Question 1

When a country's central bank increases the money supply, which of the following best predicts the consequences?

Accepted Answer

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

Question 2

Which of the following best describes the type of economy Canada has?

Accepted Answer

A) a large closed economy 
B) a small closed economy 
C) a large open economy 
D) a small open economy 
A) a large closed economy 
B) a small closed economy 
C) a large open economy 
D) a small open economy

Question 3

Table 31-1
  
-Refer to Table 31-1. For which countries 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 4

Suppose the price level in Canada increases from P1 to P2, while the price level abroad (P*) and the nominal exchange rate (e) between the Canadian dollar and the foreign currency remain the same. Let the real exchange rate be X. What is the percentage change in the real exchange rate?

Accepted Answer

By definition, the real exchange rate is

Question 5

Suppose that a country has $120 billion of national savings, and $80 billion of domestic investment. Is this possible? Where did the other $40 billion of national savings go?

Accepted Answer

This is possible for an open economy. Th

Question 6

Can purchasing-power parity be used to explain the fact that the Canadian dollar has depreciated by more than 50 percent against the German mark since 1970, but has 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 wo

Question 7

A citizen of Saudi Arabia uses previously obtained Canadian dollars to purchase apples from Canada. Which of the following correctly identifies the effects of this transaction?

Accepted Answer

A) It increases Saudi net capital outflow and increases Canadian net exports. 
B) It increases Saudi net capital outflow and decreases Canadian net exports. 
C) It decreases Saudi net capital outflow and increases Canadian net exports. 
D) It decreases Saudi net capital outflow and decreases Canadian net exports. 
A) It increases Saudi net capital outflow and increases Canadian net exports. 
B) It increases Saudi net capital outflow and decreases Canadian net exports. 
C) It decreases Saudi net capital outflow and increases Canadian net exports. 
D) It decreases Saudi net capital outflow and decreases Canadian net exports.

Question 8

A Russian flour mill buys wheat from Canada and pays for it with rubles. Which of the following correctly identifies the effects of this transaction?

Accepted Answer

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

Question 9

According to purchasing-power parity, if prices in Canada increase by a larger percentage than prices in Algeria, how does the exchange rate change?

Accepted Answer

A) The real exchange rate, defined as Algerian goods per unit of Canadian goods, rises. 
B) The real exchange rate, defined as Algerian goods per unit of Canadian goods, falls. 
C) The nominal exchange rate, defined as Algerian currency per dollar, rises. 
D) The nominal exchange rate, defined as Algerian currency per dollar, falls. 
A) The real exchange rate, defined as Algerian goods per unit of Canadian goods, rises. 
B) The real exchange rate, defined as Algerian goods per unit of Canadian goods, falls. 
C) The nominal exchange rate, defined as Algerian currency per dollar, rises. 
D) The nominal exchange rate, defined as Algerian currency per dollar, falls.

Question 10

John, a Canadian citizen, opens up a 70s style disco bar in Tokyo. This count as which of the following?

Accepted Answer

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

Question 11

If the Canadian real exchange rate appreciates, which of the following most likely happen?

Accepted Answer

A) Exports increase and imports decrease. 
B) Exports decrease and imports increase. 
C) Exports and imports both increase. 
D) Exports and imports both decrease. 
A) Exports increase and imports decrease. 
B) Exports decrease and imports increase. 
C) Exports and imports both increase. 
D) Exports and imports both decrease.

Question 12

A Canadian firm buys apples from New Zealand with Canadian currency. The Canadian firm then uses this money to buy packaging equipment from a Canadian firm. How do these transactions affect net exports or net capital outflow?

Accepted Answer

A) They increase New Zealand net capital outflow and New Zealand net exports. 
B) They increase New Zealand net exports but not New Zealand net capital outflow. 
C) They increase New Zealand net capital outflow but not New Zealand net exports. 
D) They increase neither New Zealand net exports nor New Zealand capital outflow. 
A) They increase New Zealand net capital outflow and New Zealand net exports. 
B) They increase New Zealand net exports but not New Zealand net capital outflow. 
C) They increase New Zealand net capital outflow but not New Zealand net exports. 
D) They increase neither New Zealand net exports nor New Zealand capital outflow.

Question 13

What are foreign-produced goods and services that are sold domestically called?

Accepted Answer

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

Question 14

Sonya, a citizen of Denmark, sells Danish boots and shoes in Canada. Which of the following correctly identifies the effects of these sales on net exports?

