Question 1

Which of the following is inconsistent with the others?

Accepted Answer

A)  Y - C - G > I 
B)  this country had a trade surplus 
C)  the purchase of foreign assets by this country's residents exceed foreigner's purchases of this country's assets 
D)  this country's investment exceeded its domestic saving 
A)  Y - C - G > I 
B)  this country had a trade surplus 
C)  the purchase of foreign assets by this country's residents exceed foreigner's purchases of this country's assets 
D)  this country's investment exceeded its domestic saving

Question 2

Net capital outflow measures the imbalance between the amount of

Accepted Answer

A)  foreign assets held by domestic residents and domestic assets held by foreign residents. 
B)  foreign assets bought by domestic residents and the amount of domestic assets bought by foreigners. 
C)  foreign assets bought by domestic residents and the amount of domestic goods and services sold to foreigners. 
D)  None of the above is correct. 
A)  foreign assets held by domestic residents and domestic assets held by foreign residents. 
B)  foreign assets bought by domestic residents and the amount of domestic assets bought by foreigners. 
C)  foreign assets bought by domestic residents and the amount of domestic goods and services sold to foreigners. 
D)  None of the above is correct.

Question 3

If you are vacationing in France and the dollar depreciates relative to the euro, then

Accepted Answer

A)  the dollar buys more euros. It will take fewer dollars to buy a good that costs 50 euros. 
B)  the dollar buys more euros. It will take more dollars to buy a good that costs 50 euros. 
C)  the dollar buys fewer euros. It will take fewer dollars to buy a good that costs 50 euros. 
D)  the dollar buys fewer euros. It will take more dollars to buy a good that costs 50 euros. 
A)  the dollar buys more euros. It will take fewer dollars to buy a good that costs 50 euros. 
B)  the dollar buys more euros. It will take more dollars to buy a good that costs 50 euros. 
C)  the dollar buys fewer euros. It will take fewer dollars to buy a good that costs 50 euros. 
D)  the dollar buys fewer euros. It will take more dollars to buy a good that costs 50 euros.

Question 4

Alfonso, a citizen of Italy, decides to purchase bonds issued by Ireland instead of ones issued by the United States even though the Irish bonds have a higher risk of default. An economic reason for his decision might be that

Accepted Answer

A)  he dislikes U.S. foreign policy. 
B)  the Irish bonds pay a higher rate of interest. 
C)  the U.S. government is more stable than the Irish government. 
D)  None of the above provide an economic reason for buying the riskier bond. 
A)  he dislikes U.S. foreign policy. 
B)  the Irish bonds pay a higher rate of interest. 
C)  the U.S. government is more stable than the Irish government. 
D)  None of the above provide an economic reason for buying the riskier bond.

Question 5

A U.S. firm sells diesel locomotives to a German railroad. Other things the same, this sale

Accepted Answer

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

Question 6

The nominal exchange rate is .80 euros per dollar and the real exchange rate is 4/3. Which of the following prices for a particular good are consistent with these exchange rates?

Accepted Answer

A)  $4 in the U.S. and 3 euros in Italy. 
B)  $4 in the U.S. and 3.75 euros in Italy. 
C)  $5 in the U.S. and 3 euros in Italy. 
D)  $6 in the U.S. and 2.50 euros in Italy. 
A)  $4 in the U.S. and 3 euros in Italy. 
B)  $4 in the U.S. and 3.75 euros in Italy. 
C)  $5 in the U.S. and 3 euros in Italy. 
D)  $6 in the U.S. and 2.50 euros in Italy.

Question 7

Purchasing-power parity describes the forces that determine

Accepted Answer

A)  prices in the short run. 
B)  prices in the long run. 
C)  exchange rates in the short run. 
D)  exchange rates in the long run. 
A)  prices in the short run. 
B)  prices in the long run. 
C)  exchange rates in the short run. 
D)  exchange rates in the long run.

Question 8

Other things the same, which of the following would both make foreigners more willing to engage in U.S. portfolio investment?

