Question 1

Bill, a U.S. citizen, pays a Spanish architect to design a metal casting factory. Which country's exports increase?

Accepted Answer

A)  Spain's 
B)  the U.S.'s 
C)  Spain's and the U.S.'s 
D)  neither Spain's nor the U.S.'s 
A)  Spain's 
B)  the U.S.'s 
C)  Spain's and the U.S.'s 
D)  neither Spain's nor the U.S.'s

Question 2

Other things the same, according to purchasing-power parity, if over the next few years Mexico has a higher money supply growth rate than the U.S., then

Accepted Answer

A)  prices in Mexico will rise by a larger percentage than in the U.S. So, the dollar will appreciate against the Mexican peso. 
B)  prices in Mexico will rise by larger percentage than in the U.S. So, the dollar will depreciate against the Mexican peso. 
C)  prices in Mexico will rise by a smaller percentage than in the U.S. So, the dollar will appreciate against the Mexican peso. 
D)  prices in Mexico will rise by a smaller percentage than in the U.S. So, the dollar will depreciate against the Mexican peso. 
A)  prices in Mexico will rise by a larger percentage than in the U.S. So, the dollar will appreciate against the Mexican peso. 
B)  prices in Mexico will rise by larger percentage than in the U.S. So, the dollar will depreciate against the Mexican peso. 
C)  prices in Mexico will rise by a smaller percentage than in the U.S. So, the dollar will appreciate against the Mexican peso. 
D)  prices in Mexico will rise by a smaller percentage than in the U.S. So, the dollar will depreciate against the Mexican peso.

Question 3

According to purchasing-power parity theory, the nominal exchange rate between the U.S. and another country should equal the U.S. price level divided by the price level in the foreign country.

Accepted Answer

A) True 
 B)False

Question 4

Suppose that a country imports $90 million worth of goods and services and exports $80 million worth of goods and services. What is the value of net exports?

Accepted Answer

A)  $170 million 
B)  $80 million 
C)  $10 million 
D)  -$10 million 
A)  $170 million 
B)  $80 million 
C)  $10 million 
D)  -$10 million

Question 5

The country of Elbia has a GDP of $2,000, consumption of $1,300, and government purchases of $400. Which of the following is equal to $300?

Accepted Answer

A)  domestic investment 
B)  domestic investment plus net capital outflow 
C)  domestic investment minus net capital outflow 
D)  None of the above is correct. 
A)  domestic investment 
B)  domestic investment plus net capital outflow 
C)  domestic investment minus net capital outflow 
D)  None of the above is correct.

Question 6

Both foreign direct investment and foreign portfolio investment by U.S. residents increase U.S. net capital outflow.

Accepted Answer

A) True 
 B)False

Question 7

A U.S. company uses U.K. pounds it already owned to purchase bonds issued by a company in the U.K. Which of these countries has an increase in net capital outflow?

Accepted Answer

A)  The U.S. and the U.K. 
B)  The U.S. but not the U.K. 
C)  The U.K. but not the U.S. 
D)  Neither the U.S. nor the U.K. 
A)  The U.S. and the U.K. 
B)  The U.S. but not the U.K. 
C)  The U.K. but not the U.S. 
D)  Neither the U.S. nor the U.K.

Question 8

Other things the same, which of the following would both make foreigners more willing to engage in U.S. portfolio investment?

Accepted Answer

A)  U.S. interest rates rise, the default risk of U.S. assets rise 
B)  U.S. interest rates rise, the default risk of U.S. assets fall 
C)  U.S. interest rates fall, the default risk of U.S. assets rise 
D)  U.S. interest rates fall, the default risk of U.S. assets fall 
A)  U.S. interest rates rise, the default risk of U.S. assets rise 
B)  U.S. interest rates rise, the default risk of U.S. assets fall 
C)  U.S. interest rates fall, the default risk of U.S. assets rise 
D)  U.S. interest rates fall, the default risk of U.S. assets fall

Question 9

You are the CEO of a U.S. firm considering building a factory in Chile. If the dollar appreciates relative to the Chilean peso, then other things the same

Accepted Answer

A)  it takes fewer dollars to build the factory. By itself building the factory increases U.S. net capital outflow. 
B)  it takes fewer dollars to build the factory. By itself building the factory decreases U.S. net capital outflow. 
C)  it takes more dollars to build the factory. By itself building the factory increases U.S. net capital outflow. 
D)  it takes more dollars to build the factory. By itself building the factory decreases U.S. net capital outflow. 
A)  it takes fewer dollars to build the factory. By itself building the factory increases U.S. net capital outflow. 
B)  it takes fewer dollars to build the factory. By itself building the factory decreases U.S. net capital outflow. 
C)  it takes more dollars to build the factory. By itself building the factory increases U.S. net capital outflow. 
D)  it takes more dollars to build the factory. By itself building the factory decreases U.S. net capital outflow.

