Question 1

When a company from Germany builds an automobile factory in Canada, the German firm has engaged in foreign direct investment.

Accepted Answer

A) True 
 B)False

Question 2

How has the introduction of the euro affected arbitrage?

Accepted Answer

A) It has eliminated the possibility of arbitrage within Europe. 
B) It has eliminated the possibility of arbitrage based on exchange-rate differences within Europe. 
C) It has increased the possibilities for arbitrage within Europe. 
D) It has not affected the possibilities for arbitrage within Europe. 
A) It has eliminated the possibility of arbitrage within Europe. 
B) It has eliminated the possibility of arbitrage based on exchange-rate differences within Europe. 
C) It has increased the possibilities for arbitrage within Europe. 
D) It has not affected the possibilities for arbitrage within Europe.

Question 3

Table 31-1
  
-Refer to Table 31-1. In real terms, Canadian goods are more expensive than goods in which of the following countries?

Accepted Answer

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

Question 4

Assume the exchange rate is about 153 Kazakhstan tenge per dollar. According to purchasing-power parity, when would this exchange rate rise?

Accepted Answer

A) if the price level in either Canada or Kazakhstan rose 
B) if the price level in either Canada or Kazakhstan fell 
C) if the price level in Canada rose or the price level in Kazakhstan fell 
D) if the price level in Canada fell or the price level in Kazakhstan rose 
A) if the price level in either Canada or Kazakhstan rose 
B) if the price level in either Canada or Kazakhstan fell 
C) if the price level in Canada rose or the price level in Kazakhstan fell 
D) if the price level in Canada fell or the price level in Kazakhstan rose

Question 5

If the real exchange rate of the Canadian dollar falls, Canadian net exports will fall.

Accepted Answer

A) True 
 B)False

Question 6

Which of the following best defines net capital outflow?

Accepted Answer

A) It is the purchase of foreign assets by domestic residents minus the purchase of domestic assets by foreign residents. 
B) It is the purchase of foreign assets by domestic residents minus the purchase of foreign goods and services by domestic residents. 
C) It is the purchase of domestic assets by foreign residents minus the purchase of domestic goods and services by foreign residents. 
D) It is the purchase of domestic assets by foreign residents minus the purchase of foreign assets by domestic residents. 
A) It is the purchase of foreign assets by domestic residents minus the purchase of domestic assets by foreign residents. 
B) It is the purchase of foreign assets by domestic residents minus the purchase of foreign goods and services by domestic residents. 
C) It is the purchase of domestic assets by foreign residents minus the purchase of domestic goods and services by foreign residents. 
D) It is the purchase of domestic assets by foreign residents minus the purchase of foreign assets by domestic residents.

Question 7

When a country's central bank increases the money supply, which of the following happens to a unit of that country's money?

Accepted Answer

A) It gains value both in terms of the domestic goods and services it can buy and in terms of the foreign currency it can buy. 
B) It gains value in terms of the domestic goods and services it can buy, but loses value in terms of the foreign currency it can buy. 
C) It loses value in terms of the domestic goods and services it can buy, but gains value in terms of the foreign currency it can buy. 
D) It loses value both in terms of the domestic goods and services it can buy and in terms of the foreign currency it can buy. 
A) It gains value both in terms of the domestic goods and services it can buy and in terms of the foreign currency it can buy. 
B) It gains value in terms of the domestic goods and services it can buy, but loses value in terms of the foreign currency it can buy. 
C) It loses value in terms of the domestic goods and services it can buy, but gains value in terms of the foreign currency it can buy. 
D) It loses value both in terms of the domestic goods and services it can buy and in terms of the foreign currency it can buy.

Question 8

A German company sells cameras to a retailer in Canada. Which of the following correctly identifies the effects of these transactions?

Accepted Answer

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

Question 9

When Canada increases its net capital outflow, it causes Canadian national savings to increase.

Accepted Answer

A) True 
 B)False

Question 10

Canada sells machinery to a South African company, which pays Canada with South African currency (the rand). Which of the following best describes the consequences of this transaction?

