Question 1

Which of the following equations is always correct in an open economy?

Accepted Answer

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

Question 2

On behalf of your firm, you make frequent trips to Tokyo. You notice that you always have to pay more dollars to get your hair cut than you pay in the U.S. This observation is

Accepted Answer

A)  consistent with purchasing-power parity if prices in Japan are rising more rapidly than prices in the United States. 
B)  consistent with purchasing-power parity if prices in Japan are rising less rapidly than prices in the United States. 
C)  inconsistent with purchasing-power parity, but might be explained by limited opportunities for arbitrage in haircuts across international borders. 
D)  None of the above is correct. 
A)  consistent with purchasing-power parity if prices in Japan are rising more rapidly than prices in the United States. 
B)  consistent with purchasing-power parity if prices in Japan are rising less rapidly than prices in the United States. 
C)  inconsistent with purchasing-power parity, but might be explained by limited opportunities for arbitrage in haircuts across international borders. 
D)  None of the above is correct.

Question 3

What is the logic behind the theory of purchasing-power parity?

Accepted Answer

The logic behind purchasing-power parity

Question 4

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

Accepted Answer

A)  P*/Pe). 
B)  P/P*e). 
C)  eP*/P). 
D)  eP/P*), 
A)  P*/Pe). 
B)  P/P*e). 
C)  eP*/P). 
D)  eP/P*),

Question 5

If purchasing-power parity holds, a dollar will buy

Accepted Answer

A)  one unit of each foreign currency. 
B)  foreign currency equal to the U.S. price level divided by the foreign country's price level. 
C)  enough foreign currency to buy as many goods as it does in the United States. 
D)  None of the above is implied by purchasing-power parity. 
A)  one unit of each foreign currency. 
B)  foreign currency equal to the U.S. price level divided by the foreign country's price level. 
C)  enough foreign currency to buy as many goods as it does in the United States. 
D)  None of the above is implied by purchasing-power parity.

Question 6

A U.S. firm buys sardines from Morocco and pays for them with U.S. dollars. Other things the same, U.S. net exports

Accepted Answer

A)  increase, and U.S. net capital outflow increases. 
B)  increase, and U.S. net capital outflow decreases. 
C)  decrease, and U.S. net capital outflow increases. 
D)  decrease, and U.S. net capital outflow decreases. 
A)  increase, and U.S. net capital outflow increases. 
B)  increase, and U.S. net capital outflow decreases. 
C)  decrease, and U.S. net capital outflow increases. 
D)  decrease, and U.S. net capital outflow decreases.

Question 7

Since 1980 U.S. net capital outflow has been

Accepted Answer

A)  negative, meaning that foreigners were buying more capital assets from the United States than Americans were buying abroad. 
B)  negative, meaning that Americans were buying more capital assets abroad than foreigners were buying from the United States. 
C)  positive, meaning that foreigners were buying more capital assets from the United States than Americans were buying abroad. 
D)  positive, meaning that Americans were buying more capital assets abroad than foreigners were buying from the United States. 
A)  negative, meaning that foreigners were buying more capital assets from the United States than Americans were buying abroad. 
B)  negative, meaning that Americans were buying more capital assets abroad than foreigners were buying from the United States. 
C)  positive, meaning that foreigners were buying more capital assets from the United States than Americans were buying abroad. 
D)  positive, meaning that Americans were buying more capital assets abroad than foreigners were buying from the United States.

Question 8

Net capital outflow equals the difference between a country's

Accepted Answer

A)  income and expenditure. 
B)  investment and saving. 
C)  purchases of foreign goods and services and sales of goods and services abroad. 
D)  purchases of foreign assets and sales of domestic assets abroad. 
A)  income and expenditure. 
B)  investment and saving. 
C)  purchases of foreign goods and services and sales of goods and services abroad. 
D)  purchases of foreign assets and sales of domestic assets abroad.

Question 9

If prices in the U.S. rise faster than prices in the United Kingdom, then according to the doctrine of purchasing- power parity the U.S. nominal exchange rate should rise

Accepted Answer

A) True 
 B)False

Question 10

If purchases of French assets by foreigners are less than French purchases of foreign assets, then France has a

Accepted Answer

A)  positive net capital outflow and a trade surplus. 
B)  positive net capital outflow and a trade deficit. 
C)  negative net capital outflow and a trade surplus. 
D)  negative net capital outflow and a trade deficit. 
A)  positive net capital outflow and a trade surplus. 
B)  positive net capital outflow and a trade deficit. 
C)  negative net capital outflow and a trade surplus. 
D)  negative net capital outflow and a trade deficit.

