Question 1

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 B

Question 2

If a country has Y > C + I + G, then

Accepted Answer

A) S > I and it has a trade surplus. B) S > I and it has a trade deficit. C) S < I and it has a trade surplus. D) S < I and it has a trade deficit. A) S > I and it has a trade surplus. B) S > I and it has a trade deficit. C) S < I and it has a trade surplus. D) S < I and it has a trade deficit. A

Question 3

Alfonso, a citizen of Italy, decides to purchase bonds issued by Ireland instead of ones issued by the United States even though the Irish bonds have a higher risk of default. An economic reason for his decision might be that

Accepted Answer

A)  he dislikes U.S. foreign policy. 
B)  the Irish bonds pay a higher rate of interest. 
C)  the U.S. government is more stable than the Irish government. 
D)  None of the above provide an economic reason for buying the riskier bond. 
A)  he dislikes U.S. foreign policy. 
B)  the Irish bonds pay a higher rate of interest. 
C)  the U.S. government is more stable than the Irish government. 
D)  None of the above provide an economic reason for buying the riskier bond. B

Question 4

If the exchange rate is .70 euro per dollar, the price of an MP3 player in Paris is 150 euros and the price of an MP3 player in the U.S. is $150, then what is the real exchange rate?

Accepted Answer

A)  1/.70 French MP3 players per U.S. MP3 player 
B)  1 French MP3 players per U.S. MP3 player 
C)  .70 French MP3 players per U.S. MP3 player. 
D)  None of the above are correct. 
A)  1/.70 French MP3 players per U.S. MP3 player 
B)  1 French MP3 players per U.S. MP3 player 
C)  .70 French MP3 players per U.S. MP3 player. 
D)  None of the above are correct.

Question 5

A farm equipment retailer in Azerbaijan exchanges Azerbaijan manats the currency of Azerbaijan) for $300,000 a bank in Azerbaijan was holding. It uses the $300,000 to buy farm equipment from a U.S. company. The U.S. company deposits half of these funds in a U.S. bank and exchanges the other half for euros from a bank in London.
As a result of these transactions, 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 6

If the price of a good in the U.S. is $10, the exchange rate is 2 units of foreign currency per dollar, and the foreign price of the same good is 30 units of foreign currency, then the real exchange rate is 2/3.

Accepted Answer

A) True 
 B)False

Question 7

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 8

If the real exchange rate between the U.S. and Argentina is 1, then

Accepted Answer

A)  purchasing-power parity holds, and 1 U.S. dollar buys 1 Argentinean bolivar. 
B)  purchasing-power parity holds, and the amount of dollars needed to buy goods in the U.S. is the same as the amount needed to buy enough Argentinean bolivars to buy the same goods in Argentina. 
C)  purchasing-power parity does not hold, but 1 U.S. dollar buys 1 Argentinean bolivar. 
D)  purchasing-power parity does not hold, but the amount of dollars needed to buy goods in the U.S. is the same as the amount needed to buy enough Argentinean bolivars to buy the same goods in Argentina. 
A)  purchasing-power parity holds, and 1 U.S. dollar buys 1 Argentinean bolivar. 
B)  purchasing-power parity holds, and the amount of dollars needed to buy goods in the U.S. is the same as the amount needed to buy enough Argentinean bolivars to buy the same goods in Argentina. 
C)  purchasing-power parity does not hold, but 1 U.S. dollar buys 1 Argentinean bolivar. 
D)  purchasing-power parity does not hold, but the amount of dollars needed to buy goods in the U.S. is the same as the amount needed to buy enough Argentinean bolivars to buy the same goods in Argentina.

Question 9

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.

Question 10

When a company from Germany builds an automobile factory in the United States, the German firm has engaged in foreign direct investment.

Accepted Answer

A) True 
 B)False

Question 11

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 12

An Italian company builds and operates a pasta factory in the United States. This is an example of Italian

Accepted Answer

A)  foreign direct investment that increases Italian net capital outflow. 
B)  foreign direct investment that decreases Italian net capital outflow. 
C)  foreign portfolio investment that increases Italian net capital outflow. 
D)  foreign portfolio investment that decreases Italian net capital outflow. 
A)  foreign direct investment that increases Italian net capital outflow. 
B)  foreign direct investment that decreases Italian net capital outflow. 
C)  foreign portfolio investment that increases Italian net capital outflow. 
D)  foreign portfolio investment that decreases Italian net capital outflow.

Question 13

Foreign-produced goods and services that are purchased domestically are called

Accepted Answer

A)  imports. 
B)  exports. 
C)  net imports. 
D)  net exports. 
A)  imports. 
B)  exports. 
C)  net imports. 
D)  net exports.

Question 14

Other things the same, if a country saves less, then

Accepted Answer

A)  net capital outflow rises, so net exports rise. 
B)  net capital outflow rises, so net exports fall. 
C)  net capital outflow falls, so net exports rise. 
D)  net capital outflow falls, so net exports fall. 
A)  net capital outflow rises, so net exports rise. 
B)  net capital outflow rises, so net exports fall. 
C)  net capital outflow falls, so net exports rise. 
D)  net capital outflow falls, so net exports fall.