Accepted Answer

A) It increases Canadian net capital outflow because Canada acquires foreign assets. 
B) It decreases Canadian net capital outflow because Canada acquires foreign assets. 
C) It increases Canadian net capital outflow because Canada sells capital goods. 
D) It decreases Canadian net capital outflow because Canada sells capital goods. 
A) It increases Canadian net capital outflow because Canada acquires foreign assets. 
B) It decreases Canadian net capital outflow because Canada acquires foreign assets. 
C) It increases Canadian net capital outflow because Canada sells capital goods. 
D) It decreases Canadian net capital outflow because Canada sells capital goods.

Question 11

According to purchasing-power parity theory, if a McDonald's Big Mac cost U.S. $2.50 in the United States and 5 euros in France, what should the nominal exchange rate be?

Accepted Answer

A) 2 euros per U.S. dollar 
B) 1 euro per U.S. dollar 
C) 1/2 euro per U.S. dollar 
D) 1/4 euro per U.S. dollar 
A) 2 euros per U.S. dollar 
B) 1 euro per U.S. dollar 
C) 1/2 euro per U.S. dollar 
D) 1/4 euro per U.S. dollar

Question 12

What does purchasing parity imply for the exchange rate?

Accepted Answer

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

Question 13

In 2001, Denmark had net exports of $10 billion and sold $60 billion of goods and services abroad. What were Denmark's increases in the components of net exports?

Accepted Answer

A) $70 billion of exports and $50 billion of imports 
B) $50 billion of exports and $70 billion of imports 
C) $60 billion of exports and $50 billion of imports 
D) $50 billion of exports and $60 billion of imports 
A) $70 billion of exports and $50 billion of imports 
B) $50 billion of exports and $70 billion of imports 
C) $60 billion of exports and $50 billion of imports 
D) $50 billion of exports and $60 billion of imports

Question 14

Why are net exports and net capital outflow always equal?

Accepted Answer

Net exports and net capital outflow are

Question 15

Which of the following does net capital outflow measure?

Accepted Answer

A) an imbalance between a country's income and expenditure 
B) an imbalance between a country's investment and saving 
C) an imbalance between a country's sale of goods and services abroad and buying of foreign goods and services 
D) an imbalance between a country's sale of domestic assets abroad and domestic purchase of foreign assets 
A) an imbalance between a country's income and expenditure 
B) an imbalance between a country's investment and saving 
C) an imbalance between a country's sale of goods and services abroad and buying of foreign goods and services 
D) an imbalance between a country's sale of domestic assets abroad and domestic purchase of foreign assets

Question 16

Clear Brook Farms, a Canadian manufacturer of frozen vegetarian entrées, sells cases of its product to stores overseas. Which of the following correctly identifies the effects of these transactions?

Accepted Answer

A) They decrease Canadian exports but increase Canadian net exports. 
B) They decrease both Canadian exports and Canadian net exports. 
C) They increase both Canadian exports and Canadian net exports. 
D) They increase Canadian exports but decrease Canadian net exports. 
A) They decrease Canadian exports but increase Canadian net exports. 
B) They decrease both Canadian exports and Canadian net exports. 
C) They increase both Canadian exports and Canadian net exports. 
D) They increase Canadian exports but decrease Canadian net exports.

Question 17

Tony, a Canadian citizen, uses some previously obtained Portuguese currency (escudo) to purchase a bond issued by a Portuguese company. How does this transaction affect Canadian net capital outflow?

Accepted Answer

A) It increases Canadian net capital outflow by more than the value of the bond. 
B) It increases Canadian net capital outflow by the value of the bond. 
C) It does not change Canadian net capital outflow. 
D) It decreases Canadian net capital outflow. 
A) It increases Canadian net capital outflow by more than the value of the bond. 
B) It increases Canadian net capital outflow by the value of the bond. 
C) It does not change Canadian net capital outflow. 
D) It decreases Canadian net capital outflow.

Question 18

Which of the following best describes how the Canadian economy has evolved over the past five decades?

Accepted Answer

A) It has become more closed. 
B) It has become more open. 
C) It has become less trade-oriented. 
D) It has become more self-sufficient. 
A) It has become more closed. 
B) It has become more open. 
C) It has become less trade-oriented. 
D) It has become more self-sufficient.

