Question 1

Many economists believe that the theory of purchasing-power parity describes the forces that determine exchange rates in the long run.

Accepted Answer

A) True 
 B)False

Question 2

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 3

If it took as many dollars to buy goods in the United States as it did to buy enough currency to buy the same goods in India,the real exchange rate would be computed as how many Indian goods per U.S.goods?

Accepted Answer

A) one 
B) the number of dollars needed to buy U.S.goods divided by the number of rupees needed to buy Indian goods 
C) the number of rupees needed to buy Indian goods divided by the number of dollars needed to buy U.S.goods 
D) None of the above is correct. 
A) one 
B) the number of dollars needed to buy U.S.goods divided by the number of rupees needed to buy Indian goods 
C) the number of rupees needed to buy Indian goods divided by the number of dollars needed to buy U.S.goods 
D) None of the above is correct.

Question 4

How do we find the real exchange rate from the nominal exchange rate?

Accepted Answer

Real Exchange Rate =

Question 5

When a country's central bank decreases the money supply,its

Accepted Answer

A) price level rises and its currency appreciates relative to other currencies in the world. 
B) price level falls and its currency appreciates relative to other currencies in the world. 
C) price level rises and its currency depreciates relative to other currencies in the world. 
D) price level falls and its currency depreciates relative to other currencies in the world. 
A) price level rises and its currency appreciates relative to other currencies in the world. 
B) price level falls and its currency appreciates relative to other currencies in the world. 
C) price level rises and its currency depreciates relative to other currencies in the world. 
D) price level falls and its currency depreciates relative to other currencies in the world.

Question 6

Use the (hypothetical) information in the following table to answer the following questions.
Table 31-1
  
-Refer to Table 31-1.For which country(ies)in the table does purchasing-power parity hold?

Accepted Answer

A) Bolivia and Japan 
B) Bolivia and Morocco 
C) Japan and Morocco 
D) Norway and Thailand 
A) Bolivia and Japan 
B) Bolivia and Morocco 
C) Japan and Morocco 
D) Norway and Thailand

Question 7

A paperback book in the U.S.costs $6.In Chile it costs 4 pesos.If the nominal exchange rate is 1/2 peso per dollar,what is the real exchange rate?

Accepted Answer

A) 2/3 
B) 3/4 
C) 4/3 
D) 2/5 
A) 2/3 
B) 3/4 
C) 4/3 
D) 2/5

Question 8

Greg,a U.S.citizen,opens an ice cream store in Bermuda.His expenditures are U.S.

Accepted Answer

A) foreign portfolio investment that increase U.S.net capital outflow. 
B) foreign portfolio investment that decrease U.S.net capital outflow. 
C) foreign direct investment that increase U.S.net capital outflow. 
D) foreign direct investment that decrease U.S.net capital outflow. 
A) foreign portfolio investment that increase U.S.net capital outflow. 
B) foreign portfolio investment that decrease U.S.net capital outflow. 
C) foreign direct investment that increase U.S.net capital outflow. 
D) foreign direct investment that decrease U.S.net capital outflow.

Question 9

If a Swiss watchmaker opens a factory in the United States,this is an example of Swiss

Accepted Answer

A) exports. 
B) imports. 
C) foreign portfolio investment. 
D) foreign direct investment. 
A) exports. 
B) imports. 
C) foreign portfolio investment. 
D) foreign direct investment.

Question 10

From 1970 to 1998 the U.S.dollar

Accepted Answer

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

Question 11

About what percentage of GDP are U.S.imports?

Accepted Answer

A) less than 1 percent 
B) about 4 percent 
C) about 7 percent 
D) over 10 percent 
A) less than 1 percent 
B) about 4 percent 
C) about 7 percent 
D) over 10 percent

Question 12

When the central bank of some country prints large quantities of money,that county's currency loses value both in terms of the goods and services it buys and in terms of the amount of foreign currencies it can buy.

Accepted Answer

A) True 
 B)False

Question 13

Other things the same,if the exchange rate changes from 41 Thai bhat per dollar to 35 Thai bhat per dollar,the dollar has

Accepted Answer

A) appreciated and so buys more Thai goods. 
B) appreciated and so buys fewer Thai goods. 
C) depreciated and so buys more Thai goods. 
D) depreciated and so buys fewer Thai goods. 
A) appreciated and so buys more Thai goods. 
B) appreciated and so buys fewer Thai goods. 
C) depreciated and so buys more Thai goods. 
D) depreciated and so buys fewer Thai goods.

Question 14

If a Starbucks tall-latte cost $2.80 in the United States and 2.93 euros in the Euro area,then purchasing-power parity implies the nominal exchange rate is how many euros per dollar?

Accepted Answer

A) .956 If the exchange rate is less than this, it costs more dollars to buy a tall-latte in the U.S.than in the Euro area. 
B) .956 If the exchange rate is less than this, it costs fewer dollars to buy a tall-latte in the U.S.then in the Euro area. 
C) 1.046 If the exchange rate is less than this, it costs more dollars to buy a tall-latte in the U.S.than in the Euro area. 
D) 1.046 If the exchange rate is less than this, it costs fewer dollars to buy a tall-latte in the U.S.than in the Euro area. 
A) .956 If the exchange rate is less than this, it costs more dollars to buy a tall-latte in the U.S.than in the Euro area. 
B) .956 If the exchange rate is less than this, it costs fewer dollars to buy a tall-latte in the U.S.then in the Euro area. 
C) 1.046 If the exchange rate is less than this, it costs more dollars to buy a tall-latte in the U.S.than in the Euro area. 
D) 1.046 If the exchange rate is less than this, it costs fewer dollars to buy a tall-latte in the U.S.than in the Euro area.

