Question 1

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

Accepted Answer

A) True 
 B)False

Question 2

The nominal exchange rate is about 1.8 Aruban florin per dollar.If a basket of goods in the United States costs $40,how many florins must a basket of goods in Aruba cost for purchasing power parity to hold?

Accepted Answer

A) 18 florin 
B) 36 florin 
C) 72 florin 
D) 90 florin 
A) 18 florin 
B) 36 florin 
C) 72 florin 
D) 90 florin

Question 3

From 1970 to 1998 the U.S.dollar

Accepted Answer

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

Question 4

List the factors that might influence a country's exports,imports,and trade balance.

Accepted Answer

a. the tastes of consumers for domestic

Question 5

The real exchange rate is the nominal rate exchange defined as foreign currency per dollar times

Accepted Answer

A) U.S.prices minus foreign prices. 
B) prices in the United States divided by foreign prices. 
C) foreign prices divided by U.S.prices. 
D) None of the above is correct. 
A) U.S.prices minus foreign prices. 
B) prices in the United States divided by foreign prices. 
C) foreign prices divided by U.S.prices. 
D) None of the above is correct.

Question 6

If purchasing-power parity holds,then the value of the

Accepted Answer

A) real exchange rate is equal to one. 
B) nominal exchange rate is equal to one. 
C) real exchange rate is equal to the nominal exchange rate. 
D) real exchange rate is equal to the difference in inflation rates between the two countries. 
A) real exchange rate is equal to one. 
B) nominal exchange rate is equal to one. 
C) real exchange rate is equal to the nominal exchange rate. 
D) real exchange rate is equal to the difference in inflation rates between the two countries.

Question 7

Most of the change from 1980 to 1987 in U.S.net capital outflow as a percent of GDP was due to a(n)

Accepted Answer

A) decrease in U.S.investment. 
B) decrease in U.S.national saving. 
C) increase in U.S.investment. 
D) increase in U.S.national saving. 
A) decrease in U.S.investment. 
B) decrease in U.S.national saving. 
C) increase in U.S.investment. 
D) increase in U.S.national saving.

Question 8

An Italian citizen opens and operates a spaghetti factory in the United States.This is Italian

Accepted Answer

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

Question 9

A roll of duct tape costs 3 Canadian dollars in Canada and 2 U.S.dollars in the U.S.The nominal exchange rate is 1.25 Canadian dollars per U.S.dollar.

Accepted Answer

A) A profit could be made by buying duct tape in Canada and selling it in the U.S.This would tend to drive up the price of U.S.duct tape. 
B) A profit could be made by buying duct tape in Canada and selling it in the U.S.This would tend to drive up the price of Canadian duct tape. 
C) A profit could be made by buying duct tape in the U.S.and selling it in Canada.This would tend to drive up the price of U.S.duct tape. 
D) A profit could be made by buying duct tape in the U.S.and selling it in Canada.This would tend to drive up the price of Canadian duct tape. 
A) A profit could be made by buying duct tape in Canada and selling it in the U.S.This would tend to drive up the price of U.S.duct tape. 
B) A profit could be made by buying duct tape in Canada and selling it in the U.S.This would tend to drive up the price of Canadian duct tape. 
C) A profit could be made by buying duct tape in the U.S.and selling it in Canada.This would tend to drive up the price of U.S.duct tape. 
D) A profit could be made by buying duct tape in the U.S.and selling it in Canada.This would tend to drive up the price of Canadian duct tape.

Question 10

When the yen gets "stronger" relative to the dollar,

Accepted Answer

A) the U.S.trade deficit with Japan will rise. 
B) the U.S.trade deficit with Japan will fall. 
C) the U.S.trade deficit with Japan will be unchanged. 
D) None of the above necessarily happens. 
A) the U.S.trade deficit with Japan will rise. 
B) the U.S.trade deficit with Japan will fall. 
C) the U.S.trade deficit with Japan will be unchanged. 
D) None of the above necessarily happens.

Question 11

From 1991-2000,U.S.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 12

Suppose that the real exchange rate between the United States and Vietnam 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 Vietnamese goods a basket of U.S.goods buys)?

Accepted Answer

A) an increase in the quantity of Vietnamese currency that can be purchased with a dollar 
B) an increase in the price of U.S.baskets of goods 
C) a decrease in the price in Vietnamese currency of Vietnamese goods 
D) All of the above are correct. 
A) an increase in the quantity of Vietnamese currency that can be purchased with a dollar 
B) an increase in the price of U.S.baskets of goods 
C) a decrease in the price in Vietnamese currency of Vietnamese goods 
D) All of the above are correct.

Question 13

If the exchange rate is 125 yen = $1,a bottle of rice wine that costs 2,500 yen costs

Accepted Answer

A) $20. 
B) $25. 
C) $22. 
D) None of the above is correct. 
A) $20. 
B) $25. 
C) $22. 
D) None of the above is correct.

Question 14

If the exchange rate is 5 units of Peruvian currency per dollar and a hotel room in Lima costs 300 units of Peruvian currency,how many dollars do you need to get a room?

Accepted Answer

A) 1,500, and your purchase will increase Peru's net exports. 
B) 60 and your purchase will increase Peru's net exports. 
C) 1,500 and your purchase will have no effect on Peru's net exports. 
D) 60 and your purchase will have no effect on Peru's net exports. 
A) 1,500, and your purchase will increase Peru's net exports. 
B) 60 and your purchase will increase Peru's net exports. 
C) 1,500 and your purchase will have no effect on Peru's net exports. 
D) 60 and your purchase will have no effect on Peru's net exports.