Question 10

A depreciation of the U.S. real exchange rate induces U.S. consumers to buy

Accepted Answer

A)  fewer domestic goods and fewer foreign goods. 
B)  more domestic goods and fewer foreign goods. 
C)  fewer domestic goods and more foreign goods. 
D)  more domestic goods and more foreign goods. 
A)  fewer domestic goods and fewer foreign goods. 
B)  more domestic goods and fewer foreign goods. 
C)  fewer domestic goods and more foreign goods. 
D)  more domestic goods and more foreign goods.

Question 11

If a county has 25 billion euros of imports, 15 billion euros of exports, and sells 20 billion euros of assets to foreigners, how many foreign assets do domestic residents purchase?

Accepted Answer

A)  5 billion euros 
B)  10 billion euros 
C)  30 billion euros 
D)  None of the above are correct. 
A)  5 billion euros 
B)  10 billion euros 
C)  30 billion euros 
D)  None of the above are correct.

Question 12

The Norwegian government uses $500,000 of previously obtained U.S. dollars to buy $500,000 of police cars from a U.S. company. As a result of this exchange, by how much, if at all, 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 13

Other things the same, if the exchange rate changes from 75 Algerian dinar per dollar to 72 Algerian dinar per dollar, the dollar has

Accepted Answer

A)  appreciated and so buys more Algerian goods. 
B)  appreciated and so buys fewer Algerian goods. 
C)  depreciated and so buys more Algerian goods. 
D)  depreciated and so buys fewer Algerian goods. 
A)  appreciated and so buys more Algerian goods. 
B)  appreciated and so buys fewer Algerian goods. 
C)  depreciated and so buys more Algerian goods. 
D)  depreciated and so buys fewer Algerian goods.

Question 14

The nominal exchange rate is .80 euros per dollar and the real exchange rate is 4/3. Which of the following prices for a particular good are consistent with these exchange rates?

Accepted Answer

A)  $4 in the U.S. and 3 euros in Italy. 
B)  $4 in the U.S. and 3.75 euros in Italy. 
C)  $5 in the U.S. and 3 euros in Italy. 
D)  $6 in the U.S. and 2.50 euros in Italy. 
A)  $4 in the U.S. and 3 euros in Italy. 
B)  $4 in the U.S. and 3.75 euros in Italy. 
C)  $5 in the U.S. and 3 euros in Italy. 
D)  $6 in the U.S. and 2.50 euros in Italy.

Question 15

Suppose that a country has $120 billion of national saving, and $80 billion of domestic investment. Is this possible? Where did the other $40 billion of national savings go?

Accepted Answer

This is possible for an open economy. Th

Question 16

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 17

After 1980 in the United States,

Accepted Answer

A)  national saving fell below investment and net capital outflow was a large positive number. 
B)  national saving fell below investment and net capital outflow was a large negative number. 
C)  investment fell below saving and net capital outflow was a large positive number. 
D)  investment fell below saving, so net capital outflow was a large negative number. 
A)  national saving fell below investment and net capital outflow was a large positive number. 
B)  national saving fell below investment and net capital outflow was a large negative number. 
C)  investment fell below saving and net capital outflow was a large positive number. 
D)  investment fell below saving, so net capital outflow was a large negative number.

Question 18

In an open economy, gross domestic product equals $2,450 billion, consumption expenditure equals $1,390 billion, government expenditure equals $325 billion, investment equals $510 and net capital outflow equals $225 billion. What is national saving?

Accepted Answer

A)  $225 billion 
B)  $510 billion 
C)  $735 billion 
D)  $1,390 billion 
A)  $225 billion 
B)  $510 billion 
C)  $735 billion 
D)  $1,390 billion

Question 19

The price of a basket of goods is $2000 in the U.S. If purchasing-power parity holds, and the dollar buys two units of some country's currency, then how many units of foreign currency does the same basket of goods cost in that country?

Accepted Answer

A)  4000 
B)  2000 
C)  1000 
D)  None of the above are correct. 
A)  4000 
B)  2000 
C)  1000 
D)  None of the above are correct.

Question 20

When the central bank of some country prints large quantities of money, that county's currency loses value both in terms of the goods and services it buys and in terms of the amount of foreign currencies it can buy.

Accepted Answer

A) True 
 B)False

Bill, a U.S. citizen, pays a Spanish architect to design a metal casting factory. Which country's exports increase?

Other things the same, according to purchasing-power parity, if over the next few years Mexico has a higher money supply growth rate than the U.S., then

According to purchasing-power parity theory, the nominal exchange rate between the U.S. and another country should equal the U.S. price level divided by the price level in the foreign country.

