Question 1

If net exports are negative, the country has a:

Accepted Answer

A)  trade deficit 
B)  trade surplus 
C)  trade balance 
D)  budget surplus 
A)  trade deficit 
B)  trade surplus 
C)  trade balance 
D)  budget surplus

Question 2

Increased foreign investment has trickle down effects, such as local job creation. Additionally it may result in outflows of dividends and interest payments.

Accepted Answer

A) True 
 B)False

Question 3

The Big Mac index shows the markets when the foreign exchange markets are not a fair reflection of the value of the currency, and ensures that there is change.

Accepted Answer

A) True 
 B)False

Question 4

When David, an Australian, buys a box of chocolates produced in Belgium, Belgian net exports _____.

Accepted Answer

A)  increase and Australian net exports are unaffected 
B)  increase and Australian net exports decrease 
C)  decrease and Australian net exports increase 
D)  none of the above 
A)  increase and Australian net exports are unaffected 
B)  increase and Australian net exports decrease 
C)  decrease and Australian net exports increase 
D)  none of the above

Question 5

The purchase of foreign assets by domestic residents minus the purchase of domestic assets by foreigners is known as net foreign investment.

Accepted Answer

A) True 
 B)False

Question 6

When the Big Mac in Egypt cost $US2.28, which is less than it does in converted US dollars, we can say it _____.

Accepted Answer

A)  should not be measured 
B)  difficult to ascertain, as the currency is volatile 
C)  is undervalued 
D)  is overvalued 
A)  should not be measured 
B)  difficult to ascertain, as the currency is volatile 
C)  is undervalued 
D)  is overvalued

Question 7

Purchasing-power parity theory suggests that one unit of any given currency should have the same real value in all countries.

Accepted Answer

A) True 
 B)False

Question 8

Arbitrage is the process of taking advantage of differences in prices in different markets.

Accepted Answer

A) True 
 B)False

Question 9

An open economy's GDP is shown by:

Accepted Answer

A)  Y = C + I + G + S 
B)  Y = C + I + G - NX 
C)  Y - C = I + G + NX 
D)  Y = C + I + G + T 
A)  Y = C + I + G + S 
B)  Y = C + I + G - NX 
C)  Y - C = I + G + NX 
D)  Y = C + I + G + T

Question 10

Which of the following statements about the trade balance is correct? The trade balance is:

Accepted Answer

A)  the value of a country's exports minus the value of its imports 
B)  the value of a country's exports minus the value of its production 
C)  the value of a country's imports minus the value of its consumption 
D)  none of the above 
A)  the value of a country's exports minus the value of its imports 
B)  the value of a country's exports minus the value of its production 
C)  the value of a country's imports minus the value of its consumption 
D)  none of the above

Question 11

Which of the following statements is correct? In an open economy:

Accepted Answer

A)  the country engages in trade but always has balanced trade 
B)  the country does not import at all and therefore always has a trade surplus 
C)  the country may have a deficit, surplus or zero balance in its trade balance 
D)  none of the above 
A)  the country engages in trade but always has balanced trade 
B)  the country does not import at all and therefore always has a trade surplus 
C)  the country may have a deficit, surplus or zero balance in its trade balance 
D)  none of the above

Question 12

What are the more important variables that affect net foreign investment?

Accepted Answer

a. The real interest rate being paid on

Question 13

If the nominal exchange rate is e, the domestic price is P and the foreign price is P*, then the real exchange rate is defined as:

Accepted Answer

A)  e + P/ 
B)  e(P*/P) 
C)  P e(P/P*) 
D)  e - P/P* 
A)  e + P/ 
B)  e(P*/P) 
C)  P e(P/P*) 
D)  e - P/P*

Question 14

When Klaus, a Dutch tourist, buys an Akubra hat produced in Australia, Dutch net exports _____.