Question 11

The increase in the trade deficit in the 1980's reflected a decrease in national saving that is associated with an increase in the government budget deficit.

Accepted Answer

A) True 
 B)False

Question 12

When Microsoft establishes a distribution center in France, U.S. net capital outflow

Accepted Answer

A)  increases because Microsoft makes a portfolio investment in France. 
B)  decreases because Microsoft makes a portfolio investment in France. 
C)  increases because Microsoft makes a direct investment in capital in France. 
D)  decreases because Microsoft makes a direct investment in capital France. 
A)  increases because Microsoft makes a portfolio investment in France. 
B)  decreases because Microsoft makes a portfolio investment in France. 
C)  increases because Microsoft makes a direct investment in capital in France. 
D)  decreases because Microsoft makes a direct investment in capital France.

Question 13

A U.S. bank loaned a Canadian oil company 1 million U.S. dollars. The Canadian company then used the entire loan to buy mining equipment from a U.S. company.
As a result of these transactions, by how much and in which direction did:
A. U.S. net exports change?
B. U.S. net capital outflow change?

Accepted Answer

A. U.S. net exports

Question 14

If the price of a sofa is $800 in the U.S. and 2400 pesos in Argentina, and the exchange rate is 4 pesos per dollar, what is the real exchange rate?

Accepted Answer

A)  3 
B)  4/3 
C)  3/4 
D)  None of the above is correct. 
A)  3 
B)  4/3 
C)  3/4 
D)  None of the above is correct.

Question 15

Lydia, a citizen of Italy, produces scarves and purses that she sells to department stores in the United States. Other things the same, these sales

Accepted Answer

A)  increase U.S. net exports and have no effect on Italian net exports. 
B)  decrease U.S. net exports and have no effect on Italian net exports. 
C)  increase U.S. net exports and decrease Italian net exports. 
D)  decrease U.S. net exports and increase Italian net exports. 
A)  increase U.S. net exports and have no effect on Italian net exports. 
B)  decrease U.S. net exports and have no effect on Italian net exports. 
C)  increase U.S. net exports and decrease Italian net exports. 
D)  decrease U.S. net exports and increase Italian net exports.

Question 16

A Starbucks Grande Latte costs $3.75 in the U.S. and 28 yuan in China. The nominal exchange rate is 6.75 yuan per dollar. The real exchange rate is

Accepted Answer

A)  1.106. If purchasing-power parity held the nominal exchange rate would be higher. 
B)  1.106. If purchasing-power parity held the nominal exchange rate would be lower. 
C)  .904. If purchasing power parity held the nominal exchange rate would be higher. 
D)  .904. If purchasing-power parity held the nominal exchange rate would be lower. 
A)  1.106. If purchasing-power parity held the nominal exchange rate would be higher. 
B)  1.106. If purchasing-power parity held the nominal exchange rate would be lower. 
C)  .904. If purchasing power parity held the nominal exchange rate would be higher. 
D)  .904. If purchasing-power parity held the nominal exchange rate would be lower.

Question 17

If purchasing-power parity holds but then U.S. prices rise, which of the following move the exchange rate back towards purchasing-power parity?

Accepted Answer

A)  foreign prices rise or the U.S. nominal exchange rate rises 
B)  foreign prices rise or the U.S. nominal exchange rate falls 
C)  foreign prices fall or the U.S. nominal exchange rate rises 
D)  foreign prices fall or the U.S. nominal exchange rate falls 
A)  foreign prices rise or the U.S. nominal exchange rate rises 
B)  foreign prices rise or the U.S. nominal exchange rate falls 
C)  foreign prices fall or the U.S. nominal exchange rate rises 
D)  foreign prices fall or the U.S. nominal exchange rate falls

Question 18

If Norway sold more goods and services abroad than it purchased from abroad, then it had

Accepted Answer

A)  positive net exports which is a trade surplus. 
B)  positive net exports which is a trade deficit. 
C)  negative net exports which is a trade surplus. 
D)  negative net exports which is a trade deficit. 
A)  positive net exports which is a trade surplus. 
B)  positive net exports which is a trade deficit. 
C)  negative net exports which is a trade surplus. 
D)  negative net exports which is a trade deficit.

Question 19

A country with negative net exports has a trade surplus.

