Question 1

Which of the following statements is incorrect for an open economy?

Accepted Answer

A)  A country can have a trade deficit, trade surplus, or balanced trade. 
B)  A country that has a trade deficit has positive net capital outflow. 
C)  Net exports must equal net capital outflow. 
D)  National saving equals domestic investment plus net capital outflow. 
A)  A country can have a trade deficit, trade surplus, or balanced trade. 
B)  A country that has a trade deficit has positive net capital outflow. 
C)  Net exports must equal net capital outflow. 
D)  National saving equals domestic investment plus net capital outflow.

Question 2

Net capital outflow is defined as the purchase of

Accepted Answer

A)  foreign assets by domestic residents minus the purchase of domestic assets by foreign residents. 
B)  foreign assets by domestic residents minus the purchase of foreign goods and services by domestic residents. 
C)  domestic assets by foreign residents minus the purchase of domestic goods and services by foreign residents. 
D)  domestic assets by foreign residents minus the purchase of foreign assets by domestic residents. 
A)  foreign assets by domestic residents minus the purchase of domestic assets by foreign residents. 
B)  foreign assets by domestic residents minus the purchase of foreign goods and services by domestic residents. 
C)  domestic assets by foreign residents minus the purchase of domestic goods and services by foreign residents. 
D)  domestic assets by foreign residents minus the purchase of foreign assets by domestic residents.

Question 3

Reduced barriers to trade help explain an increase in U.S. exports and imports relative to GDP since 1950.

Accepted Answer

A) True 
 B)False

Question 4

If the exchange rate is 5 Egyptian pounds per U.S. dollar, a watch that costs $25 US dollars costs

Accepted Answer

A)  125 Egyptian pounds 
B)  50 Egyptian pounds 
C)  5 Egyptian pounds 
D)  None of the above is correct. 
A)  125 Egyptian pounds 
B)  50 Egyptian pounds 
C)  5 Egyptian pounds 
D)  None of the above is correct.

Question 5

Table 31-2
  
-Refer to Table 31-2. For which countryies) in the table does purchasing-power parity with the U.S. hold?

Accepted Answer

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

Question 6

Which of the following both reduce net exports?

Accepted Answer

A)  exports rise, imports rise 
B)  exports rise, imports fall 
C)  exports fall, imports rise 
D)  exports fall, imports fall 
A)  exports rise, imports rise 
B)  exports rise, imports fall 
C)  exports fall, imports rise 
D)  exports fall, imports fall

Question 7

A U.S. firm called EcoWind produces windmills for households to generate electricity. It uses 25,000 recently obtained pesos to buy copper from a mining company in Argentina. 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 8

If the exchange rate rises from .65 British pounds per dollar to .70 pounds per dollar, then compared to British goods, U.S. goods become

Accepted Answer

A)  relatively more expensive for both British and U.S. residents. 
B)  relatively more expensive for British residents and relatively less expensive for U.S. residents. 
C)  relatively less expensive for British residents and relatively more expensive for U.S. residents. 
D)  relatively less expensive for both British and U.S. residents. 
A)  relatively more expensive for both British and U.S. residents. 
B)  relatively more expensive for British residents and relatively less expensive for U.S. residents. 
C)  relatively less expensive for British residents and relatively more expensive for U.S. residents. 
D)  relatively less expensive for both British and U.S. residents.

Question 9

If the U.S. has a trade deficit and the nominal exchange rate depreciates, then other things the same

Accepted Answer

A)  the trade deficit rises and net capital outflow rises. 
B)  the trade deficit rises and net capital outflow falls. 
C)  the trade deficit falls and net capital outflows rise. 
D)  the trade deficit falls and net capital outflows fall. 
A)  the trade deficit rises and net capital outflow rises. 
B)  the trade deficit rises and net capital outflow falls. 
C)  the trade deficit falls and net capital outflows rise. 
D)  the trade deficit falls and net capital outflows fall.

Question 10

Suppose that the real exchange rate between the United States and Kenya is defined in terms of baskets of goods. Other things the same, which of the following will increase the real exchange rate that is increase the number of baskets of Kenyan goods a basket of U.S. goods buys)?

Accepted Answer

A)  an increase in the number of Kenyan shillings that can be purchased with a dollar 
B)  an increase in the price of U.S. goods 
C)  a decrease in the price in Kenyan shillings of Kenyan goods 
D)  All of the above are correct. 
A)  an increase in the number of Kenyan shillings that can be purchased with a dollar 
B)  an increase in the price of U.S. goods 
C)  a decrease in the price in Kenyan shillings of Kenyan goods 
D)  All of the above are correct.

Question 11

When the Mexican peso gets "stronger" relative to the dollar,

Accepted Answer

A)  the U.S. trade deficit with Mexico rises. 
B)  the U.S. trade deficit with Mexico falls. 
C)  the U.S. trade deficit with Mexico is unchanged. 
D)  None of the above necessarily happens. 
A)  the U.S. trade deficit with Mexico rises. 
B)  the U.S. trade deficit with Mexico falls. 
C)  the U.S. trade deficit with Mexico is unchanged. 
D)  None of the above necessarily happens.

Question 12

If the exchange rate is 12.5 pesos per U.S. dollar, it is also 1/12.5 U.S. dollars per peso.