Question 15

Most of the change from 1991 to 2000 in U.S.net capital outflow as a percent of GDP was due to a(n)

Accepted Answer

A) decrease in U.S.investment. 
B) decrease in U.S.national saving. 
C) increase in U.S.investment. 
D) increase in U.S.national saving. 
A) decrease in U.S.investment. 
B) decrease in U.S.national saving. 
C) increase in U.S.investment. 
D) increase in U.S.national saving.

Question 16

If France has a trade surplus,then

Accepted Answer

A) foreign countries purchase more French capital assets than France purchases from them.This makes French saving greater than French domestic investment. 
B) foreign countries purchase more French capital assets than France purchases from them.This makes French saving smaller then French domestic investment. 
C) foreign countries purchase less French capital assets than France purchases from them.This makes French saving greater than French domestic investment.. 
D) foreign countries purchase less French capital assets than France purchases from them.This makes French saving greater than French domestic investment 
A) foreign countries purchase more French capital assets than France purchases from them.This makes French saving greater than French domestic investment. 
B) foreign countries purchase more French capital assets than France purchases from them.This makes French saving smaller then French domestic investment. 
C) foreign countries purchase less French capital assets than France purchases from them.This makes French saving greater than French domestic investment.. 
D) foreign countries purchase less French capital assets than France purchases from them.This makes French saving greater than French domestic investment

Question 17

Suppose the same basket of goods costs $100 in the U.S.and 50 pounds in Britain.According to purchasing power parity,what is the nominal exchange rate?

Accepted Answer

A) 2 pounds per dollar 
B) 1 pound per dollar 
C) 1/2 pound per dollar 
D) None of the above is correct 
A) 2 pounds per dollar 
B) 1 pound per dollar 
C) 1/2 pound per dollar 
D) None of the above is correct

Question 18

The law of one price states that

Accepted Answer

A) a good must sell at the price fixed by law. 
B) a good must sell at the same price at all locations. 
C) a good cannot sell for a price greater than the legal price ceiling. 
D) domestic producers of a good are guaranteed a subsidy by law. 
A) a good must sell at the price fixed by law. 
B) a good must sell at the same price at all locations. 
C) a good cannot sell for a price greater than the legal price ceiling. 
D) domestic producers of a good are guaranteed a subsidy by law.

Question 19

When U.S.national savings rises,domestic investment also necessarily rises.

Accepted Answer

A) True 
 B)False

Question 20

If the real exchange rate between the U.S.and Argentina is 1,then

Accepted Answer

A) purchasing-power parity holds, and 1 U.S.dollar buys 1 Argentinean bolivar. 
B) purchasing power parity holds, and the amount of currency needed to buy goods in the U.S.is the same as the amount needed to buy enough Argentinean bolivars to buy the same goods in Argentina. 
C) purchasing power parity does not hold, but 1 U.S.dollar buys 1 Argentinean bolivar. 
D) purchasing power parity does not hold, but the amount of currency needed to buy goods in the U.S.is the same as the amount needed to buy enough Argentinean bolivars to buy the same goods in Argentina. 
A) purchasing-power parity holds, and 1 U.S.dollar buys 1 Argentinean bolivar. 
B) purchasing power parity holds, and the amount of currency needed to buy goods in the U.S.is the same as the amount needed to buy enough Argentinean bolivars to buy the same goods in Argentina. 
C) purchasing power parity does not hold, but 1 U.S.dollar buys 1 Argentinean bolivar. 
D) purchasing power parity does not hold, but the amount of currency needed to buy goods in the U.S.is the same as the amount needed to buy enough Argentinean bolivars to buy the same goods in Argentina.

Exam 31: Open-Economy Macroeconomics: Basic Concepts

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

The nominal exchange rate is about 1.8 Aruban florin per dollar.If a basket of goods in the United States costs $40,how many florins must a basket of goods in Aruba cost for purchasing power parity to hold?

From 1970 to 1998 the U.S.dollar

List the factors that might influence a country's exports,imports,and trade balance.

The real exchange rate is the nominal rate exchange defined as foreign currency per dollar times

If purchasing-power parity holds,then the value of the

Most of the change from 1980 to 1987 in U.S.net capital outflow as a percent of GDP was due to a(n)

An Italian citizen opens and operates a spaghetti factory in the United States.This is Italian

A roll of duct tape costs 3 Canadian dollars in Canada and 2 U.S.dollars in the U.S.The nominal exchange rate is 1.25 Canadian dollars per U.S.dollar.

When the yen gets "stronger" relative to the dollar,

From 1991-2000,U.S.net capital outflow as a percent of GDP became a

Suppose that the real exchange rate between the United States and Vietnam 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 Vietnamese goods a basket of U.S.goods buys)?

If the exchange rate is 125 yen = $1,a bottle of rice wine that costs 2,500 yen costs

If the exchange rate is 5 units of Peruvian currency per dollar and a hotel room in Lima costs 300 units of Peruvian currency,how many dollars do you need to get a room?

Most of the change from 1991 to 2000 in U.S.net capital outflow as a percent of GDP was due to a(n)

If France has a trade surplus,then

Suppose the same basket of goods costs $100 in the U.S.and 50 pounds in Britain.According to purchasing power parity,what is the nominal exchange rate?

The law of one price states that

When U.S.national savings rises,domestic investment also necessarily rises.

If the real exchange rate between the U.S.and Argentina is 1,then

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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