Suppose that a country imports $90 million worth of goods and services and exports $80 million worth of goods and services. What is the value of net exports?

The country of Elbia has a GDP of $2,000, consumption of $1,300, and government purchases of $400. Which of the following is equal to $300?

Both foreign direct investment and foreign portfolio investment by U.S. residents increase U.S. net capital outflow.

A U.S. company uses U.K. pounds it already owned to purchase bonds issued by a company in the U.K. Which of these countries has an increase in net capital outflow?

Other things the same, which of the following would both make foreigners more willing to engage in U.S. portfolio investment?

You are the CEO of a U.S. firm considering building a factory in Chile. If the dollar appreciates relative to the Chilean peso, then other things the same

A depreciation of the U.S. real exchange rate induces U.S. consumers to buy

If a county has 25 billion euros of imports, 15 billion euros of exports, and sells 20 billion euros of assets to foreigners, how many foreign assets do domestic residents purchase?

The Norwegian government uses $500,000 of previously obtained U.S. dollars to buy $500,000 of police cars from a U.S. company. As a result of this exchange, by how much, if at all, and in which direction did: A. U.S. net exports change? B. U.S. net capital outflow change?

Other things the same, if the exchange rate changes from 75 Algerian dinar per dollar to 72 Algerian dinar per dollar, the dollar has

The nominal exchange rate is .80 euros per dollar and the real exchange rate is 4/3. Which of the following prices for a particular good are consistent with these exchange rates?

Suppose that a country has $120 billion of national saving, and $80 billion of domestic investment. Is this possible? Where did the other $40 billion of national savings go?

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

After 1980 in the United States,

In an open economy, gross domestic product equals $2,450 billion, consumption expenditure equals $1,390 billion, government expenditure equals $325 billion, investment equals $510 and net capital outflow equals $225 billion. What is national saving?

The price of a basket of goods is $2000 in the U.S. If purchasing-power parity holds, and the dollar buys two units of some country's currency, then how many units of foreign currency does the same basket of goods cost in that country?

When the central bank of some country prints large quantities of money, that county's currency loses value both in terms of the goods and services it buys and in terms of the amount of foreign currencies it can buy.

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

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Exam 13: Open-Economy Macroeconomics: Basic Concepts

Bill, a U.S. citizen, pays a Spanish architect to design a metal casting factory. Which country's exports increase?

Other things the same, according to purchasing-power parity, if over the next few years Mexico has a higher money supply growth rate than the U.S., then

According to purchasing-power parity theory, the nominal exchange rate between the U.S. and another country should equal the U.S. price level divided by the price level in the foreign country.

Suppose that a country imports $90 million worth of goods and services and exports $80 million worth of goods and services. What is the value of net exports?

The country of Elbia has a GDP of $2,000, consumption of $1,300, and government purchases of $400. Which of the following is equal to $300?

Both foreign direct investment and foreign portfolio investment by U.S. residents increase U.S. net capital outflow.

A U.S. company uses U.K. pounds it already owned to purchase bonds issued by a company in the U.K. Which of these countries has an increase in net capital outflow?

Other things the same, which of the following would both make foreigners more willing to engage in U.S. portfolio investment?

You are the CEO of a U.S. firm considering building a factory in Chile. If the dollar appreciates relative to the Chilean peso, then other things the same

A depreciation of the U.S. real exchange rate induces U.S. consumers to buy

If a county has 25 billion euros of imports, 15 billion euros of exports, and sells 20 billion euros of assets to foreigners, how many foreign assets do domestic residents purchase?

The Norwegian government uses $500,000 of previously obtained U.S. dollars to buy $500,000 of police cars from a U.S. company. As a result of this exchange, by how much, if at all, and in which direction did: A. U.S. net exports change? B. U.S. net capital outflow change?

Other things the same, if the exchange rate changes from 75 Algerian dinar per dollar to 72 Algerian dinar per dollar, the dollar has

The nominal exchange rate is .80 euros per dollar and the real exchange rate is 4/3. Which of the following prices for a particular good are consistent with these exchange rates?

Suppose that a country has $120 billion of national saving, and $80 billion of domestic investment. Is this possible? Where did the other $40 billion of national savings go?

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

After 1980 in the United States,

In an open economy, gross domestic product equals $2,450 billion, consumption expenditure equals $1,390 billion, government expenditure equals $325 billion, investment equals $510 and net capital outflow equals $225 billion. What is national saving?

The price of a basket of goods is $2000 in the U.S. If purchasing-power parity holds, and the dollar buys two units of some country's currency, then how many units of foreign currency does the same basket of goods cost in that country?

When the central bank of some country prints large quantities of money, that county's currency loses value both in terms of the goods and services it buys and in terms of the amount of foreign currencies it can buy.

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