Accepted Answer

A) True 
 B)False

Question 13

In the U.S. a candy bar costs $1. If the nominal exchange rate were 6 Chinese yuan per dollar and the real exchange rate were 1.2, then, what would be the price of a candy bar in China?

Accepted Answer

A)  7.2 yuan 
B)  6 yuan 
C)  5 yuan 
D)  3.6 yuan 
A)  7.2 yuan 
B)  6 yuan 
C)  5 yuan 
D)  3.6 yuan

Question 14

A country had a net capital outflow of 300 billion euros and exports of 400 billion euros. What was the value of its imports?

Accepted Answer

The answer of A country had a net capital outflow...

Question 15

If over the next few years inflation is higher in Mexico than in the U.S., then according to purchasing-power parity which of the following should rise?

Accepted Answer

A)  the U.S. real exchange rate but not the U.S. nominal exchange rate 
B)  the U.S. nominal exchange rate but not the U.S. real exchange rate 
C)  the U.S. real exchange rate but not the U.S. nominal exchange rate. 
D)  neither the U.S. real nor the U.S. nominal exchange rate 
A)  the U.S. real exchange rate but not the U.S. nominal exchange rate 
B)  the U.S. nominal exchange rate but not the U.S. real exchange rate 
C)  the U.S. real exchange rate but not the U.S. nominal exchange rate. 
D)  neither the U.S. real nor the U.S. nominal exchange rate

Question 16

If a nation produces less than it spends what do we know about:
A. its net exports?
B. its net capital outflow?
C. its saving in relation to its domestic investment?

Accepted Answer

A. Its net exports are negativ

Question 17

The nominal exchange rate is 2 Barbados dollars per U.S. dollar. If the price of a good in Barbados is 3 Barbados dollars and the price in the U.S. is 2 U.S. dollars, what is the real exchange rate to the nearest 100th?

Accepted Answer

A)  3 Barbados goods per U.S. good 
B)  1.33 Barbados goods per U.S. good 
C)  .75 Barbados goods per U.S. good 
D)  none of the above is correct 
A)  3 Barbados goods per U.S. good 
B)  1.33 Barbados goods per U.S. good 
C)  .75 Barbados goods per U.S. good 
D)  none of the above is correct

Question 18

If purchasing-power parity holds, a dollar will buy

Accepted Answer

A)  more goods in foreign countries than in the United States. 
B)  as many goods in foreign countries as it does in the United States. 
C)  fewer goods in foreign countries than it does in the United States. 
D)  None of the above is implied by purchasing-power parity. 
A)  more goods in foreign countries than in the United States. 
B)  as many goods in foreign countries as it does in the United States. 
C)  fewer goods in foreign countries than it does in the United States. 
D)  None of the above is implied by purchasing-power parity.

Question 19

Why are net exports and net capital outflow always equal?

Accepted Answer

Net exports and net capital outflow are

Question 20

John, a U.S. citizen, opens up a Sports bar in Tokyo. This is an example of U.S.

Accepted Answer

A)  exports. 
B)  imports. 
C)  foreign portfolio investment. 
D)  foreign direct investment. 
A)  exports. 
B)  imports. 
C)  foreign portfolio investment. 
D)  foreign direct investment.

Exam 18: Open-Economy Macroeconomics: Basic Concepts

Which of the following statements is incorrect for an open economy?

Net capital outflow is defined as the purchase of

Reduced barriers to trade help explain an increase in U.S. exports and imports relative to GDP since 1950.

If the exchange rate is 5 Egyptian pounds per U.S. dollar, a watch that costs $25 US dollars costs

Table 31-2 -Refer to Table 31-2. For which countryies) in the table does purchasing-power parity with the U.S. hold?

Which of the following both reduce net exports?

If the exchange rate rises from .65 British pounds per dollar to .70 pounds per dollar, then compared to British goods, U.S. goods become

If the U.S. has a trade deficit and the nominal exchange rate depreciates, then other things the same

Suppose that the real exchange rate between the United States and Kenya is defined in terms of baskets of goods. Other things the same, which of the following will increase the real exchange rate that is increase the number of baskets of Kenyan goods a basket of U.S. goods buys)?

When the Mexican peso gets "stronger" relative to the dollar,

If the exchange rate is 12.5 pesos per U.S. dollar, it is also 1/12.5 U.S. dollars per peso.

In the U.S. a candy bar costs $1. If the nominal exchange rate were 6 Chinese yuan per dollar and the real exchange rate were 1.2, then, what would be the price of a candy bar in China?

A country had a net capital outflow of 300 billion euros and exports of 400 billion euros. What was the value of its imports?

If over the next few years inflation is higher in Mexico than in the U.S., then according to purchasing-power parity which of the following should rise?

If a nation produces less than it spends what do we know about: A. its net exports? B. its net capital outflow? C. its saving in relation to its domestic investment?

The nominal exchange rate is 2 Barbados dollars per U.S. dollar. If the price of a good in Barbados is 3 Barbados dollars and the price in the U.S. is 2 U.S. dollars, what is the real exchange rate to the nearest 100th?

If purchasing-power parity holds, a dollar will buy

Why are net exports and net capital outflow always equal?

John, a U.S. citizen, opens up a Sports bar in Tokyo. This is an example of U.S.

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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