Accepted Answer

A)  increase and Australian net exports decrease 
B)  decrease and Australian net exports increase 
C)  increase and Australian net exports are unaffected 
D)  none of the above 
A)  increase and Australian net exports decrease 
B)  decrease and Australian net exports increase 
C)  increase and Australian net exports are unaffected 
D)  none of the above

Question 15

National accounting identity in a closed economy is:

Accepted Answer

A)  Saving = Domestic investment 
B)  Saving = Current account balance 
C)  Saving = Domestic investment + Net foreign investment 
D)  Saving = Domestic saving + Net foreign investment 
A)  Saving = Domestic investment 
B)  Saving = Current account balance 
C)  Saving = Domestic investment + Net foreign investment 
D)  Saving = Domestic saving + Net foreign investment

Question 16

While making investment decisions, investors compare:

Accepted Answer

A)  the real interest rates offered on the bonds 
B)  the nominal interest rates offered on the bonds 
C)  the market prices of the bonds 
D)  all of the above 
E)  none of the above 
A)  the real interest rates offered on the bonds 
B)  the nominal interest rates offered on the bonds 
C)  the market prices of the bonds 
D)  all of the above 
E)  none of the above

Question 17

When a country's central bank increases the money supply:

Accepted Answer

A)  the price level rises and the country's currency depreciates relative to other currencies in the world 
B)  the price level falls and the country's currency depreciates relative to other currencies in the world 
C)  the price level rises and the country's currency appreciates relative to other currencies in the world 
D)  the price level falls and the country's currency appreciates relative to other currencies in the world 
E)  the price level rises and the country's currency is unaffected 
A)  the price level rises and the country's currency depreciates relative to other currencies in the world 
B)  the price level falls and the country's currency depreciates relative to other currencies in the world 
C)  the price level rises and the country's currency appreciates relative to other currencies in the world 
D)  the price level falls and the country's currency appreciates relative to other currencies in the world 
E)  the price level rises and the country's currency is unaffected

Question 18

Economists should be concerned about the possibility that the world's developing countries will use the world's savings to finance investment and growth, leaving the industrial countries with insufficient funds for their own capital accumulation.

Accepted Answer

A) True 
 B)False

Question 19

If a kilo of coffee costs $20 in Australia and 3000 yen in Japan, what is the nominal exchange rate according to the purchasing-power parity theory?

Accepted Answer

The nominal exchange

Question 20

Which of the following represents the account identity?

Accepted Answer

A)  NFI + I = NX 
B)  NFI = CAB 
C)  NX + NFI = Y 
D)  Y = NFI - NX 
A)  NFI + I = NX 
B)  NFI = CAB 
C)  NX + NFI = Y 
D)  Y = NFI - NX

Exam 31: Open-Economy Macroeconomics: Basic Concepts

If net exports are negative, the country has a:

Increased foreign investment has trickle down effects, such as local job creation. Additionally it may result in outflows of dividends and interest payments.

The Big Mac index shows the markets when the foreign exchange markets are not a fair reflection of the value of the currency, and ensures that there is change.

When David, an Australian, buys a box of chocolates produced in Belgium, Belgian net exports _____.

The purchase of foreign assets by domestic residents minus the purchase of domestic assets by foreigners is known as net foreign investment.

When the Big Mac in Egypt cost $US2.28, which is less than it does in converted US dollars, we can say it _____.

Purchasing-power parity theory suggests that one unit of any given currency should have the same real value in all countries.

Arbitrage is the process of taking advantage of differences in prices in different markets.

An open economy's GDP is shown by:

Which of the following statements about the trade balance is correct? The trade balance is:

Which of the following statements is correct? In an open economy:

What are the more important variables that affect net foreign investment?

If the nominal exchange rate is e, the domestic price is P and the foreign price is P*, then the real exchange rate is defined as:

When Klaus, a Dutch tourist, buys an Akubra hat produced in Australia, Dutch net exports _____.

National accounting identity in a closed economy is:

While making investment decisions, investors compare:

When a country's central bank increases the money supply:

Economists should be concerned about the possibility that the world's developing countries will use the world's savings to finance investment and growth, leaving the industrial countries with insufficient funds for their own capital accumulation.

If a kilo of coffee costs $20 in Australia and 3000 yen in Japan, what is the nominal exchange rate according to the purchasing-power parity theory?

Which of the following represents the account identity?

Ten Lessons From Economics

Thinking Like an Economist

Interdependence and the Gains From Trade

The Market Forces of Supply and Demand

Elasticity and Its Application

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

Business Strategy

Competition Policy

Monopolistic Competition

The Markets for the Factors of Production

Earnings, Unions and Discrimination

Income Inequity 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 Natural Rate of Unemployment

The Monetary System

Inflation: Its Causes and Costs

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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