Question 1

What is the value of Chile's exports minus the value of Chile's imports called?

Accepted Answer

A)  Chile's net capital inflow 
B)  Chile's foreign direct investment 
C)  Chile's net exports 
D)  Chile's net imports 
A)  Chile's net capital inflow 
B)  Chile's foreign direct investment 
C)  Chile's net exports 
D)  Chile's net imports

Question 2

Suppose the real exchange rate X between Canada and the U.S.is constant.Let the price level in Canada be P,the price level in the U.S.be P*,and the nominal exchange rate be
e.Suppose the price level in Canada increases from P1 to P2 and the price level in the U.S.increases from P1* to P2*.Show that the rate of change in e,which is equal to (e2 - e1) / e1 × 100 is approximately equal to the difference in the inflation rates in the two countries.Note that the nominal exchange rate is e = XP* / P.What have you learned from this exercise?

Accepted Answer

Using the formula for the nominal exchan

Question 3

If a country has business opportunities that become relatively attractive to other countries,what best predicts the effects of this change?

Accepted Answer

A)  Both net exports and net capital outflow increase. 
B)  Both net exports and net capital outflow decrease. 
C)  Net exports increase,but net capital outflow decreases. 
D)  Net exports decrease,but net capital outflow increases. 
A)  Both net exports and net capital outflow increase. 
B)  Both net exports and net capital outflow decrease. 
C)  Net exports increase,but net capital outflow decreases. 
D)  Net exports decrease,but net capital outflow increases.

Question 4

If citizens of a country are not saving much,which action should that country's government take?

Accepted Answer

A)  force citizens to save 
B)  reduce investment 
C)  have foreigners invest in the domestic economy 
D)  prevent opportunities for citizens to buy capital assets abroad 
A)  force citizens to save 
B)  reduce investment 
C)  have foreigners invest in the domestic economy 
D)  prevent opportunities for citizens to buy capital assets abroad

Question 5

Which statement best explains the relationship among price levels,nominal and real exchange rates,and money supply in Canada and Ireland when purchasing-power parity holds?

Accepted Answer

A)  When the price level in Canada falls more rapidly than that in Ireland,the real exchange rate,defined as Irish goods per unit of Canadian goods,stays the same. 
B)  When the money supply in Canada rises more rapidly than in Ireland,the nominal exchange rate,defined as euros (the currency used in Ireland)per dollar,increases. 
C)  When prices for the same goods are the same in Canadian dollars in Canada and Ireland,the nominal exchange rate does not change. 
D)  When prices in both countries stay the same and the nominal exchange rate increases,the real exchange rate decreases. 
A)  When the price level in Canada falls more rapidly than that in Ireland,the real exchange rate,defined as Irish goods per unit of Canadian goods,stays the same. 
B)  When the money supply in Canada rises more rapidly than in Ireland,the nominal exchange rate,defined as euros (the currency used in Ireland)per dollar,increases. 
C)  When prices for the same goods are the same in Canadian dollars in Canada and Ireland,the nominal exchange rate does not change. 
D)  When prices in both countries stay the same and the nominal exchange rate increases,the real exchange rate decreases.

Question 6

Suppose that the real return from operating factories in Australia rises relative to the real rate of return in Canada.What are the effects of this transaction?

Accepted Answer

A)  This will increase Canadian net capital outflow and decrease Australian net capital outflow. 
B)  This will decrease Canadian net capital outflow and increase Australian net capital outflow. 
C)  This will only affect Canadian net capital outflow. 
D)  This will only affect Australian net capital outflow. 
A)  This will increase Canadian net capital outflow and decrease Australian net capital outflow. 
B)  This will decrease Canadian net capital outflow and increase Australian net capital outflow. 
C)  This will only affect Canadian net capital outflow. 
D)  This will only affect Australian net capital outflow.

Question 7

A Canadian firm opens a factory that produces climbing equipment in Austria.What are the effects of this transaction?

Accepted Answer

A)  Canadian net capital outflow increases,and Albanian net capital outflow decreases. 
B)  Canadian net capital outflow decreases,and Albanian net capital outflow increases. 
C)  Only Canadian net capital outflow increases. 
D)  Only Albanian net capital outflow increases. 
A)  Canadian net capital outflow increases,and Albanian net capital outflow decreases. 
B)  Canadian net capital outflow decreases,and Albanian net capital outflow increases. 
C)  Only Canadian net capital outflow increases. 
D)  Only Albanian net capital outflow increases.

