Question 1

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

Accepted Answer

A)  A Greek company opens a cheese factory in the U.S. 
B)  A German mutual fund buys stock issued by a U.S. corporation. 
C)  A U.S. beverage company opens a bottling plant in Russia. 
D)  A U.S. bank buys bonds issued by an Argentinean company. 
A)  A Greek company opens a cheese factory in the U.S. 
B)  A German mutual fund buys stock issued by a U.S. corporation. 
C)  A U.S. beverage company opens a bottling plant in Russia. 
D)  A U.S. bank buys bonds issued by an Argentinean company.

Question 2

A country purchases $3 billion of foreign-produced goods and services and sells $2 billion dollars of domestically produced goods and services to foreign countries. It has

Accepted Answer

A)  exports of $3 billion and a trade surplus of $1 billion. 
B)  exports of $3 billion and a trade deficit of $1 billion. 
C)  exports of $2 billion and a trade surplus of $1 billion. 
D)  exports of $2 billion and a trade deficit of $1 billion. 
A)  exports of $3 billion and a trade surplus of $1 billion. 
B)  exports of $3 billion and a trade deficit of $1 billion. 
C)  exports of $2 billion and a trade surplus of $1 billion. 
D)  exports of $2 billion and a trade deficit of $1 billion.

Question 3

A U.S. bakery buys wheat from Canada and pays for it with US dollars. This transaction

Accepted Answer

A)  increases Canadian net exports, and increases U.S. net capital outflow. 
B)  increases Canadian net exports, and decreases U.S. net capital outflow. 
C)  decreases Canadian net exports, and increases U.S. net capital outflow. 
D)  decreases Canadian net exports, and decreases U.S. net capital outflow. 
A)  increases Canadian net exports, and increases U.S. net capital outflow. 
B)  increases Canadian net exports, and decreases U.S. net capital outflow. 
C)  decreases Canadian net exports, and increases U.S. net capital outflow. 
D)  decreases Canadian net exports, and decreases U.S. net capital outflow.

Question 4

A basket of goods costs $800 in the U.S. In Belgium the basket of goods costs 640 euros and the exchange rate is .80 euros per U.S. dollar. In Japan the basket of goods costs 90,000 yen and the exchange rate is 90 yen per dollar. Which country has purchasing-power parity with the U.S.?

Accepted Answer

A)  both Belgium and Japan 
B)  Belgium but not Japan 
C)  Japan but not Belgium 
D)  neither Belgium nor Japan 
A)  both Belgium and Japan 
B)  Belgium but not Japan 
C)  Japan but not Belgium 
D)  neither Belgium nor Japan

Question 5

If a lobster in Maine costs $10 and that the same type of lobster in Massachusetts costs $30, then people could make a profit by

Accepted Answer

A)  buying lobsters in Maine and selling them in Massachusetts. This action would increase the price of lobster in Massachusetts. 
B)  buying lobsters in Maine and selling them in Massachusetts. This action would decrease the price of lobster in Massachusetts. 
C)  buying lobsters in Massachusetts and selling them in Maine. This action would increase the price of lobster in Massachusetts. 
D)  buying lobsters in Massachusetts and selling them in Maine. This action would decrease the price of lobster in Massachusetts. 
A)  buying lobsters in Maine and selling them in Massachusetts. This action would increase the price of lobster in Massachusetts. 
B)  buying lobsters in Maine and selling them in Massachusetts. This action would decrease the price of lobster in Massachusetts. 
C)  buying lobsters in Massachusetts and selling them in Maine. This action would increase the price of lobster in Massachusetts. 
D)  buying lobsters in Massachusetts and selling them in Maine. This action would decrease the price of lobster in Massachusetts.

Question 6

Which of the following is correct?

Accepted Answer

A)  NCO = NX 
B)  NCO + I = NX 
C)  NX + NCO = Y 
D)  Y = NCO - I 
A)  NCO = NX 
B)  NCO + I = NX 
C)  NX + NCO = Y 
D)  Y = NCO - I

Question 7

If you go to the bank and notice that a dollar buys more Japanese yen than it used to, then the dollar has

Accepted Answer

A)  appreciated. Other things the same, the appreciation would make Americans less likely to travel to Japan. 
B)  appreciated. Other things the same, the appreciation would make Americans more likely to travel to Japan. 
C)  depreciated. Other things the same, the depreciation would make Americans less likely to travel to Japan. 
D)  depreciated. Other things the same, the depreciation would make Americans more likely to travel to Japan. 
A)  appreciated. Other things the same, the appreciation would make Americans less likely to travel to Japan. 
B)  appreciated. Other things the same, the appreciation would make Americans more likely to travel to Japan. 
C)  depreciated. Other things the same, the depreciation would make Americans less likely to travel to Japan. 
D)  depreciated. Other things the same, the depreciation would make Americans more likely to travel to Japan.

Question 8

In an open economy, gross domestic product equals $3,500 billion, consumption expenditure equals $2100 billion, government expenditure equals $400 billion, investment equals $800 billion, and net exports equals $200 billion. What is national savings?

