Question 1

Other things the same, an increase in the foreign price level leads to an increase in the real exchange rate.

Accepted Answer

A) True 
 B)False

Question 2

If over the next six months inflation is higher in the U.S. than in foreign countries, then according to purchasing- power parity

Accepted Answer

A)  only the nominal exchange rate depreciates. 
B)  both the real and nominal exchange rate appreciate. 
C)  both the real and nominal exchange rate depreciate. 
D)  only the real exchange rate appreciates. 
A)  only the nominal exchange rate depreciates. 
B)  both the real and nominal exchange rate appreciate. 
C)  both the real and nominal exchange rate depreciate. 
D)  only the real exchange rate appreciates.

Question 3

The price of a basket of goods and services in the U.S. is $600. In Canada the same basket of goods costs 700 Canadian dollars. If the nominal exchange rate were 1.2 Canadian dollars per U.S. dollar, what would be the real exchange rate?

Accepted Answer

A)  700/600 
B)  600/700 
C)  700/720 
D)  None of the above is correct. 
A)  700/600 
B)  600/700 
C)  700/720 
D)  None of the above is correct.

Question 4

If the exchange rate is .60 British pounds = $1, a bottle of ale that costs 3 pounds costs

Accepted Answer

A)  $1.80. 
B)  $4.80. 
C)  $5. 
D)  None of the above is correct. 
A)  $1.80. 
B)  $4.80. 
C)  $5. 
D)  None of the above is correct.

Question 5

If a country exports more than it imports, then it has

Accepted Answer

A)  positive net exports and positive net capital outflows. 
B)  positive net exports and negative net capital outflows. 
C)  negative net exports and positive net capital outflows. 
D)  negative net exports and negative net capital outflows. 
A)  positive net exports and positive net capital outflows. 
B)  positive net exports and negative net capital outflows. 
C)  negative net exports and positive net capital outflows. 
D)  negative net exports and negative net capital outflows.

Question 6

The nominal exchange rate is 4 Saudi Arabian riyals, 8 Moroccan dirham, 60 Indian rupees, or .8 euros per U.S. dollar. A fast food breakfast costs $5 in the U.S., 30 riyals in Saudi Arabia, 40 Moroccan dirham in Morocco, 250 Indian rupees in India, and 5 euros in France. According to these numbers, where is the real exchange rate between American and foreign goods the lowest?

Accepted Answer

A)  Saudi Arabia 
B)  Morocco 
C)  India 
D)  Britain 
A)  Saudi Arabia 
B)  Morocco 
C)  India 
D)  Britain

Question 7

A country recently had $800 billion worth of domestic investment and its residents purchased $400 billion worth of foreign assets. If foreigners purchased $100 billion of this country's assets, what was this country's saving? Explain how your found your answer.

Accepted Answer

This country had saving of $1,100 billio

Question 8

Paine Pharmaceuticals produces medicines in the U.S. Its overseas sales

Accepted Answer

A)  are an export of the U.S. and increase U.S. net exports. 
B)  are an export of the U.S. and decrease U.S. net exports. 
C)  are an import of the U.S. and increase U.S. net exports. 
D)  are an import of the U.S. and decrease U.S. net exports. 
A)  are an export of the U.S. and increase U.S. net exports. 
B)  are an export of the U.S. and decrease U.S. net exports. 
C)  are an import of the U.S. and increase U.S. net exports. 
D)  are an import of the U.S. and decrease U.S. net exports.

Question 9

A bushel of apples costs $15.00 in the U.S. The same apples cost 1,600 yen in Japan. If the exchange rate is 80 yen per dollar, is there a possibility for arbitrage? Explain and defend your answer. As part of your defense, find the real exchange rate.

Accepted Answer

There is a possibility for profit by buy

Question 10

If a country has $2.4 billion of net exports and purchases $4.8 billion of goods and services from foreign countries, then it has

Accepted Answer

A)  $7.2 billion of exports and $4.8 billion of imports. 
B)  $7.2 billion of imports and $4.8 billion of exports. 
C)  $4.8 billion of exports and $2.4 billion of imports. 
D)  $4.8 billion of imports and $2.4 billion of exports. 
A)  $7.2 billion of exports and $4.8 billion of imports. 
B)  $7.2 billion of imports and $4.8 billion of exports. 
C)  $4.8 billion of exports and $2.4 billion of imports. 
D)  $4.8 billion of imports and $2.4 billion of exports.

Question 11

If a country has business opportunities that are relatively attractive to other countries, we would expect it to have

Accepted Answer

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

Question 12

The law of one price states that

Accepted Answer

A)  a good must sell at the price fixed by law. 
B)  a good must sell at the same price at all locations. 
C)  a good cannot sell for a price greater than the legal price ceiling. 
D)  nominal exchange rates will not vary. 
A)  a good must sell at the price fixed by law. 
B)  a good must sell at the same price at all locations. 
C)  a good cannot sell for a price greater than the legal price ceiling. 
D)  nominal exchange rates will not vary.

Question 13

Table 31-2
  
-Refer to Table 31-2. In real terms, U.S. goods are less expensive than goods in which countryies)?

Accepted Answer

A)  Britain and Japan 
B)  Germany and Saudi Arabia 
C)  Germany and Venezuela 
D)  Japan 
A)  Britain and Japan 
B)  Germany and Saudi Arabia 
C)  Germany and Venezuela 
D)  Japan

Question 14

A Turkish firm exchanges lira Turkish currency) for dollars. It then uses these dollars to purchase computers from the U.S. These actions decrease U.S. net capital outflow and increase U.S. net exports.

