Question 1

If purchasing-power parity holds, when a country's central bank decreases the money supply, its

Accepted Answer

A)  price level rises and its currency appreciates relative to other currencies in the world. 
B)  price level falls and its currency appreciates relative to other currencies in the world. 
C)  price level rises and its currency depreciates relative to other currencies in the world. 
D)  price level falls and its currency depreciates relative to other currencies in the world. 
A)  price level rises and its currency appreciates relative to other currencies in the world. 
B)  price level falls and its currency appreciates relative to other currencies in the world. 
C)  price level rises and its currency depreciates relative to other currencies in the world. 
D)  price level falls and its currency depreciates relative to other currencies in the world.

Question 2

Good that cost one half dollar in the U.S. cost one euro in Germany, the real exchange rate would be computed as how many German goods per U.S. goods?

Accepted Answer

A)  one half 
B)  one half the price of the U.S. goods 
C)  one half the number of euros it takes to buy a U.S. dollar 
D)  None of the above is correct. 
A)  one half 
B)  one half the price of the U.S. goods 
C)  one half the number of euros it takes to buy a U.S. dollar 
D)  None of the above is correct.

Question 3

Reductions in transportation costs help explain the increase in U.S. trade flows.

Accepted Answer

A) True 
 B)False

Question 4

If Saudi Arabia had negative net exports last year, then it

Accepted Answer

A)  sold more abroad than it purchased abroad and had a trade surplus. 
B)  sold more abroad than it purchased abroad and had a trade deficit. 
C)  bought more abroad than it sold abroad and had a trade surplus. 
D)  bought more abroad than it sold abroad and had a trade deficit. 
A)  sold more abroad than it purchased abroad and had a trade surplus. 
B)  sold more abroad than it purchased abroad and had a trade deficit. 
C)  bought more abroad than it sold abroad and had a trade surplus. 
D)  bought more abroad than it sold abroad and had a trade deficit.

Question 5

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 6

Purchasing-power parity says that the nominal exchange rate must equal the real exchange rate.

Accepted Answer

A) True 
 B)False

Question 7

Suppose that a U.S. dollar buys more gold in Australia than it buys in Russia. What does purchasing-power parity imply should happen?

Accepted Answer

People can make a profit by buying gold

Question 8

Bob, a Greek citizen, opens a restaurant in Chicago. His expenditures

Accepted Answer

A)  increase U.S. net capital outflow and have no affect on Greek net capital outflow. 
B)  increase U.S. net capital outflow and increase Greek net capital outflow. 
C)  increase U.S. net capital outflow, but decrease Greek net capital outflow. 
D)  decrease U.S. net capital outflow, but increase Greek net capital outflow. 
A)  increase U.S. net capital outflow and have no affect on Greek net capital outflow. 
B)  increase U.S. net capital outflow and increase Greek net capital outflow. 
C)  increase U.S. net capital outflow, but decrease Greek net capital outflow. 
D)  decrease U.S. net capital outflow, but increase Greek net capital outflow.

Question 9

If the U.S. real exchange rate appreciates, U.S. exports to Europe

Accepted Answer

A)  and European exports to the U.S. both rise. 
B)  and European exports to the U.S. both fall. 
C)  rise, and European exports to the U.S. fall. 
D)  fall, and European exports to the U.S. rise. 
A)  and European exports to the U.S. both rise. 
B)  and European exports to the U.S. both fall. 
C)  rise, and European exports to the U.S. fall. 
D)  fall, and European exports to the U.S. rise.

Question 10

Which of the following equations is correct?

Accepted Answer

A)  Y = C + I + G + NCO 
B)  NX = NCO 
C)  NCO = S - I 
D)  All of the above are correct. 
A)  Y = C + I + G + NCO 
B)  NX = NCO 
C)  NCO = S - I 
D)  All of the above are correct.

Question 11

The increase in the trade deficit in the 1980's reflected a decrease in national saving that is associated with an increase in the government budget deficit.

Accepted Answer

A) True 
 B)False

Question 12

Table 31-2  
-Refer to Table 31-2. Which currency(ies) is(are) have a higher nominal exchange rate than predicted by the doctrine of purchasing-power parity?

Accepted Answer

A)  the bolivar and the pound 
B)  the euro and the riyal 
C)  the yen 
D)  the pound 
A)  the bolivar and the pound 
B)  the euro and the riyal 
C)  the yen 
D)  the pound

Question 13

Other things the same, an increase in the nominal exchange rate raises the real exchange rate.

Accepted Answer

A) True 
 B)False

Question 14

Other things the same, the real exchange rate between American and Chinese goods would be higher if

Accepted Answer

A)  prices of Chinese goods were higher, or the number of yuan a dollar purchased was higher. 
B)  prices of Chinese goods were higher, or the number of yuan a dollar purchased was lower. 
C)  prices of Chinese goods were lower, or the number of yuan a dollar purchased was higher. 
D)  prices of Chinese goods were lower, or the number of yuan a dollar purchased was lower. 
A)  prices of Chinese goods were higher, or the number of yuan a dollar purchased was higher. 
B)  prices of Chinese goods were higher, or the number of yuan a dollar purchased was lower. 
C)  prices of Chinese goods were lower, or the number of yuan a dollar purchased was higher. 
D)  prices of Chinese goods were lower, or the number of yuan a dollar purchased was lower.

