Question 1

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

Accepted Answer

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

Question 2

Suppose that real interest rates in the U.S. rise relative to real interest rates in other countries. This increase would make foreigners

Accepted Answer

A)  more willing to purchase U.S. bonds, so U.S. net capital outflow would fall. 
B)  more willing to purchase U.S. bonds, so U.S. net capital outflow would rise. 
C)  less willing to purchase U.S. bonds, so U.S. net capital outflow would fall. 
D)  less willing to purchase U.S. bonds, so U.S. net capital outflow would rise. 
A)  more willing to purchase U.S. bonds, so U.S. net capital outflow would fall. 
B)  more willing to purchase U.S. bonds, so U.S. net capital outflow would rise. 
C)  less willing to purchase U.S. bonds, so U.S. net capital outflow would fall. 
D)  less willing to purchase U.S. bonds, so U.S. net capital outflow would rise.

Question 3

A certain cell phone sells for 2400 yuan in China and for $300 in the U.S. The nominal exchange rate is 6.5 yuan per dollar.
A. Find the real exchange rate. Show your work.
B. In terms of dollars where is the cell phone cheaper?

Accepted Answer

The real exchange rate = $300

Question 4

If a country had a trade deficit of $10 billion and then its exports rose by $20 billion and its imports rose by $10 billion, its net exports would now be

Accepted Answer

A)  $0 
B)  $10 billion. 
C)  -$10 billion. 
D)  -$20 billion. 
A)  $0 
B)  $10 billion. 
C)  -$10 billion. 
D)  -$20 billion.

Question 5

If a nation is selling more goods and services to foreigners than it is buying from them, then on net it must be selling assets abroad.

Accepted Answer

A) True 
 B)False

Question 6

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 7

Susan, a U.S. citizen, builds and operates a kennel in France. This action is an example of

Accepted Answer

A)  investment for Susan and U.S. foreign direct investment. 
B)  investment for Susan and U.S. foreign portfolio investment. 
C)  U.S. foreign direct investment and U.S. domestic investment. 
D)  U.S. foreign portfolio investment and U.S. domestic investment. 
A)  investment for Susan and U.S. foreign direct investment. 
B)  investment for Susan and U.S. foreign portfolio investment. 
C)  U.S. foreign direct investment and U.S. domestic investment. 
D)  U.S. foreign portfolio investment and U.S. domestic investment.

Question 8

Derive the relation between savings, domestic investment, and net capital outflow using the national income accounting identity.

Accepted Answer

Start from the national income accountin

Question 9

Suppose that Bill, a resident of the U.S., buys software from a company in Japan. Explain why and in what directions this changes U.S. net exports and U.S. net capital outflow.

Accepted Answer

The purchase of a foreign good by a U.S.

Question 10

Other things the same, if U.S. net capital outflow rises, so does U.S. saving.

Accepted Answer

A) True 
 B)False

Question 11

A U.S. firm buys bonds issued by a technology center in India. This purchase is an example of U.S.

Accepted Answer

A)  foreign portfolio investment. By itself it is an increase in U.S. holdings of foreign bonds and increases U.S. net capital outflow. 
B)  foreign portfolio investment. By itself it is an increase in U.S. holdings of foreign bonds and decreases U.S. net capital outflow. 
C)  foreign direct investment. By itself it is an increase in U.S. holdings of foreign bonds and increases U.S. net capital outflow. 
D)  foreign direct investment. By itself it is an increase in U.S. holdings of foreign bonds and decreases U.S. net capital outflow. 
A)  foreign portfolio investment. By itself it is an increase in U.S. holdings of foreign bonds and increases U.S. net capital outflow. 
B)  foreign portfolio investment. By itself it is an increase in U.S. holdings of foreign bonds and decreases U.S. net capital outflow. 
C)  foreign direct investment. By itself it is an increase in U.S. holdings of foreign bonds and increases U.S. net capital outflow. 
D)  foreign direct investment. By itself it is an increase in U.S. holdings of foreign bonds and decreases U.S. net capital outflow.

Question 12

What does purchasing-power parity imply about the real exchange rate? Explain what this means.

Accepted Answer

That it is equal to one. The n

Question 13

According to purchasing-power parity which of the following would happen if a country raised its money supply growth rate?

Accepted Answer

A)  its nominal exchange rate would fall 
B)  its real exchange rate would fall 
C)  its real net exports would rise 
D)  All of the above would happen. 
A)  its nominal exchange rate would fall 
B)  its real exchange rate would fall 
C)  its real net exports would rise 
D)  All of the above would happen.

Question 14

A Swiss watchmaker opens a factory in the United States. This is an example of Swiss

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.

