Exam 12: Open-Economy Macroeconomics: Basic Concepts

Which of the following would be Canadian foreign direct investment?

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

Net capital outflow is the purchase of domestic assets purchased by foreign residents minus the purchase of foreign assets by domestic residents.

What is the formula for an open economy's GDP?

Suppose that a lobster in Nova Scotia costs $10 and the same type of lobster in New Brunswick costs $30.How could people make a profit in the situation?

Suppose that a kilogram can of coffee costs about $16 in Canada.Suppose the exchange rate is 0.7 euro per dollar and that a kilogram can of coffee in Belgium costs about 5.6 euros.What is the real exchange rate?

Suppose that the dollar buys more bananas in Honduras than in Costa Rica.How could traders make a profit?

What is the formula for national saving?

Refer to the Table 12-1.What currency(ies)is(are)more valuable than predicted by the doctrine of purchasing-power parity?

What does a trade surplus imply?

According to the theory of purchasing-power parity,the real exchange rate defined as foreign goods per unit of Canadian goods will equal the domestic price level divided by the foreign price level.

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

Negative net exports are the same as a trade surplus.

Meagan is considering investing $1000 in Canada,where she expects an interest rate of 4 percent,or in the U.K.,where the expected interest rate would be 6 percent.The current exchange rate is 0.6 £ / $,which could take by the end of the year any value between 0.4 and 0.7£ / $ with equal probability.What should Meagan do?

If the Canadian real exchange rate appreciates,what will most likely happen?

What does purchasing-power parity imply?

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

In which situation must domestic saving equal investment?

When Canada imports more than it exports,it must also buy domestic assets from foreigners.

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.