Exam 12: Open-Economy Macroeconomics: Basic Concepts

Purchasing-power parity implies that the nominal exchange rate given as foreign currency per unit of Canadian currency must rise if the price levels in which country rise?

A country sells less to people overseas than it buys from them. Which of the following correctly reflects this situation?

If purchasing-power parity holds, which of the following is the implication for the Canadian dollar?

Suppose that Bill, a resident of Canada, buys software from a company in Japan. Explain why and in what directions this changes Canadian net exports and Canadian net capital outflow.

The large, positive net capital outflow in Canada after 1999 is primarily the result of government budget surpluses.

Suppose Paul, a Romanian citizen, builds a telescope factory in Israel. Which of the following correctly identifies the effects of these expenditures?

In Ireland, a pint of beer costs 4 Irish punts. In Australia, a pint of beer costs 6 Australian dollars. If the exchange rate is 0.6 punts per Australian dollar, what is the real exchange rate?

If the exchange rate changes from 0.35 Kuwaiti dinar per dollar to 0.30 Kuwaiti dinar per dollar, what has happened to the dollar?

A Japanese firm buys lumber from Canada and pays for it with yen. Which of the following correctly identifies the effects of this transaction?

Why is interest rate parity NOT a perfect theory of real interest rate determination in a small open economy?

Which of the following is the formula for investment in an open economy?

If a Canadian shirt-maker purchases cotton from Egypt, which of the following correctly identifies the effects of this transaction?

How do the nominal exchange rate and the real exchange rate differ?

If P = domestic prices, P* = foreign prices, and e is the nominal exchange rate, which of the following is implied by purchasing-power parity?

The next table shows PPP exchange rates (the price of 1 U.S. dollar in units of the foreign currency) for several countries, determined based on the Big Mac Index. According to this data, what are the predicted exchange rates between the following countries? a.Argentina and Australia b.Brazil and Canada c.Chile and China d.China and Canada

Country A buys $150 of wine from country B, and B buys $30 of wool from A. Which of the following correctly indicates the two countries' net exports (in the order A, B)?

Suppose Canadian wheat sells for $100 per bushel and Russian wheat sells for 1600 rubles per bushel. a.If you believe that the purchasing-power parity theory holds, and if the current exchange rate is 12 rubles per dollar, would you expect the exchange rate to change? In what direction? b.If the current exchange rate is 12 rubles per dollar, how much is the real exchange rate, based on the prices of wheat? c.If the exchange rate is 12, how you could make profit in this situation? How much profit per bushel you could make?

Perhaps the most dramatic change in the Canadian economy over the past four decades has been the increasing relative importance of international trade and finance.

Bolivia buys railroad engines from a Canadian firm and pays for them with Bolivianos (Bolivian currency). Which of the following best describes the effects of this transaction?

A country has $50 million of domestic investment and net capital outflow of -$70 million. What is saving?