Question 15

According to purchasing-power parity, if the price of a basket of goods in the U.S. rose from $1,500 to $2,000 and the price of the same basket of goods rose from 600 units of some other country's currency to 1,000 units of that country's currency, then the

Accepted Answer

A)  nominal exchange rate would appreciate. 
B)  nominal exchange rate would depreciate. 
C)  real exchange rate would appreciate. 
D)  real exchange rate would depreciate. 
A)  nominal exchange rate would appreciate. 
B)  nominal exchange rate would depreciate. 
C)  real exchange rate would appreciate. 
D)  real exchange rate would depreciate.

Question 16

Other things the same, an increase in the U.S. real exchange rate makes U.S. goods more expensive relative to foreign goods.

Accepted Answer

A) True 
 B)False

Question 17

If a country changes its corporate tax laws so that foreign businesses build and manage more business in that country, then the net capital outflow of that country

Accepted Answer

A)  and the net capital outflow of other countries rise. 
B)  rises and the net capital outflow of other countries fall. 
C)  falls and the net capital outflow of other countries rise. 
D)  None of the above are correct. 
A)  and the net capital outflow of other countries rise. 
B)  rises and the net capital outflow of other countries fall. 
C)  falls and the net capital outflow of other countries rise. 
D)  None of the above are correct.

Question 18

If a country changes its corporate tax laws so that domestic businesses build and manage more business in other countries, then the net capital outflow of that country

Accepted Answer

A)  and the net capital outflow of other countries rise. 
B)  rises and the net capital outflow of other countries fall. 
C)  falls and the net capital outflow of other countries rise. 
D)  None of the above are correct. 
A)  and the net capital outflow of other countries rise. 
B)  rises and the net capital outflow of other countries fall. 
C)  falls and the net capital outflow of other countries rise. 
D)  None of the above are correct.

Question 19

A Japanese bank buys U.S. government bonds, this purchase

Accepted Answer

A)  increases U.S. net capital outflow and has no affect on Japanese net capital outflow. 
B)  increases U.S. net capital outflow and increases Japanese net capital outflow. 
C)  increases U.S. net capital outflow, but decreases Japanese net capital outflow. 
D)  decreases U.S. net capital outflow, but increases Japanese net capital outflow. 
A)  increases U.S. net capital outflow and has no affect on Japanese net capital outflow. 
B)  increases U.S. net capital outflow and increases Japanese net capital outflow. 
C)  increases U.S. net capital outflow, but decreases Japanese net capital outflow. 
D)  decreases U.S. net capital outflow, but increases Japanese net capital outflow.

Question 20

If P = domestic prices, P* = foreign prices, and e is the nominal exchange rate, which of the following is implied by purchasing-power parity?

Accepted Answer

A)  P = e/P* 
B)  1 = e/P* 
C)  e = P*/P 
D)  None of the above is correct. 
A)  P = e/P* 
B)  1 = e/P* 
C)  e = P*/P 
D)  None of the above is correct.

Exam 18: Open-Economy Macroeconomics: Basic Concepts

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

Suppose that real interest rates in the U.S. rise relative to real interest rates in other countries. This increase would make foreigners

A certain cell phone sells for 2400 yuan in China and for $300 in the U.S. The nominal exchange rate is 6.5 yuan per dollar. A. Find the real exchange rate. Show your work. B. In terms of dollars where is the cell phone cheaper?

If a country had a trade deficit of $10 billion and then its exports rose by $20 billion and its imports rose by $10 billion, its net exports would now be

If a nation is selling more goods and services to foreigners than it is buying from them, then on net it must be selling assets abroad.

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

Susan, a U.S. citizen, builds and operates a kennel in France. This action is an example of

Derive the relation between savings, domestic investment, and net capital outflow using the national income accounting identity.

Suppose that Bill, a resident of the U.S., buys software from a company in Japan. Explain why and in what directions this changes U.S. net exports and U.S. net capital outflow.

Other things the same, if U.S. net capital outflow rises, so does U.S. saving.

A U.S. firm buys bonds issued by a technology center in India. This purchase is an example of U.S.

What does purchasing-power parity imply about the real exchange rate? Explain what this means.

According to purchasing-power parity which of the following would happen if a country raised its money supply growth rate?

A Swiss watchmaker opens a factory in the United States. This is an example of Swiss

According to purchasing-power parity, if the price of a basket of goods in the U.S. rose from $1,500 to $2,000 and the price of the same basket of goods rose from 600 units of some other country's currency to 1,000 units of that country's currency, then the

Other things the same, an increase in the U.S. real exchange rate makes U.S. goods more expensive relative to foreign goods.

If a country changes its corporate tax laws so that foreign businesses build and manage more business in that country, then the net capital outflow of that country

If a country changes its corporate tax laws so that domestic businesses build and manage more business in other countries, then the net capital outflow of that country

A Japanese bank buys U.S. government bonds, this purchase

If P = domestic prices, P* = foreign prices, and e is the nominal exchange rate, which of the following is implied by purchasing-power parity?

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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