Question 19

When the central bank prints large quantities of money, that money 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 20

Why does purchasing-power parity theory NOT hold at all times?

Accepted Answer

A) because countries use different currencies 
B) because wages are higher in some countries and lower in others 
C) because some goods and services cannot be traded 
D) because prices are different across countries 
A) because countries use different currencies 
B) because wages are higher in some countries and lower in others 
C) because some goods and services cannot be traded 
D) because prices are different across countries

When a company from Germany builds an automobile factory in Canada, the German firm has engaged in foreign direct investment.

How has the introduction of the euro affected arbitrage?

Table 31-1 -Refer to Table 31-1. In real terms, Canadian goods are more expensive than goods in which of the following countries?

Assume the exchange rate is about 153 Kazakhstan tenge per dollar. According to purchasing-power parity, when would this exchange rate rise?

If the real exchange rate of the Canadian dollar falls, Canadian net exports will fall.

Which of the following best defines net capital outflow?

When a country's central bank increases the money supply, which of the following happens to a unit of that country's money?

A German company sells cameras to a retailer in Canada. Which of the following correctly identifies the effects of these transactions?

When Canada increases its net capital outflow, it causes Canadian national savings to increase.

Canada sells machinery to a South African company, which pays Canada with South African currency (the rand). Which of the following best describes the consequences of this transaction?

According to purchasing-power parity theory, if a McDonald's Big Mac cost U.S. $2.50 in the United States and 5 euros in France, what should the nominal exchange rate be?

What does purchasing parity imply for the exchange rate?

In 2001, Denmark had net exports of $10 billion and sold $60 billion of goods and services abroad. What were Denmark's increases in the components of net exports?

Why are net exports and net capital outflow always equal?

Which of the following does net capital outflow measure?

Clear Brook Farms, a Canadian manufacturer of frozen vegetarian entrées, sells cases of its product to stores overseas. Which of the following correctly identifies the effects of these transactions?

Tony, a Canadian citizen, uses some previously obtained Portuguese currency (escudo) to purchase a bond issued by a Portuguese company. How does this transaction affect Canadian net capital outflow?

Which of the following best describes how the Canadian economy has evolved over the past five decades?

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

Why does purchasing-power parity theory NOT hold at all times?

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

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Exam 12: Open-Economy Macroeconomics: Basic Concepts

When a company from Germany builds an automobile factory in Canada, the German firm has engaged in foreign direct investment.

How has the introduction of the euro affected arbitrage?

Table 31-1 -Refer to Table 31-1. In real terms, Canadian goods are more expensive than goods in which of the following countries?

Assume the exchange rate is about 153 Kazakhstan tenge per dollar. According to purchasing-power parity, when would this exchange rate rise?

If the real exchange rate of the Canadian dollar falls, Canadian net exports will fall.

Which of the following best defines net capital outflow?

When a country's central bank increases the money supply, which of the following happens to a unit of that country's money?

A German company sells cameras to a retailer in Canada. Which of the following correctly identifies the effects of these transactions?

When Canada increases its net capital outflow, it causes Canadian national savings to increase.

Canada sells machinery to a South African company, which pays Canada with South African currency (the rand). Which of the following best describes the consequences of this transaction?

According to purchasing-power parity theory, if a McDonald's Big Mac cost U.S. $2.50 in the United States and 5 euros in France, what should the nominal exchange rate be?

What does purchasing parity imply for the exchange rate?

In 2001, Denmark had net exports of $10 billion and sold $60 billion of goods and services abroad. What were Denmark's increases in the components of net exports?

Why are net exports and net capital outflow always equal?

Which of the following does net capital outflow measure?

Clear Brook Farms, a Canadian manufacturer of frozen vegetarian entrées, sells cases of its product to stores overseas. Which of the following correctly identifies the effects of these transactions?

Tony, a Canadian citizen, uses some previously obtained Portuguese currency (escudo) to purchase a bond issued by a Portuguese company. How does this transaction affect Canadian net capital outflow?

Which of the following best describes how the Canadian economy has evolved over the past five decades?

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

Why does purchasing-power parity theory NOT hold at all times?

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