Question 1

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 2

A country has a trade deficit. Which of the following must also be true?

Accepted Answer

A)  net capital outflow is positive and domestic investment is larger than saving 
B)  net capital outflow is positive and saving is larger than domestic investment 
C)  net capital outflow is negative and domestic investment is larger than saving 
D)  net capital outflow is negative and saving is larger than domestic investment 
A)  net capital outflow is positive and domestic investment is larger than saving 
B)  net capital outflow is positive and saving is larger than domestic investment 
C)  net capital outflow is negative and domestic investment is larger than saving 
D)  net capital outflow is negative and saving is larger than domestic investment

Question 3

Which of the following is correct? Since 1950

Accepted Answer

A)  U.S. exports and U.S. imports each about doubled. 
B)  U.S. exports and U.S. imports each about tripled. 
C)  U.S. exports about doubled and U.S. imports about tripled. 
D)  U.S. exports about tripled and U.S. imports about doubled. 
A)  U.S. exports and U.S. imports each about doubled. 
B)  U.S. exports and U.S. imports each about tripled. 
C)  U.S. exports about doubled and U.S. imports about tripled. 
D)  U.S. exports about tripled and U.S. imports about doubled.

Question 4

Other things the same, a country could move from having a trade surplus to having a trade deficit if either

Accepted Answer

A)  saving rose or domestic investment rose. 
B)  saving rose or domestic investment fell. 
C)  saving fell or domestic investment rose. 
D)  saving fell or domestic investment fell. 
A)  saving rose or domestic investment rose. 
B)  saving rose or domestic investment fell. 
C)  saving fell or domestic investment rose. 
D)  saving fell or domestic investment fell.

Question 5

According to purchasing-power parity, if over the course of a year the price level in the U.S. rises more than in Japan, then which of the following falls?

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. nominal exchange rate and the U.S. real exchange rate 
D)  neither the real exchange rate nor the 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. nominal exchange rate and the U.S. real exchange rate 
D)  neither the real exchange rate nor the nominal exchange rate

Question 6

Which of the following statements is correct for an open economy with a trade surplus?

Accepted Answer

A)  The trade surplus cannot last for very many years. 
B)  The trade surplus must be offset by negative net capital outflow. 
C)  The trade surplus implies that the country's national saving is greater than domestic investment. 
D)  None of the above is correct. 
A)  The trade surplus cannot last for very many years. 
B)  The trade surplus must be offset by negative net capital outflow. 
C)  The trade surplus implies that the country's national saving is greater than domestic investment. 
D)  None of the above is correct.

Question 7

A country has $40 billion of domestic investment and net capital outflows of -$20 billion. What is the country's saving?

Accepted Answer

A)  -$60 billion 
B)  -$20 billion 
C)  $20 billion 
D)  $60 billion 
A)  -$60 billion 
B)  -$20 billion 
C)  $20 billion 
D)  $60 billion

Question 8

A country recently had a trade deficit of $2.5 trillion and purchased $3 trillion of foreign assets. How many of its assets did foreigners purchase?

Accepted Answer

The answer of A country recently had a trade deficit...

Question 9

A pair of jeans cost $25 in the U.S. and 1600 dinar in Algeria. If the nominal exchange rate is 75 dinar per U.S. dollar, then the real exchange rate is

Accepted Answer

A)  more than one, so a profit could be made by buying jeans in Algeria and selling them in the U.S. 
B)  more than one, so a profit could be made by buying jeans in the U.S. and selling them in Algeria. 
C)  less than one, so a profit could be made by buying jeans in Algeria and selling them in the U.S. 
D)  less than one, so a profit could be made by buying jeans in the U.S. and selling them in Algeria. 
A)  more than one, so a profit could be made by buying jeans in Algeria and selling them in the U.S. 
B)  more than one, so a profit could be made by buying jeans in the U.S. and selling them in Algeria. 
C)  less than one, so a profit could be made by buying jeans in Algeria and selling them in the U.S. 
D)  less than one, so a profit could be made by buying jeans in the U.S. and selling them in Algeria.

Question 10

A pair of running shoes costs $70 in the U.S. If the price of the same shoes is 4500 rupees in India and the exchange rate is 60 rupees per dollar, than the real exchange rate is

Accepted Answer

A)  more than 1, so a profit could be made by buying these shoes in the U.S. and selling them in India. 
B)  more than 1, so a profit could be made by buying these shoes in India and selling them in the U.S. 
C)  less than 1, so a profit could be made by buying these shoes in the U.S. and selling them in India. 
D)  less than 1, so a profit could be made by buying these shoes in India and selling them in the U.S. 
A)  more than 1, so a profit could be made by buying these shoes in the U.S. and selling them in India. 
B)  more than 1, so a profit could be made by buying these shoes in India and selling them in the U.S. 
C)  less than 1, so a profit could be made by buying these shoes in the U.S. and selling them in India. 
D)  less than 1, so a profit could be made by buying these shoes in India and selling them in the U.S.

Question 11

U.S. exports make up less than 20 percent of GDP.