Accepted Answer

A)  $200 billion 
B)  $600 billion 
C)  $800 billion 
D)  $1,000 billion 
A)  $200 billion 
B)  $600 billion 
C)  $800 billion 
D)  $1,000 billion

Question 9

A country has net capital outflow of $40 billion. Which of the following is consistent with this net capital outflow?

Accepted Answer

A)  It has -$40 billion of net exports. 
B)  Purchases of foreign assets by domestic residents exceed purchases of domestic assets by foreign residents by $40 billion. 
C)  Its saving is $35 billion and its domestic investment is $5 billion. 
D)  All of the above are consistent with a net capital outflow of $40 billion. 
A)  It has -$40 billion of net exports. 
B)  Purchases of foreign assets by domestic residents exceed purchases of domestic assets by foreign residents by $40 billion. 
C)  Its saving is $35 billion and its domestic investment is $5 billion. 
D)  All of the above are consistent with a net capital outflow of $40 billion.

Question 10

Suppose that more British decide to vacation in the U.S. and that the British purchase more U.S. Treasury bonds. Ignoring how payments are made for these purchases,

Accepted Answer

A)  the first action by itself raises U.S. net exports, the second action by itself raises U.S. net capital outflow. 
B)  the first action by itself raises U.S. net exports, the second action by itself lowers U.S. net capital outflow. 
C)  the first action by itself lowers U.S. net exports, the second action by itself raises U.S. net capital outflow. 
D)  the first action by itself lowers U.S. net exports, the second action by itself lowers U.S. net capital outflow. 
A)  the first action by itself raises U.S. net exports, the second action by itself raises U.S. net capital outflow. 
B)  the first action by itself raises U.S. net exports, the second action by itself lowers U.S. net capital outflow. 
C)  the first action by itself lowers U.S. net exports, the second action by itself raises U.S. net capital outflow. 
D)  the first action by itself lowers U.S. net exports, the second action by itself lowers U.S. net capital outflow.

Question 11

According to purchasing-power parity, if it took 1,100 Korean Won to buy a dollar this year, but it took 1,000 to buy it last year, then the dollar has

Accepted Answer

A)  appreciated, indicating inflation was higher in the U.S. than in Korea. 
B)  appreciated indicating inflation was lower in the U.S. than in Korea. 
C)  depreciated indicating inflation was higher in the U.S. than in Korea. 
D)  depreciated indicating inflation was lower in the U.S. than in Korea. 
A)  appreciated, indicating inflation was higher in the U.S. than in Korea. 
B)  appreciated indicating inflation was lower in the U.S. than in Korea. 
C)  depreciated indicating inflation was higher in the U.S. than in Korea. 
D)  depreciated indicating inflation was lower in the U.S. than in Korea.

Question 12

According to purchasing-power parity, if the same basket of goods costs $100 in the U.S. and 50 pounds in Britain, then what is the nominal exchange rate?

Accepted Answer

A)  2 pounds per dollar 
B)  1 pound per dollar 
C)  1/2 pound per dollar 
D)  None of the above is correct 
A)  2 pounds per dollar 
B)  1 pound per dollar 
C)  1/2 pound per dollar 
D)  None of the above is correct

Question 13

If over the next year the inflation rate in the euro area is higher than the inflation rate in Japan, then the euro should depreciate relative to the Japanese yen.

Accepted Answer

A) True 
 B)False

Question 14

According to purchasing-power parity, which of the following necessarily equals the ratio of the foreign price level divided by the domestic price level?

Accepted Answer

A)  the real exchange rate, but not the nominal exchange rate 
B)  the nominal exchange rate, but not the real exchange rate 
C)  the real exchange rate and the nominal exchange rate 
D)  neither the real exchange rate nor the nominal exchange rate 
A)  the real exchange rate, but not the nominal exchange rate 
B)  the nominal exchange rate, but not the real exchange rate 
C)  the real exchange rate and the nominal exchange rate 
D)  neither the real exchange rate nor the nominal exchange rate

Question 15

When a Japanese auto maker opens a factory in the U.S., U.S. net capital outflow

Accepted Answer

A)  increases because the foreign company makes a portfolio investment in the U.S. 
B)  declines because the foreign company makes a portfolio investment in the U.S. 
C)  increases because the foreign company makes a direct investment in capital in the U.S. 
D)  declines because the foreign company makes a direct investment in capital in the U.S. 
A)  increases because the foreign company makes a portfolio investment in the U.S. 
B)  declines because the foreign company makes a portfolio investment in the U.S. 
C)  increases because the foreign company makes a direct investment in capital in the U.S. 
D)  declines because the foreign company makes a direct investment in capital in the U.S.