Question 15

Which of the following is an example of U.S. foreign direct investment?

Accepted Answer

A)  A Swedish car manufacturer opens a plant in Tennessee. 
B)  A Dutch citizen buys shares of stock in a U.S. company. 
C)  A U.S. based restaurant chain opens new restaurants in India. 
D)  A U.S. citizen buys stock in companies located in Japan. 
A)  A Swedish car manufacturer opens a plant in Tennessee. 
B)  A Dutch citizen buys shares of stock in a U.S. company. 
C)  A U.S. based restaurant chain opens new restaurants in India. 
D)  A U.S. citizen buys stock in companies located in Japan.

Question 16

The increase in international trade in the United States is partly due to

Accepted Answer

A)  improvements in transportation. 
B)  advances in telecommunications. 
C)  increased trade of goods with a high value per pound. 
D)  All of the above are correct. 
A)  improvements in transportation. 
B)  advances in telecommunications. 
C)  increased trade of goods with a high value per pound. 
D)  All of the above are correct.

Question 17

A U.S. citizen buys bonds issued by an automobile manufacturer in Japan. Her expenditures are U.S.

Accepted Answer

A)  foreign direct investment that increase U.S. net capital outflow. 
B)  foreign direct investment that decrease U.S. net capital outflow. 
C)  foreign portfolio investment that increase U.S. net capital outflow. 
D)  foreign portfolio investment that decrease U.S. net capital outflow. 
A)  foreign direct investment that increase U.S. net capital outflow. 
B)  foreign direct investment that decrease U.S. net capital outflow. 
C)  foreign portfolio investment that increase U.S. net capital outflow. 
D)  foreign portfolio investment that decrease U.S. net capital outflow.

Question 18

A country has $100 million of net exports and $170 million of saving. Net capital outflow is

Accepted Answer

A)  $70 million and domestic investment is $170 million. 
B)  $70 million and domestic investment is $270 million. 
C)  $100 million and domestic investment is $70 million. 
D)  None of the above is correct. 
A)  $70 million and domestic investment is $170 million. 
B)  $70 million and domestic investment is $270 million. 
C)  $100 million and domestic investment is $70 million. 
D)  None of the above is correct.

Question 19

A pound of steak costs $10 in the U.S. and 56.25 riyals the currency of Saudi Arabia) in Saudi Arabia. If the real exchange rate is 2/3, what is the nominal exchange rate? Show your work.

Accepted Answer

The real exchange rate 2/3 = $

Question 20

A Swiss company sells chocolates to a retailer in the United States. These sales by themselves

Accepted Answer

A)  decrease U.S. net export and Swiss net exports. 
B)  decrease U.S. net exports and increase Swiss net exports. 
C)  increase U.S. and Swiss net exports. 
D)  increase U.S. net exports and decrease Swiss net exports. 
A)  decrease U.S. net export and Swiss net exports. 
B)  decrease U.S. net exports and increase Swiss net exports. 
C)  increase U.S. and Swiss net exports. 
D)  increase U.S. net exports and decrease Swiss net exports.

Exam 18: Open-Economy Macroeconomics: Basic Concepts

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 a country has Y > C + I + G, then

Alfonso, a citizen of Italy, decides to purchase bonds issued by Ireland instead of ones issued by the United States even though the Irish bonds have a higher risk of default. An economic reason for his decision might be that

If the exchange rate is .70 euro per dollar, the price of an MP3 player in Paris is 150 euros and the price of an MP3 player in the U.S. is $150, then what is the real exchange rate?

If the price of a good in the U.S. is $10, the exchange rate is 2 units of foreign currency per dollar, and the foreign price of the same good is 30 units of foreign currency, then the real exchange rate is 2/3.

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

If the real exchange rate between the U.S. and Argentina is 1, then

If a country has a trade deficit

When a company from Germany builds an automobile factory in the United States, the German firm has engaged in foreign direct investment.

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?

An Italian company builds and operates a pasta factory in the United States. This is an example of Italian

Foreign-produced goods and services that are purchased domestically are called

Other things the same, if a country saves less, then

Which of the following is an example of U.S. foreign direct investment?

The increase in international trade in the United States is partly due to

A U.S. citizen buys bonds issued by an automobile manufacturer in Japan. Her expenditures are U.S.

A country has $100 million of net exports and $170 million of saving. Net capital outflow is

A pound of steak costs $10 in the U.S. and 56.25 riyals the currency of Saudi Arabia) in Saudi Arabia. If the real exchange rate is 2/3, what is the nominal exchange rate? Show your work.

A Swiss company sells chocolates to a retailer in the United States. These sales by themselves

Ten Principles of Economics

Thinking Like an Economist

Interdependence and the Gains From Trade

The Market Forces of Supply and Demand

Elasticity and Its Application

Supply, Demand, and Government Policies

Consumers, Producers, and the Efficiency of Markets

Application: the Costs of Taxation

Application: International Trade

Measuring a Nations Income

Measuring the Cost of Living

Production and Growth

Saving, Investment, and the Financial System

The Basic Tools of Finance

Unemployment

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 Trade-Off Between Inflation and Unemployment

Six Debates Over Macroeconomic Policy

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