Accepted Answer

A) True 
 B)False

Question 20

If a country has a trade deficit

Accepted Answer

A)  it has positive net exports and positive net capital outflow. 
B)  it has positive net exports and negative net capital outflow. 
C)  it has negative net exports and positive net capital outflow. 
D)  it has negative net exports and negative net capital outflow. 
A)  it has positive net exports and positive net capital outflow. 
B)  it has positive net exports and negative net capital outflow. 
C)  it has negative net exports and positive net capital outflow. 
D)  it has negative net exports and negative net capital outflow.

Which of the following equations is always correct in an open economy?

On behalf of your firm, you make frequent trips to Tokyo. You notice that you always have to pay more dollars to get your hair cut than you pay in the U.S. This observation is

What is the logic behind the theory of purchasing-power parity?

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

If purchasing-power parity holds, a dollar will buy

A U.S. firm buys sardines from Morocco and pays for them with U.S. dollars. Other things the same, U.S. net exports

Since 1980 U.S. net capital outflow has been

Net capital outflow equals the difference between a country's

If prices in the U.S. rise faster than prices in the United Kingdom, then according to the doctrine of purchasing- power parity the U.S. nominal exchange rate should rise

If purchases of French assets by foreigners are less than French purchases of foreign assets, then France has a

The increase in the trade deficit in the 1980's reflected a decrease in national saving that is associated with an increase in the government budget deficit.

When Microsoft establishes a distribution center in France, U.S. net capital outflow

A U.S. bank loaned a Canadian oil company 1 million U.S. dollars. The Canadian company then used the entire loan to buy mining equipment from a U.S. company. As a result of these transactions, by how much and in which direction did: A. U.S. net exports change? B. U.S. net capital outflow change?

If the price of a sofa is $800 in the U.S. and 2400 pesos in Argentina, and the exchange rate is 4 pesos per dollar, what is the real exchange rate?

Lydia, a citizen of Italy, produces scarves and purses that she sells to department stores in the United States. Other things the same, these sales

A Starbucks Grande Latte costs $3.75 in the U.S. and 28 yuan in China. The nominal exchange rate is 6.75 yuan per dollar. The real exchange rate is

If purchasing-power parity holds but then U.S. prices rise, which of the following move the exchange rate back towards purchasing-power parity?

If Norway sold more goods and services abroad than it purchased from abroad, then it had

A country with negative net exports has a trade surplus.

If a country has a trade deficit

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

The Basic Tools of Finance

Unemployment and Its Natural Rate

The Monetary System

Money Growth and Inflation

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 Tradeoff Between Inflation and Unemployment

Six Debates Over Macroeconomic Policy

Filters

Exam 13: Open-Economy Macroeconomics: Basic Concepts

Which of the following equations is always correct in an open economy?

On behalf of your firm, you make frequent trips to Tokyo. You notice that you always have to pay more dollars to get your hair cut than you pay in the U.S. This observation is

What is the logic behind the theory of purchasing-power parity?

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

If purchasing-power parity holds, a dollar will buy

A U.S. firm buys sardines from Morocco and pays for them with U.S. dollars. Other things the same, U.S. net exports

Since 1980 U.S. net capital outflow has been

Net capital outflow equals the difference between a country's

If prices in the U.S. rise faster than prices in the United Kingdom, then according to the doctrine of purchasing- power parity the U.S. nominal exchange rate should rise

If purchases of French assets by foreigners are less than French purchases of foreign assets, then France has a

The increase in the trade deficit in the 1980's reflected a decrease in national saving that is associated with an increase in the government budget deficit.

When Microsoft establishes a distribution center in France, U.S. net capital outflow

A U.S. bank loaned a Canadian oil company 1 million U.S. dollars. The Canadian company then used the entire loan to buy mining equipment from a U.S. company. As a result of these transactions, by how much and in which direction did: A. U.S. net exports change? B. U.S. net capital outflow change?

If the price of a sofa is $800 in the U.S. and 2400 pesos in Argentina, and the exchange rate is 4 pesos per dollar, what is the real exchange rate?

Lydia, a citizen of Italy, produces scarves and purses that she sells to department stores in the United States. Other things the same, these sales

A Starbucks Grande Latte costs $3.75 in the U.S. and 28 yuan in China. The nominal exchange rate is 6.75 yuan per dollar. The real exchange rate is

If purchasing-power parity holds but then U.S. prices rise, which of the following move the exchange rate back towards purchasing-power parity?

If Norway sold more goods and services abroad than it purchased from abroad, then it had

A country with negative net exports has a trade surplus.

If a country has a trade deficit

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

The Basic Tools of Finance

Unemployment and Its Natural Rate

The Monetary System

Money Growth and Inflation

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 Tradeoff Between Inflation and Unemployment

Six Debates Over Macroeconomic Policy

Filters