Question 15

If a country's government reduced corruption and reformed its tax system so that businesses found operating there less risky, it's likely that this country's

Accepted Answer

A)  net exports and net capital outflows would increase. 
B)  net exports would increase and its net capital outflows would decrease. 
C)  net exports and net capital outflow would decrease. 
D)  net exports would decrease and its net capital outflow would increase. 
A)  net exports and net capital outflows would increase. 
B)  net exports would increase and its net capital outflows would decrease. 
C)  net exports and net capital outflow would decrease. 
D)  net exports would decrease and its net capital outflow would increase.

Question 16

During the tough economic times from 2008-2012,

Accepted Answer

A)  investment fell but saving rose, so net capital outflow rose. 
B)  investment fell by more than saving fell, so net capital outflow rose 
C)  investment fell by less than saving fell, so net capital outflow fell. 
D)  investment and saving both fell by about the same percent. 
A)  investment fell but saving rose, so net capital outflow rose. 
B)  investment fell by more than saving fell, so net capital outflow rose 
C)  investment fell by less than saving fell, so net capital outflow fell. 
D)  investment and saving both fell by about the same percent.

Question 17

If a country has a trade surplus then

Accepted Answer

A) S > I and Y > C + I + G. B) S > I and Y C + I + G. D) S < I and Y < C + I + G. A) S > I and Y > C + I + G. B) S > I and Y C + I + G. D) S < I and Y < C + I + G.

Question 18

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 19

In Ireland, a pint of beer costs 3 euros. In Australia, a pint of beer costs 4 Australian dollars. If the exchange rate is .8 euros per Australian dollar, what is the real exchange rate?

Accepted Answer

A)  4/2.4 pints of Irish beer per pint of Australian beer 
B)  3/3.2 pint of Irish beer per pint of Australian beer 
C)  3.2/3 pints of Irish beer per pint of Australian beer 
D)  2.4/4 pints of Irish beer per pint of Australian beer 
A)  4/2.4 pints of Irish beer per pint of Australian beer 
B)  3/3.2 pint of Irish beer per pint of Australian beer 
C)  3.2/3 pints of Irish beer per pint of Australian beer 
D)  2.4/4 pints of Irish beer per pint of Australian beer

Question 20

A German mutual fund sells euros to a U.S. bank for $20,000. The mutual fund then uses these dollars to purchase a bond issued by United Express, a U.S. delivery company. As a result of these two transactions, what happened to U.S. net capital outflow?

Accepted Answer

A)  It fell by $40,000. 
B)  It fell by $20,000. 
C)  It was unchanged. 
D)  It rose by $20,000. 
A)  It fell by $40,000. 
B)  It fell by $20,000. 
C)  It was unchanged. 
D)  It rose by $20,000.

Exam 31: Open-Economy Macroeconomics: Basic Concepts

If purchasing-power parity holds, when a country's central bank decreases the money supply, its

Good that cost one half dollar in the U.S. cost one euro in Germany, the real exchange rate would be computed as how many German goods per U.S. goods?

Reductions in transportation costs help explain the increase in U.S. trade flows.

If Saudi Arabia had negative net exports last year, then it

If a country has a trade deficit

Purchasing-power parity says that the nominal exchange rate must equal the real exchange rate.

Suppose that a U.S. dollar buys more gold in Australia than it buys in Russia. What does purchasing-power parity imply should happen?

Bob, a Greek citizen, opens a restaurant in Chicago. His expenditures

If the U.S. real exchange rate appreciates, U.S. exports to Europe

Which of the following equations is correct?

The increase in the trade deficit in the 1980's reflected a decrease in national saving that is associated with an increase in the government budget deficit.

Table 31-2 -Refer to Table 31-2. Which currency(ies) is(are) have a higher nominal exchange rate than predicted by the doctrine of purchasing-power parity?

Other things the same, an increase in the nominal exchange rate raises the real exchange rate.

Other things the same, the real exchange rate between American and Chinese goods would be higher if

If a country's government reduced corruption and reformed its tax system so that businesses found operating there less risky, it's likely that this country's

During the tough economic times from 2008-2012,

If a country has a trade surplus then

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?

In Ireland, a pint of beer costs 3 euros. In Australia, a pint of beer costs 4 Australian dollars. If the exchange rate is .8 euros per Australian dollar, what is the real exchange rate?

A German mutual fund sells euros to a U.S. bank for $20,000. The mutual fund then uses these dollars to purchase a bond issued by United Express, a U.S. delivery company. As a result of these two transactions, what happened to U.S. net capital outflow?

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

Externalities

Public Goods and Common Resources

The Design of the Tax System

The Costs of Production

Firms in Competitive Markets

Monopoly

Monopolistic Competition

Oligopoly

The Markets for the Factors of Production

Earnings and Discrimination

Income Inequality and Poverty

The Theory of Consumer Choice

Frontiers of Microeconomics

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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