Accepted Answer

A) They increase Canadian net exports and have no effect on Danish net exports. 
B) They decrease Canadian net exports and have no effect on Danish net exports. 
C) They increase Canadian net exports and decrease Danish net exports. 
D) They decrease Canadian net exports and increase Danish net exports. 
A) They increase Canadian net exports and have no effect on Danish net exports. 
B) They decrease Canadian net exports and have no effect on Danish net exports. 
C) They increase Canadian net exports and decrease Danish net exports. 
D) They decrease Canadian net exports and increase Danish net exports.

Question 15

What does purchasing-power parity imply about the purchasing power of the dollar?

Accepted Answer

A) It is the same in the Canada as in foreign countries. 
B) It depends on the nominal exchange rate. 
C) It is greater in the country with lower prices in local currency. 
D) It has no relevance for the purchasing power of the dollar in foreign countries. 
A) It is the same in the Canada as in foreign countries. 
B) It depends on the nominal exchange rate. 
C) It is greater in the country with lower prices in local currency. 
D) It has no relevance for the purchasing power of the dollar in foreign countries.

Question 16

Which of the following would be a Canadian foreign portfolio investment?

Accepted Answer

A) Nortel, a Canadian company, builds a new factory near Rome, Italy. 
B) Your economics professor, a Canadian citizen, buys stock in companies located in Eastern European countries. 
C) A Dutch hotel chain opens a new hotel in Canada. 
D) A citizen of Singapore buys a bond issued by a Canadian corporation. 
A) Nortel, a Canadian company, builds a new factory near Rome, Italy. 
B) Your economics professor, a Canadian citizen, buys stock in companies located in Eastern European countries. 
C) A Dutch hotel chain opens a new hotel in Canada. 
D) A citizen of Singapore buys a bond issued by a Canadian corporation.

Question 17

Which of the following is an example of Canadian foreign portfolio investment?

Accepted Answer

A) Albert, a German citizen, buys stock in a Canadian computer company. 
B) Larry, a citizen of Ireland, opens a fish-and-chips restaurant in Canada. 
C) Ruth, a Canadian citizen, buys bonds issued by a German corporation. 
D) Dustin, a Canadian citizen, opens a tavern in New Zealand. 
A) Albert, a German citizen, buys stock in a Canadian computer company. 
B) Larry, a citizen of Ireland, opens a fish-and-chips restaurant in Canada. 
C) Ruth, a Canadian citizen, buys bonds issued by a German corporation. 
D) Dustin, a Canadian citizen, opens a tavern in New Zealand.

Question 18

Exchange rates are 0.98 U.S. dollars per Canadian dollar, 150 yen per Canadian dollar, 0.8 euro per Canadian dollar, and 20 pesos per Canadian dollar. A bottle of beer in New York costs 6 U.S. dollars, 1200 yen in Tokyo, 7 euros in Munich, and 100 pesos in Cancun. Which of the following indicates the most expensive beer?

Accepted Answer

A) Cancun 
B) New York 
C) Tokyo 
D) Munich 
A) Cancun 
B) New York 
C) Tokyo 
D) Munich

Question 19

What kind of country would most likely have a "small open economy"?

Accepted Answer

A) a country that trades with other countries and has consistently a trade surplus. 
B) a country that trades with other countries and has consistently a trade deficit. 
C) a country that trades with other countries and has a significant effect on world prices 
D) a country that trades with other countries, but has a negligible effect on world prices. 
A) a country that trades with other countries and has consistently a trade surplus. 
B) a country that trades with other countries and has consistently a trade deficit. 
C) a country that trades with other countries and has a significant effect on world prices 
D) a country that trades with other countries, but has a negligible effect on world prices.

Question 20

On behalf of your firm, you make frequent trips to Hong Kong. You notice that you always have to pay more dollars to get enough local currency to get your hair styled than you have to pay to get your hair styled in Canada. Is this consistent with purchasing power parity?

Accepted Answer

A) No, but it might be explained by limited opportunities for arbitrage across international borders. 
B) Yes, if prices in Hong Kong are rising more rapidly than prices in Canada. 
C) Yes, if prices in Hong Kong are rising less rapidly than prices in Canada. 
D) No, but it can be explained by arbitrage across international borders. 
A) No, but it might be explained by limited opportunities for arbitrage across international borders. 
B) Yes, if prices in Hong Kong are rising more rapidly than prices in Canada. 
C) Yes, if prices in Hong Kong are rising less rapidly than prices in Canada. 
D) No, but it can be explained by arbitrage across international borders.

When a country's central bank increases the money supply, which of the following best predicts the consequences?

Which of the following best describes the type of economy Canada has?

Table 31-1 -Refer to Table 31-1. For which countries in the table does purchasing-power parity hold?

Suppose the price level in Canada increases from P₁ to P₂, while the price level abroad (P*) and the nominal exchange rate (e) between the Canadian dollar and the foreign currency remain the same. Let the real exchange rate be X. What is the percentage change in the real exchange rate?