Question 15

A country has $50 million of domestic investment and net capital outflow of $15 million.What is saving?

Accepted Answer

A) $65 million. 
B) -$65 million. 
C) $35 million. 
D) -$35 million. 
A) $65 million. 
B) -$65 million. 
C) $35 million. 
D) -$35 million.

Question 16

Suppose that money supply growth continues to be higher in Turkey than it is in the United States.What does purchasing-power parity imply will happen to the real and to the nominal exchange rate?

Accepted Answer

Higher money growth leads to higher pric

Question 17

If there is a trade surplus then

Accepted Answer

A) saving is greater than domestic investment and Y > C + I + G. B) saving is greater than domestic investment and Y C +I + G. D) saving is less than domestic investment and Y < C + I + G. A) saving is greater than domestic investment and Y > C + I + G. B) saving is greater than domestic investment and Y C +I + G. D) saving is less than domestic investment and Y < C + I + G.

Question 18

If a McDonald's Big Mac cost $3.06 in the United States and 3.21 euros in the Euro area,then purchasing-power parity implies the nominal exchange rate is how many euros per dollar?

Accepted Answer

A) 1.05 If the value is less than this, it costs more dollars to buy a Big Mac in the U.S.than in the Euro area. 
B) 1.05 If the value is less than this, it costs fewer dollars to buy a Big Mac in the U.S.then in the Euro area. 
C) .95 If the value is less than this, it costs more dollars to buy a Big Mac in the U.S.than in the Euro area. 
D) .95 If the value is less than this, it costs fewer dollars to buy a Big Mac in the U.S.than in the Euro area. 
A) 1.05 If the value is less than this, it costs more dollars to buy a Big Mac in the U.S.than in the Euro area. 
B) 1.05 If the value is less than this, it costs fewer dollars to buy a Big Mac in the U.S.then in the Euro area. 
C) .95 If the value is less than this, it costs more dollars to buy a Big Mac in the U.S.than in the Euro area. 
D) .95 If the value is less than this, it costs fewer dollars to buy a Big Mac in the U.S.than in the Euro area.

Question 19

In 2004 the U.S.had a large trade

Accepted Answer

A) surplus and a large net capital inflow. 
B) surplus and a large net capital outflow. 
C) deficit and a large net capital inflow. 
D) deficit and a large net capital outflow. 
A) surplus and a large net capital inflow. 
B) surplus and a large net capital outflow. 
C) deficit and a large net capital inflow. 
D) deficit and a large net capital outflow.

Question 20

According to the theory of purchasing-power parity,the real exchange rate defined as foreign goods per unit of U.S.goods will equal the exchange rate defined as units of foreign currency per dollar times the domestic price level divided by the foreign price level.

Accepted Answer

A) True 
 B)False

Exam 31: Open-Economy Macroeconomics: Basic Concepts

Many economists believe that the theory of purchasing-power parity describes the forces that determine exchange rates in the long run.

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

If it took as many dollars to buy goods in the United States as it did to buy enough currency to buy the same goods in India,the real exchange rate would be computed as how many Indian goods per U.S.goods?

How do we find the real exchange rate from the nominal exchange rate?

When a country's central bank decreases the money supply,its

Use the (hypothetical) information in the following table to answer the following questions. Table 31-1 -Refer to Table 31-1.For which country(ies)in the table does purchasing-power parity hold?

A paperback book in the U.S.costs $6.In Chile it costs 4 pesos.If the nominal exchange rate is 1/2 peso per dollar,what is the real exchange rate?

Greg,a U.S.citizen,opens an ice cream store in Bermuda.His expenditures are U.S.

If a Swiss watchmaker opens a factory in the United States,this is an example of Swiss

From 1970 to 1998 the U.S.dollar

About what percentage of GDP are U.S.imports?

When the central bank of some country prints large quantities of money,that county's currency loses value both in terms of the goods and services it buys and in terms of the amount of foreign currencies it can buy.

Other things the same,if the exchange rate changes from 41 Thai bhat per dollar to 35 Thai bhat per dollar,the dollar has

If a Starbucks tall-latte cost $2.80 in the United States and 2.93 euros in the Euro area,then purchasing-power parity implies the nominal exchange rate is how many euros per dollar?

A country has $50 million of domestic investment and net capital outflow of $15 million.What is saving?

Suppose that money supply growth continues to be higher in Turkey than it is in the United States.What does purchasing-power parity imply will happen to the real and to the nominal exchange rate?

If there is a trade surplus then

If a McDonald's Big Mac cost $3.06 in the United States and 3.21 euros in the Euro area,then purchasing-power parity implies the nominal exchange rate is how many euros per dollar?

In 2004 the U.S.had a large trade

According to the theory of purchasing-power parity,the real exchange rate defined as foreign goods per unit of U.S.goods will equal the exchange rate defined as units of foreign currency per dollar times the domestic price level divided by the foreign price level.

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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