Exam 12: Open-Economy Macroeconomics: Basic Concepts

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

Suppose Judy,a Canadian citizen,opens an ice cream store in Bermuda.What would her expenditures be?

Suppose Connie,a Canadian citizen,buys bonds issued by an automobile manufacturer in Sweden.What would her expenditure be?

The theory of purchasing-power parity states that a unit of any given currency should be able to buy the same quantity of goods in all countries.

Canada sells machinery to a South African company,which pays Canada with South African currency (the rand).What happens to Canadian net capital outflow from this transaction?

This problem considers the effect of currency conversion fees on foreign investment.Jonathan is considering investing $1000 in Canada,where he expects an interest rate of 5 percent,or in the U.K.,where the expected interest rate would be 6 percent.The current exchange rate is £0.5 / $,which could take by the end of the year any value between £0.4 and £0.6 / $ with equal probability. a)Where should Jonathan invest? b)How does your answer change if there is a currency conversion fee of 3 percent? c)What have you learned from this exercise?

How has Canadian national saving changed in recent history?

Suppose the price level in Canada was P = 124 last year and it is up by 3 points this year.In the U.S.,the price level was 112 last year and it is up by 2 points this year.The exchange rate was US$0.96 per C$1 last year.(For the following calculations,approximate all results to two decimals.) a.Calculate the inflation rates in Canada and the U.S. b.Calculate the real exchange rate at the beginning of the period. c.Calculate the nominal exchange rate at the end of the period,assuming that the real exchange rate has not changed. d.Compare the rate of change in the exchange rate with the difference between the foreign and domestic inflation rates.Are they equal?

A Russian flour mill buys barley from Canada and pays for it with rubles.What are the effects of this transaction?

What concept implies that the real interest rate in Canada should equal that in the rest of the world?

A Norwegian firm purchases earth-moving equipment from a Canadian company and pays for it with domestic currency.What are the effects of this transaction?

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

Assume Canada is a small open economy with perfect capital mobility.If the interest rate is 8 percent in Canada and 6 percent in China,and if the exchange rate is stable at 6 Chinese yuan for one Canadian dollar,what would happen?

Suppose that a Canadian dollar buys more gold in Australia than it buys in Burkina Faso.What does purchasing-power parity imply should happen?

What terms refers to the process of taking advantage of different prices for a good in different markets?

In which situation must national saving rise?

If a Swiss chocolate maker opens a factory in Canada.What is this an example of?

Which unit of measurement would be appropriate for a real exchange rate?

Between 1981 and 1988,what caused most of the change in Canadian net capital outflow as a percent of GDP?

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