Accepted Answer

A) True 
 B)False

Question 15

Last year a country had $700 billion of saving and $900 of investment. This year it had $1000 billion of saving and $800 billion of investment. By how much did net capital outflow change? By how much did net exports change? How is it possible for a country to have saving that is greater than investment?

Accepted Answer

Both net capital outflows and net export

Question 16

If the real exchange rate between the U.S. and Japan is 1, the nominal exchange rate is 100 yen per U.S. dollar and the price of chicken in the U.S. is $2.50 per pound, what is the price of chicken in Japan?

Accepted Answer

A)  400 yen per pound 
B)  250 yen per pound 
C)  100 yen per pound 
D)  40 yen per pound 
A)  400 yen per pound 
B)  250 yen per pound 
C)  100 yen per pound 
D)  40 yen per pound

Question 17

If citizens of a country are not saving much, it is better to

Accepted Answer

A)  force citizens to save. 
B)  reduce investment. 
C)  have foreigners invest in the domestic economy than no one at all. 
D)  to 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 than no one at all. 
D)  to prevent opportunities for citizens to buy capital assets abroad.

Question 18

Ann, a U.S. citizen, uses some previously obtained euros to purchase a bond issued by a Spanish company. This transaction

Accepted Answer

A)  increases U.S. net capital outflow by more than the value of the bond. 
B)  increases U.S. net capital outflow by the value of the bond. 
C)  does not change U.S. net capital outflow. 
D)  decreases U.S. net capital outflow. 
A)  increases U.S. net capital outflow by more than the value of the bond. 
B)  increases U.S. net capital outflow by the value of the bond. 
C)  does not change U.S. net capital outflow. 
D)  decreases U.S. net capital outflow.

Question 19

If the exchange rate is 60 Indian rupees per dollar and a bushel of rice costs 200 rupees in India and $3 in the U.S., then the real exchange rate is

Accepted Answer

A)  greater than one and arbitrageurs could profit by buying rice in the U.S. and selling it in India. 
B)  greater than one and arbitrageurs could profit by buying rice in India and selling it in the U.S.. 
C)  less than one and arbitrageurs could profit by buying rice in the U.S. and selling it in India. 
D)  less than one and arbitrageurs could profit by buying rice in India and selling it in the U.S.. 
A)  greater than one and arbitrageurs could profit by buying rice in the U.S. and selling it in India. 
B)  greater than one and arbitrageurs could profit by buying rice in India and selling it in the U.S.. 
C)  less than one and arbitrageurs could profit by buying rice in the U.S. and selling it in India. 
D)  less than one and arbitrageurs could profit by buying rice in India and selling it in the U.S..

Question 20

Over the last 5 years the amount of country A's currency it took to buy a unit of country B's currency more than doubled.
A. Did country A's currency depreciate or appreciate?
B. According to purchasing­power parity, what explains the change in the value of country B's currency?

Accepted Answer

A. It depreciated.
B

Exam 18: Open-Economy Macroeconomics: Basic Concepts

Other things the same, an increase in the foreign price level leads to an increase in the real exchange rate.

If over the next six months inflation is higher in the U.S. than in foreign countries, then according to purchasing- power parity

The price of a basket of goods and services in the U.S. is $600. In Canada the same basket of goods costs 700 Canadian dollars. If the nominal exchange rate were 1.2 Canadian dollars per U.S. dollar, what would be the real exchange rate?

If the exchange rate is .60 British pounds = $1, a bottle of ale that costs 3 pounds costs

If a country exports more than it imports, then it has

A country recently had $800 billion worth of domestic investment and its residents purchased $400 billion worth of foreign assets. If foreigners purchased $100 billion of this country's assets, what was this country's saving? Explain how your found your answer.

Paine Pharmaceuticals produces medicines in the U.S. Its overseas sales

A bushel of apples costs $15.00 in the U.S. The same apples cost 1,600 yen in Japan. If the exchange rate is 80 yen per dollar, is there a possibility for arbitrage? Explain and defend your answer. As part of your defense, find the real exchange rate.

If a country has $2.4 billion of net exports and purchases $4.8 billion of goods and services from foreign countries, then it has

If a country has business opportunities that are relatively attractive to other countries, we would expect it to have

The law of one price states that

Table 31-2 -Refer to Table 31-2. In real terms, U.S. goods are less expensive than goods in which countryies)?

A Turkish firm exchanges lira Turkish currency) for dollars. It then uses these dollars to purchase computers from the U.S. These actions decrease U.S. net capital outflow and increase U.S. net exports.

If the real exchange rate between the U.S. and Japan is 1, the nominal exchange rate is 100 yen per U.S. dollar and the price of chicken in the U.S. is $2.50 per pound, what is the price of chicken in Japan?

If citizens of a country are not saving much, it is better to

Ann, a U.S. citizen, uses some previously obtained euros to purchase a bond issued by a Spanish company. This transaction

If the exchange rate is 60 Indian rupees per dollar and a bushel of rice costs 200 rupees in India and $3 in the U.S., then the real exchange rate is

Over the last 5 years the amount of country A's currency it took to buy a unit of country B's currency more than doubled. A. Did country A's currency depreciate or appreciate? B. According to purchasing­power parity, what explains the change in the value of country B's currency?

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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Over the last 5 years the amount of country A's currency it took to buy a unit of country B's currency more than doubled. A. Did country A's currency depreciate or appreciate? B. According to purchasingpower parity, what explains the change in the value of country B's currency?