Question 16

A firm in the United Kingdom hires a firm in the U.S. to train its managers. By itself this transaction

Accepted Answer

A)  increases U.S. imports and decreases U.S. net exports. 
B)  increases U.S. imports and increases U.S. net exports. 
C)  increases U.S. exports and decreases U.S. net exports. 
D)  increases U.S. exports and increases U.S. net exports. 
A)  increases U.S. imports and decreases U.S. net exports. 
B)  increases U.S. imports and increases U.S. net exports. 
C)  increases U.S. exports and decreases U.S. net exports. 
D)  increases U.S. exports and increases U.S. net exports.

Question 17

Assuming purchasing-power parity holds and that over a period of five years the dollar had appreciated relative to the currency of Country X, what would explain the appreciation of the dollar?

Accepted Answer

Money growth, and so

Question 18

If a country has saving of $2 trillion and investment of $1.5 trillion, then it has

Accepted Answer

A)  a trade surplus and its net capital outflow = $.5 trillion. 
B)  a trade surplus and its net capital outflow = -$.5 trillion. 
C)  a trade deficit and its net capital outflow = $.5 trillion. 
D)  a trade deficit and its net capital outflow = -$.5 trillion. 
A)  a trade surplus and its net capital outflow = $.5 trillion. 
B)  a trade surplus and its net capital outflow = -$.5 trillion. 
C)  a trade deficit and its net capital outflow = $.5 trillion. 
D)  a trade deficit and its net capital outflow = -$.5 trillion.

Question 19

Suppose that the real exchange rate between the United States and Brazil 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 Brazilian goods a basket of U.S. goods buys)?

Accepted Answer

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

Question 20

If the real exchange rate is greater than 1, then the

Accepted Answer

A) nominal exchange rate x U.S. price > foreign price. The dollars required to purchase a good in the U.S. would buy more than enough foreign currency to buy the same good overseas. B) nominal exchange rate x U.S. price > foreign price. The dollars required to purchase a good in the U.S. would not buy enough foregoing currency to buy the same good overseas. C) nominal exchange rate x U.S. price < foreign price. The dollars required to purchase a good in the U.S. would buy more than enough foreign currency to buy the same good overseas. D) nominal exchange rate x U.S. price < foreign price. The dollars required to purchase a good in the U.S. would not buy enough foreign currency to buy the same good overseas. A) nominal exchange rate x U.S. price > foreign price. The dollars required to purchase a good in the U.S. would buy more than enough foreign currency to buy the same good overseas. B) nominal exchange rate x U.S. price > foreign price. The dollars required to purchase a good in the U.S. would not buy enough foregoing currency to buy the same good overseas. C) nominal exchange rate x U.S. price < foreign price. The dollars required to purchase a good in the U.S. would buy more than enough foreign currency to buy the same good overseas. D) nominal exchange rate x U.S. price < foreign price. The dollars required to purchase a good in the U.S. would not buy enough foreign currency to buy the same good overseas.

Exam 18: Open-Economy Macroeconomics: Basic Concepts

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

A country purchases $3 billion of foreign-produced goods and services and sells $2 billion dollars of domestically produced goods and services to foreign countries. It has

A U.S. bakery buys wheat from Canada and pays for it with US dollars. This transaction

A basket of goods costs $800 in the U.S. In Belgium the basket of goods costs 640 euros and the exchange rate is .80 euros per U.S. dollar. In Japan the basket of goods costs 90,000 yen and the exchange rate is 90 yen per dollar. Which country has purchasing-power parity with the U.S.?

If a lobster in Maine costs $10 and that the same type of lobster in Massachusetts costs $30, then people could make a profit by

Which of the following is correct?

If you go to the bank and notice that a dollar buys more Japanese yen than it used to, then the dollar has

In an open economy, gross domestic product equals $3,500 billion, consumption expenditure equals $2100 billion, government expenditure equals $400 billion, investment equals $800 billion, and net exports equals $200 billion. What is national savings?

A country has net capital outflow of $40 billion. Which of the following is consistent with this net capital outflow?

Suppose that more British decide to vacation in the U.S. and that the British purchase more U.S. Treasury bonds. Ignoring how payments are made for these purchases,

According to purchasing-power parity, if it took 1,100 Korean Won to buy a dollar this year, but it took 1,000 to buy it last year, then the dollar has

According to purchasing-power parity, if the same basket of goods costs $100 in the U.S. and 50 pounds in Britain, then what is the nominal exchange rate?

If over the next year the inflation rate in the euro area is higher than the inflation rate in Japan, then the euro should depreciate relative to the Japanese yen.

According to purchasing-power parity, which of the following necessarily equals the ratio of the foreign price level divided by the domestic price level?

When a Japanese auto maker opens a factory in the U.S., U.S. net capital outflow

A firm in the United Kingdom hires a firm in the U.S. to train its managers. By itself this transaction

Assuming purchasing-power parity holds and that over a period of five years the dollar had appreciated relative to the currency of Country X, what would explain the appreciation of the dollar?

If a country has saving of $2 trillion and investment of $1.5 trillion, then it has

Suppose that the real exchange rate between the United States and Brazil 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 Brazilian goods a basket of U.S. goods buys)?

If the real exchange rate is greater than 1, then the

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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