Suppose that a country has $120 billion of national savings, and $80 billion of domestic investment. Is this possible? Where did the other $40 billion of national savings go?

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

A citizen of Saudi Arabia uses previously obtained Canadian dollars to purchase apples from Canada. Which of the following correctly identifies the effects of this transaction?

A Russian flour mill buys wheat from Canada and pays for it with rubles. Which of the following correctly identifies the effects of this transaction?

According to purchasing-power parity, if prices in Canada increase by a larger percentage than prices in Algeria, how does the exchange rate change?

John, a Canadian citizen, opens up a 70s style disco bar in Tokyo. This count as which of the following?

If the Canadian real exchange rate appreciates, which of the following most likely happen?

A Canadian firm buys apples from New Zealand with Canadian currency. The Canadian firm then uses this money to buy packaging equipment from a Canadian firm. How do these transactions affect net exports or net capital outflow?

What are foreign-produced goods and services that are sold domestically called?

Sonya, a citizen of Denmark, sells Danish boots and shoes in Canada. Which of the following correctly identifies the effects of these sales on net exports?

What does purchasing-power parity imply about the purchasing power of the dollar?

Which of the following would be a Canadian foreign portfolio investment?

Which of the following is an example of Canadian foreign portfolio investment?

What kind of country would most likely have a "small open economy"?

On behalf of your firm, you make frequent trips to Hong Kong. You notice that you always have to pay more dollars to get enough local currency to get your hair styled than you have to pay to get your hair styled in Canada. Is this consistent with purchasing power parity?

Ten Principles of Economics

Thinking Like an Economist

Interdependence and the Gains From Trade

The Market Forces of Supply and Demand

Measuring a Nations Income

Measuring the Cost of Living

Production and Growth

Saving, Investment, and the Financial System

Unemployment and Its Natural Rate

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 Tradeoff Between Inflation and Unemployment

Five Debates Over Macroeconomic Policy

Filters

Exam 12: Open-Economy Macroeconomics: Basic Concepts

When a country's central bank increases the money supply, which of the following best predicts the consequences?

Which of the following best describes the type of economy Canada has?

Table 31-1 -Refer to Table 31-1. For which countries in the table does purchasing-power parity hold?

Suppose the price level in Canada increases from P1 to P2, while the price level abroad (P*) and the nominal exchange rate (e) between the Canadian dollar and the foreign currency remain the same. Let the real exchange rate be X. What is the percentage change in the real exchange rate?

Suppose that a country has $120 billion of national savings, and $80 billion of domestic investment. Is this possible? Where did the other $40 billion of national savings go?

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

A citizen of Saudi Arabia uses previously obtained Canadian dollars to purchase apples from Canada. Which of the following correctly identifies the effects of this transaction?

A Russian flour mill buys wheat from Canada and pays for it with rubles. Which of the following correctly identifies the effects of this transaction?

According to purchasing-power parity, if prices in Canada increase by a larger percentage than prices in Algeria, how does the exchange rate change?

John, a Canadian citizen, opens up a 70s style disco bar in Tokyo. This count as which of the following?

If the Canadian real exchange rate appreciates, which of the following most likely happen?

A Canadian firm buys apples from New Zealand with Canadian currency. The Canadian firm then uses this money to buy packaging equipment from a Canadian firm. How do these transactions affect net exports or net capital outflow?

What are foreign-produced goods and services that are sold domestically called?

Sonya, a citizen of Denmark, sells Danish boots and shoes in Canada. Which of the following correctly identifies the effects of these sales on net exports?

What does purchasing-power parity imply about the purchasing power of the dollar?

Which of the following would be a Canadian foreign portfolio investment?

Which of the following is an example of Canadian foreign portfolio investment?

What kind of country would most likely have a "small open economy"?

On behalf of your firm, you make frequent trips to Hong Kong. You notice that you always have to pay more dollars to get enough local currency to get your hair styled than you have to pay to get your hair styled in Canada. Is this consistent with purchasing power parity?

Ten Principles of Economics

Thinking Like an Economist

Interdependence and the Gains From Trade

The Market Forces of Supply and Demand

Measuring a Nations Income

Measuring the Cost of Living

Production and Growth

Saving, Investment, and the Financial System

Unemployment and Its Natural Rate

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 Tradeoff Between Inflation and Unemployment

Five Debates Over Macroeconomic Policy

Filters

Suppose the price level in Canada increases from P₁ to P₂, while the price level abroad (P*) and the nominal exchange rate (e) between the Canadian dollar and the foreign currency remain the same. Let the real exchange rate be X. What is the percentage change in the real exchange rate?