Accepted Answer

A)  U.S. interest rates rise, the default risk of U.S. assets rise 
B)  U.S. interest rates rise, the default risk of U.S. assets fall 
C)  U.S. interest rates fall, the default risk of U.S. assets rise 
D)  U.S. interest rates fall, the default risk of U.S. assets fall 
A)  U.S. interest rates rise, the default risk of U.S. assets rise 
B)  U.S. interest rates rise, the default risk of U.S. assets fall 
C)  U.S. interest rates fall, the default risk of U.S. assets rise 
D)  U.S. interest rates fall, the default risk of U.S. assets fall

Question 9

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.

Question 10

Suppose that foreign citizens decide to purchase more U.S. pharmaceuticals and U.S. citizens decide to buy more stock in foreign corporations. Other things the same, these actions

Accepted Answer

A)  raise both U.S. net exports and U.S. net capital outflows. 
B)  raise U.S. net exports and lower U.S. net capital outflows. 
C)  lower both U.S. net exports and U.S. net capital outflows. 
D)  lower U.S. net exports and raise U.S. net capital outflows. 
A)  raise both U.S. net exports and U.S. net capital outflows. 
B)  raise U.S. net exports and lower U.S. net capital outflows. 
C)  lower both U.S. net exports and U.S. net capital outflows. 
D)  lower U.S. net exports and raise U.S. net capital outflows.

Question 11

U.S.-based John Deere sells machinery to residents of South Africa who pay with South African currency (the rand).

Accepted Answer

A)  This increases U.S. net capital outflow because the U.S. acquires foreign assets. 
B)  This decreases U.S. net capital outflow because the U.S. acquires foreign assets. 
C)  This increases U.S. net capital outflow because the U.S. sells capital goods. 
D)  This decreases U.S. net capital outflow because the U.S. sells capital goods. 
A)  This increases U.S. net capital outflow because the U.S. acquires foreign assets. 
B)  This decreases U.S. net capital outflow because the U.S. acquires foreign assets. 
C)  This increases U.S. net capital outflow because the U.S. sells capital goods. 
D)  This decreases U.S. net capital outflow because the U.S. sells capital goods.

Question 12

All saving in the U.S. economy shows up as

Accepted Answer

A)  investment in the U.S. economy. 
B)  U.S. net capital outflow. 
C)  either investment in the U.S. economy or U.S. net capital outflow. 
D)  None of the above is correct. 
A)  investment in the U.S. economy. 
B)  U.S. net capital outflow. 
C)  either investment in the U.S. economy or U.S. net capital outflow. 
D)  None of the above is correct.

Question 13

A country must have a positive net outflow of capital if it has a trade deficit.

Accepted Answer

A) True 
 B)False

Question 14

A pound of steak costs $10 in the U.S. and 56.25 riyals (the currency of Saudi Arabia) in Saudi Arabia. If the real exchange rate is 2/3, what is the nominal exchange rate? Show your work.

Accepted Answer

The real exchange rate 2/3 = $

Question 15

If a bushel of wheat costs $6.40 in the United States, costs 40 pesos in Mexico, and the nominal exchange rate is 10 pesos per dollar, then the real exchange rate is

Accepted Answer

A)  1.60 
B)  1.25 
C)  .625 
D)  None of the above is correct. 
A)  1.60 
B)  1.25 
C)  .625 
D)  None of the above is correct.

Question 16

An Italian company builds and operates a pasta factory in the United States. This is an example of Italian

Accepted Answer

A)  foreign direct investment that increases Italian net capital outflow. 
B)  foreign direct investment that decreases Italian net capital outflow. 
C)  foreign portfolio investment that increases Italian net capital outflow. 
D)  foreign portfolio investment that decreases Italian net capital outflow. 
A)  foreign direct investment that increases Italian net capital outflow. 
B)  foreign direct investment that decreases Italian net capital outflow. 
C)  foreign portfolio investment that increases Italian net capital outflow. 
D)  foreign portfolio investment that decreases Italian net capital outflow.

Question 17

Suppose the world had only two countries and domestic residents of country A purchased $50 billion of assets from country B and country B purchased $30 billion of assets from country A. What would the net capital outflows of both countries be?