Accepted Answer

A) True 
 B)False

Question 12

If a country has business opportunities that are relatively attractive to other countries, we would expect it to have

Accepted Answer

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

Question 13

Matt and Melinda are American residents. Matt buys stock issued by a German corporation. Melinda opens a shoe factory in Panama. Whose purchase, by itself, increases the U.S.'s net capital outflow?

Accepted Answer

A)  Matt's 
B)  Melinda's 
C)  both Matt's and Melinda's 
D)  neither Matt's nor Melinda's 
A)  Matt's 
B)  Melinda's 
C)  both Matt's and Melinda's 
D)  neither Matt's nor Melinda's

Question 14

Table 31-2  
-Refer to Table 31-2. In real terms, U.S. goods are less expensive than goods in which country(ies)?

Accepted Answer

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

Question 15

Both foreign direct investment and foreign portfolio investment by U.S. residents increase U.S. net capital outflow.

Accepted Answer

A) True 
 B)False

Question 16

If purchasing-power parity between France and the U.S. holds, but then U.S. prices rise,

Accepted Answer

A)  the real exchange rate is above its purchasing-power parity value. An increase in the nominal exchange rate can move it back. 
B)  the real exchange rate is above its purchasing-power parity value. A decrease in the nominal exchange rate can move it back. 
C)  the real exchange rate is below its purchasing-power parity value. An increase in the nominal exchange rate can move it back. 
D)  the real exchange rate is below its purchasing-power parity value. A decrease in the nominal exchange rate can move it back. 
A)  the real exchange rate is above its purchasing-power parity value. An increase in the nominal exchange rate can move it back. 
B)  the real exchange rate is above its purchasing-power parity value. A decrease in the nominal exchange rate can move it back. 
C)  the real exchange rate is below its purchasing-power parity value. An increase in the nominal exchange rate can move it back. 
D)  the real exchange rate is below its purchasing-power parity value. A decrease in the nominal exchange rate can move it back.

Question 17

A nation with a trade surplus will necessarily have saving that is greater than domestic investment.

Accepted Answer

A) True 
 B)False

Question 18

Gabrielle, an Italian citizen, uses some previously obtained dollars to purchase a bond issued by a U.S. company. This transaction

Accepted Answer

A)  decreases U.S. net capital outflow. 
B)  does not change U.S. net capital outflow. 
C)  increases U.S. net capital outflow by more than the value of the bond. 
D)  increases U.S. net capital outflow by the value of the bond. 
A)  decreases U.S. net capital outflow. 
B)  does not change U.S. net capital outflow. 
C)  increases U.S. net capital outflow by more than the value of the bond. 
D)  increases U.S. net capital outflow by the value of the bond.

Question 19

From 1970 to 1998 the U.S. dollar

Accepted Answer

A)  gained value compared to the German mark because inflation was higher in Germany. 
B)  gained value compared to the German mark because inflation was lower in Germany. 
C)  lost value compared to the German mark because inflation was higher in Germany. 
D)  lost value compared to the German mark because inflation was lower in Germany. 
A)  gained value compared to the German mark because inflation was higher in Germany. 
B)  gained value compared to the German mark because inflation was lower in Germany. 
C)  lost value compared to the German mark because inflation was higher in Germany. 
D)  lost value compared to the German mark because inflation was lower in Germany.

Question 20

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...

Exam 31: Open-Economy Macroeconomics: Basic Concepts

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

A country has a trade deficit. Which of the following must also be true?

Which of the following is correct? Since 1950

Other things the same, a country could move from having a trade surplus to having a trade deficit if either

According to purchasing-power parity, if over the course of a year the price level in the U.S. rises more than in Japan, then which of the following falls?

Which of the following statements is correct for an open economy with a trade surplus?

A country has $40 billion of domestic investment and net capital outflows of -$20 billion. What is the country's saving?

A country recently had a trade deficit of $2.5 trillion and purchased $3 trillion of foreign assets. How many of its assets did foreigners purchase?

A pair of jeans cost $25 in the U.S. and 1600 dinar in Algeria. If the nominal exchange rate is 75 dinar per U.S. dollar, then the real exchange rate is

A pair of running shoes costs $70 in the U.S. If the price of the same shoes is 4500 rupees in India and the exchange rate is 60 rupees per dollar, than the real exchange rate is

U.S. exports make up less than 20 percent of GDP.

If a country has business opportunities that are relatively attractive to other countries, we would expect it to have

Matt and Melinda are American residents. Matt buys stock issued by a German corporation. Melinda opens a shoe factory in Panama. Whose purchase, by itself, increases the U.S.'s net capital outflow?

Table 31-2 -Refer to Table 31-2. In real terms, U.S. goods are less expensive than goods in which country(ies)?

Both foreign direct investment and foreign portfolio investment by U.S. residents increase U.S. net capital outflow.

If purchasing-power parity between France and the U.S. holds, but then U.S. prices rise,

A nation with a trade surplus will necessarily have saving that is greater than domestic investment.

Gabrielle, an Italian citizen, uses some previously obtained dollars to purchase a bond issued by a U.S. company. This transaction

From 1970 to 1998 the U.S. dollar

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

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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