Question 8

Sue,a Canadian citizen,buys shares of stock in a French chain of boutiques.What is this an example of?

Accepted Answer

A)  investment for Sue and Canadian foreign direct investment 
B)  investment for Sue and Canadian foreign portfolio investment 
C)  saving for Sue and Canadian foreign direct investment 
D)  saving for Sue and Canadian foreign portfolio investment 
A)  investment for Sue and Canadian foreign direct investment 
B)  investment for Sue and Canadian foreign portfolio investment 
C)  saving for Sue and Canadian foreign direct investment 
D)  saving for Sue and Canadian foreign portfolio investment

Question 9

What does the law of one price state?

Accepted Answer

A)  A good cannot be sold at a black market price. 
B)  A good must sell at the price fixed by law. 
C)  A good must sell at the same price at all locations. 
D)  A good cannot sell for a price greater than the legal price ceiling. 
A)  A good cannot be sold at a black market price. 
B)  A good must sell at the price fixed by law. 
C)  A good must sell at the same price at all locations. 
D)  A good cannot sell for a price greater than the legal price ceiling.

Question 10

Canadian exports make up less than 20 percent of GDP.

Accepted Answer

A) True 
 B)False

Question 11

The country of Freedonia has a GDP of $4000,consumption of $1500,and government purchases of $900.What does this situation imply?

Accepted Answer

A)  Investment is equal to -$1600. 
B)  Investment plus net capital outflow is equal to $1600. 
C)  Investment plus net exports is equal to $2400. 
D)  Saving is equal to -$2400. 
A)  Investment is equal to -$1600. 
B)  Investment plus net capital outflow is equal to $1600. 
C)  Investment plus net exports is equal to $2400. 
D)  Saving is equal to -$2400.

Question 12

A country with no imports necessarily has zero net exports.

Accepted Answer

A) True 
 B)False

Question 13

What is the formula for saving in an open economy?

Accepted Answer

A)  Saving = Foreign saving + Net capital outflow 
B)  Saving = Domestic investment - Net capital outflow 
C)  Saving = Domestic saving + Net capital outflow 
D)  Saving = Domestic investment + Net capital outflow 
A)  Saving = Foreign saving + Net capital outflow 
B)  Saving = Domestic investment - Net capital outflow 
C)  Saving = Domestic saving + Net capital outflow 
D)  Saving = Domestic investment + Net capital outflow

Question 14

The country of Sylvania has a GDP of $4000,investment of $1500,government purchases of $400,and net capital outflow of negative $300.What is consumption?

Accepted Answer

A)  $700 
B)  $800 
C)  $2400 
D)  $2700 
A)  $700 
B)  $800 
C)  $2400 
D)  $2700

Question 15

Suppose a lobster supper in Nova Scotia costs fewer dollars than a lobster supper in Moscow.Explain why this is inconsistent with purchasing-power parity and explain why the inconsistency may exist.

Accepted Answer

According to purchasing-power parity,a d

Question 16

If the world real interest rate exceeds the Canadian real interest rate,what would Canadian savers most likely do?

Accepted Answer

A)  Canadian savers would prefer to buy foreign assets. 
B)  Canadian savers would prefer to buy Canadian assets. 
C)  Canadian savers will prefer to wait until the two real interest rates are again equal. 
D)  Canadian savers will sell their foreign assets and buy Canadian assets instead. 
A)  Canadian savers would prefer to buy foreign assets. 
B)  Canadian savers would prefer to buy Canadian assets. 
C)  Canadian savers will prefer to wait until the two real interest rates are again equal. 
D)  Canadian savers will sell their foreign assets and buy Canadian assets instead.

Question 17

Roger lives in Iceland and purchases a snowmobile manufactured in Canada.What is this purchase?

Accepted Answer

A)  both a Canadian and an Icelandic export 
B)  both a Canadian and an Icelandic import 
C)  a Canadian import and an Icelandic export 
D)  a Canadian export and an Icelandic import 
A)  both a Canadian and an Icelandic export 
B)  both a Canadian and an Icelandic import 
C)  a Canadian import and an Icelandic export 
D)  a Canadian export and an Icelandic import

Question 18

According to purchasing-power parity,what is the relationship between changes in price levels between two countries and changes in nominal exchange rates?

Accepted Answer

Purchasing-power parity asserts that the

Question 19

Which of the following best describes net capital outflow in Canada from 1961 to about 1998?