Accepted Answer

A)  $50 billion for country A and $30 billion for country B 
B)  $30 billion for country A and $50 billion for country B 
C)  $20 billion for country A and -$20 billion for country B 
D)  -$20 billion for country A and $20 billion for country B 
A)  $50 billion for country A and $30 billion for country B 
B)  $30 billion for country A and $50 billion for country B 
C)  $20 billion for country A and -$20 billion for country B 
D)  -$20 billion for country A and $20 billion for country B

Question 18

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

Accepted Answer

A)  a decrease in the quantity of South Korean currency that can be purchased with a dollar 
B)  a decrease in the price of U.S. baskets of goods 
C)  a decrease in the price in South Korean currency of South Korean goods. 
D)  None of the above is correct. 
A)  a decrease in the quantity of South Korean currency that can be purchased with a dollar 
B)  a decrease in the price of U.S. baskets of goods 
C)  a decrease in the price in South Korean currency of South Korean goods. 
D)  None of the above is correct.

Question 19

If purchasing-power parity holds, the price level in the U.S. is 140, and the price level in Canada is 120, which of the following is true?

Accepted Answer

A)  the real exchange rate is 120/140. 
B)  the real exchange rate is 140/120. 
C)  the nominal exchange rate is 120/140 
D)  the nominal exchange rate is 140/120 
A)  the real exchange rate is 120/140. 
B)  the real exchange rate is 140/120. 
C)  the nominal exchange rate is 120/140 
D)  the nominal exchange rate is 140/120

Question 20

A company in Panama pays for a U.S. architect to design a factory building. By itself this transaction

Accepted Answer

A)  increases U.S. exports and so increases the U.S. trade balance. 
B)  increases U.S. exports and so decreases the U.S. trade balance. 
C)  increases U.S. imports and so increases the U.S. trade balance. 
D)  increases U.S. imports and so decreases the U.S. trade balance. 
A)  increases U.S. exports and so increases the U.S. trade balance. 
B)  increases U.S. exports and so decreases the U.S. trade balance. 
C)  increases U.S. imports and so increases the U.S. trade balance. 
D)  increases U.S. imports and so decreases the U.S. trade balance.

Exam 31: Open-Economy Macroeconomics: Basic Concepts

Which of the following is inconsistent with the others?

Net capital outflow measures the imbalance between the amount of

If you are vacationing in France and the dollar depreciates relative to the euro, then

Alfonso, a citizen of Italy, decides to purchase bonds issued by Ireland instead of ones issued by the United States even though the Irish bonds have a higher risk of default. An economic reason for his decision might be that

A U.S. firm sells diesel locomotives to a German railroad. Other things the same, this sale

The nominal exchange rate is .80 euros per dollar and the real exchange rate is 4/3. Which of the following prices for a particular good are consistent with these exchange rates?

Purchasing-power parity describes the forces that determine

Other things the same, which of the following would both make foreigners more willing to engage in U.S. portfolio investment?

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

Suppose that foreign citizens decide to purchase more U.S. pharmaceuticals and U.S. citizens decide to buy more stock in foreign corporations. Other things the same, these actions

U.S.-based John Deere sells machinery to residents of South Africa who pay with South African currency (the rand).

All saving in the U.S. economy shows up as

A country must have a positive net outflow of capital if it has a trade deficit.

A pound of steak costs $10 in the U.S. and 56.25 riyals (the currency of Saudi Arabia) in Saudi Arabia. If the real exchange rate is 2/3, what is the nominal exchange rate? Show your work.

If a bushel of wheat costs $6.40 in the United States, costs 40 pesos in Mexico, and the nominal exchange rate is 10 pesos per dollar, then the real exchange rate is

An Italian company builds and operates a pasta factory in the United States. This is an example of Italian

Suppose the world had only two countries and domestic residents of country A purchased $50 billion of assets from country B and country B purchased $30 billion of assets from country A. What would the net capital outflows of both countries be?

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

If purchasing-power parity holds, the price level in the U.S. is 140, and the price level in Canada is 120, which of the following is true?

A company in Panama pays for a U.S. architect to design a factory building. By itself this transaction

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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