar would buy more pounds.The appreciation would discourage you from buying as many British goods and services. 
B) the dollar would buy more pounds.The appreciation would encourage you to buy more British goods and services. 
C) the dollar would buy fewer pounds.The appreciation would discourage you from buying as many British goods and services. 
D) the dollar would buy fewer pounds.The appreciation would encourage you to buy more British goods and services. 
A) the dollar would buy more pounds.The appreciation would discourage you from buying as many British goods and services. 
B) the dollar would buy more pounds.The appreciation would encourage you to buy more British goods and services. 
C) the dollar would buy fewer pounds.The appreciation would discourage you from buying as many British goods and services. 
D) the dollar would buy fewer pounds.The appreciation would encourage you to buy more British goods and services.

Question 17

A Mexican flour mill buys wheat from the United States and pays for it with pesos.Other things the same,Mexican

Accepted Answer

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

Question 18

In late 2000,you could purchase about 400 drachma for a dollar.In late 2005 you could purchase about 280 drachma for a dollar.These exchange rates are given in

Accepted Answer

A) real terms and over this period the dollar appreciated. 
B) real terms and over this period the dollar depreciated. 
C) nominal terms and over this period the dollar appreciated. 
D) nominal terms and over this period the dollar depreciated. 
A) real terms and over this period the dollar appreciated. 
B) real terms and over this period the dollar depreciated. 
C) nominal terms and over this period the dollar appreciated. 
D) nominal terms and over this period the dollar depreciated.

Question 19

A U.S.firm buys apples from New Zealand with U.S.currency.The New Zealand firm than uses this money to buy packaging equipment from a U.S.firm.Which of the following increases?

Accepted Answer

A) New Zealand net capital outflow and New Zealand net exports 
B) only New Zealand net exports 
C) only New Zealand net capital outflow 
D) neither New Zealand net exports nor New Zealand capital outflow 
A) New Zealand net capital outflow and New Zealand net exports 
B) only New Zealand net exports 
C) only New Zealand net capital outflow 
D) neither New Zealand net exports nor New Zealand capital outflow

Question 20

From 1970 to 1998 the U.S.dollar

Accepted Answer

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

Exam 31: Open-Economy Macroeconomics: Basic Concepts

Which of the following statements is correct for an open economy with a trade surplus?

From 1960 to about 1975 in the United States,net capital outflow was

A country has $45 million of domestic investment and net capital outflow of -$60 million.What is saving?

Suppose that the real return from operating factories in Ghana rises relative to the real rate of return in the United States.Other things the same,

Which of the following would be U.S.foreign direct investment?

If the U.S.price level is increasing by 3 percent annually and the Swiss price level is increasing by 5 percent annually,by what percent would the dollar price of francs need to change according to purchasing power parity?

Which of the following is correct?

Which of the following does purchasing-power parity imply?

In the U.S.a candy bar costs 50 cents.The nominal exchange rate is 6 Chinese yuan per dollar.If the real exchange rate is .60,what is the price of a candy bar in China?

In an open economy,gross domestic product equals $2,450 billion,consumption expenditure equals $1,390 billion,government expenditure equals $325 billion,investment equals $510 and net capital outflow equals $225 billion.What is national saving?

Why are net exports and net capital outflow always equal?

Mike,a U.S.citizen,buys $1,000 worth of cheese from France.His action alone

Suppose that the exchange rate is 66 Bangladesh taka per dollar,that a bushel of rice costs 186 taka in Bangladesh and $3 in the United States.Then the real exchange rate is

Assuming all other things equal,what would happen to the U.S.dollar real exchange rate under each of the following circumstances? a.The U.S.nominal exchange rate depreciates. b.U.S.domestic prices increase. c.Prices in the rest of the world rise.

If people in the United States buy MP3 players made in Japan,both U.S.net exports and U.S.net capital outflow decrease.

You are staying in London over the summer and you have a number of dollars with you.If the dollar appreciated relative to the British pound then,other things the same,

A Mexican flour mill buys wheat from the United States and pays for it with pesos.Other things the same,Mexican

In late 2000,you could purchase about 400 drachma for a dollar.In late 2005 you could purchase about 280 drachma for a dollar.These exchange rates are given in

A U.S.firm buys apples from New Zealand with U.S.currency.The New Zealand firm than uses this money to buy packaging equipment from a U.S.firm.Which of the following increases?

From 1970 to 1998 the U.S.dollar

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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