Accepted Answer

A)  small but always positive 
B)  small and sometimes negative and sometimes positive 
C)  large and positive 
D)  large and negative in all but three years 
A)  small but always positive 
B)  small and sometimes negative and sometimes positive 
C)  large and positive 
D)  large and negative in all but three years

Question 20

Suppose inflation is higher in Canada over the next few months than in foreign countries,and exchange rates are given in terms of how much foreign currency a dollar buys or how many foreign goods Canadian goods buy.According to purchasing-power parity,what should we expect to see?

Accepted Answer

A)  Only the nominal exchange rate depreciates. 
B)  Both the real and nominal exchange rates appreciate. 
C)  Both the real and nominal exchange rates depreciate. 
D)  Only the real exchange rate appreciates. 
A)  Only the nominal exchange rate depreciates. 
B)  Both the real and nominal exchange rates appreciate. 
C)  Both the real and nominal exchange rates depreciate. 
D)  Only the real exchange rate appreciates.

What is the value of Chile's exports minus the value of Chile's imports called?

If a country has business opportunities that become relatively attractive to other countries,what best predicts the effects of this change?

If citizens of a country are not saving much,which action should that country's government take?

Which statement best explains the relationship among price levels,nominal and real exchange rates,and money supply in Canada and Ireland when purchasing-power parity holds?

Suppose that the real return from operating factories in Australia rises relative to the real rate of return in Canada.What are the effects of this transaction?

A Canadian firm opens a factory that produces climbing equipment in Austria.What are the effects of this transaction?

Sue,a Canadian citizen,buys shares of stock in a French chain of boutiques.What is this an example of?

What does the law of one price state?

Canadian exports make up less than 20 percent of GDP.

The country of Freedonia has a GDP of $4000,consumption of $1500,and government purchases of $900.What does this situation imply?

A country with no imports necessarily has zero net exports.

What is the formula for saving in an open economy?

The country of Sylvania has a GDP of $4000,investment of $1500,government purchases of $400,and net capital outflow of negative $300.What is consumption?

Suppose a lobster supper in Nova Scotia costs fewer dollars than a lobster supper in Moscow.Explain why this is inconsistent with purchasing-power parity and explain why the inconsistency may exist.

If the world real interest rate exceeds the Canadian real interest rate,what would Canadian savers most likely do?

Roger lives in Iceland and purchases a snowmobile manufactured in Canada.What is this purchase?

According to purchasing-power parity,what is the relationship between changes in price levels between two countries and changes in nominal exchange rates?

Which of the following best describes net capital outflow in Canada from 1961 to about 1998?

Suppose inflation is higher in Canada over the next few months than in foreign countries,and exchange rates are given in terms of how much foreign currency a dollar buys or how many foreign goods Canadian goods buy.According to purchasing-power parity,what should we expect to see?

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 Small 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

What is the value of Chile's exports minus the value of Chile's imports called?

If a country has business opportunities that become relatively attractive to other countries,what best predicts the effects of this change?

If citizens of a country are not saving much,which action should that country's government take?

Which statement best explains the relationship among price levels,nominal and real exchange rates,and money supply in Canada and Ireland when purchasing-power parity holds?

Suppose that the real return from operating factories in Australia rises relative to the real rate of return in Canada.What are the effects of this transaction?

A Canadian firm opens a factory that produces climbing equipment in Austria.What are the effects of this transaction?

Sue,a Canadian citizen,buys shares of stock in a French chain of boutiques.What is this an example of?

What does the law of one price state?

Canadian exports make up less than 20 percent of GDP.

The country of Freedonia has a GDP of $4000,consumption of $1500,and government purchases of $900.What does this situation imply?

A country with no imports necessarily has zero net exports.

What is the formula for saving in an open economy?

The country of Sylvania has a GDP of $4000,investment of $1500,government purchases of $400,and net capital outflow of negative $300.What is consumption?

Suppose a lobster supper in Nova Scotia costs fewer dollars than a lobster supper in Moscow.Explain why this is inconsistent with purchasing-power parity and explain why the inconsistency may exist.

If the world real interest rate exceeds the Canadian real interest rate,what would Canadian savers most likely do?

Roger lives in Iceland and purchases a snowmobile manufactured in Canada.What is this purchase?

According to purchasing-power parity,what is the relationship between changes in price levels between two countries and changes in nominal exchange rates?

Which of the following best describes net capital outflow in Canada from 1961 to about 1998?

Suppose inflation is higher in Canada over the next few months than in foreign countries,and exchange rates are given in terms of how much foreign currency a dollar buys or how many foreign goods Canadian goods buy.According to purchasing-power parity,what should we expect to see?

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 Small 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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