Question 1

Which of the following is an example of U.S. foreign direct investment and by itself increases U.S. net capital outflow?

Accepted Answer

A)  A U.S. electronics company opens and operates a new factory in India. 
B)  A Swiss bank buys bonds issued by a U.S. company. 
C)  A U.S. pension fund buys bonds issued by the Japanese government. 
D)  A French restaurant opens and operates a restaurant in New York. 
A)  A U.S. electronics company opens and operates a new factory in India. 
B)  A Swiss bank buys bonds issued by a U.S. company. 
C)  A U.S. pension fund buys bonds issued by the Japanese government. 
D)  A French restaurant opens and operates a restaurant in New York.

Question 2

If saving is less than domestic investment, then

Accepted Answer

A) there is a trade deficit and Y > C + I + G. B) there is a trade deficit and Y C + I + G. D) there is a trade surplus and Y < C + I + G. A) there is a trade deficit and Y > C + I + G. B) there is a trade deficit and Y C + I + G. D) there is a trade surplus and Y < C + I + G.

Question 3

During some year a country had exports of $50 billion, imports of $70 billion, and domestic investment of $100 billion. What was its saving during the year?

Accepted Answer

A)  $80 billion 
B)  $100 billion 
C)  $120 billion 
D)  $150 billion 
A)  $80 billion 
B)  $100 billion 
C)  $120 billion 
D)  $150 billion

Question 4

It is possible for a country to have domestic investment that exceeds national saving.

Accepted Answer

A) True 
 B)False

Question 5

Citizens in India buy music from the U.S. To do so they use Indian rupees to purchase U.S. dollars. If U.S. citizens hold these rupees rather than spending them, what happens to U.S. net exports and U.S. net capital outflows?

Accepted Answer

A)  both U.S. net exports and U.S. net capital outflow rise 
B)  both U.S. net exports and U.S. net capital outflow fall 
C)  U.S. net exports rise and U.S. net capital outflow fall 
D)  U.S. net exports fall and U.S. net capital outflow rise 
A)  both U.S. net exports and U.S. net capital outflow rise 
B)  both U.S. net exports and U.S. net capital outflow fall 
C)  U.S. net exports rise and U.S. net capital outflow fall 
D)  U.S. net exports fall and U.S. net capital outflow rise

Question 6

A country has $3 billion of domestic investment and net exports of -$2 billion. What is its saving?

Accepted Answer

A)  -$1 billion 
B)  -$2 billion 
C)  $1 billion 
D)  $2 billion 
A)  -$1 billion 
B)  -$2 billion 
C)  $1 billion 
D)  $2 billion

Question 7

You hold currency from a foreign country. If that country has a higher rate of inflation than the United States, then over time the foreign currency will buy

Accepted Answer

A)  more goods in that country and buy more dollars. 
B)  more goods in that country but buy fewer dollars. 
C)  fewer goods in that country but buy more dollars. 
D)  fewer goods in that country and buy fewer dollars. 
A)  more goods in that country and buy more dollars. 
B)  more goods in that country but buy fewer dollars. 
C)  fewer goods in that country but buy more dollars. 
D)  fewer goods in that country and buy fewer dollars.

Question 8

If the Canadian nominal exchange rate does not change, but prices rise faster abroad than in Canada, then the Canadian real exchange rate

Accepted Answer

A)  does not change. 
B)  rises. 
C)  declines. 
D)  None of the above is necessarily correct. 
A)  does not change. 
B)  rises. 
C)  declines. 
D)  None of the above is necessarily correct.

Question 9

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 10

Suppose a bottle of wine costs 20 euros in France and 25 dollars in the United States. If the exchange rate is .80 euros per dollar, what is the real exchange rate?

Accepted Answer

The real exchange rate = nomin

Question 11

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.

Question 12

International trade

Accepted Answer

A)  raises the standard of living in all trading countries. 
B)  lowers the standard of living in all trading countries. 
C)  leaves the standard of living unchanged. 
D)  raises the standard of living for importing countries and lowers it for exporting countries. 
A)  raises the standard of living in all trading countries. 
B)  lowers the standard of living in all trading countries. 
C)  leaves the standard of living unchanged. 
D)  raises the standard of living for importing countries and lowers it for exporting countries.

Question 13

A country recently had GDP of $1,200 billion. Its consumption expenditures were $700 billion, its government spent $200 billion, and it had domestic investment of $175 billion. What was the value of this country's net capital outflow?
Show your work.

Accepted Answer

Y = C + I + G + NX
$1,200 bill

Question 14

While vacationing in Turkey you see a rug you consider purchasing. The seller tells you the rug costs 1,200 Turkish lire.
A. If the exchange rate is .60 lira per dollar, how many dollars does the rug cost?
B. If the dollar depreciates against the lira, will it take more or fewer dollars to buy the rug? Explain.

Accepted Answer

A. 1200 lire = $x times .60 li

Question 15

In the U.S. a television costs $400. In South Africa the same television costs 3000 rand (the currency of South Africa). The nominal exchange rate is 8 rand per dollar.
A. Find the real exchange rate. Show your work.
B. In terms of dollars where is the television cheapest?

Accepted Answer

The real exchange rate = 8 x 4

Question 16

According to purchasing-power parity, if it took 58 Indian rupees to buy a dollar today, but it took 55 to buy it a year ago, then the dollar has

Accepted Answer

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

Question 17

A U.S. firm buys apples from New Zealand with New Zealand dollars it got in exchange for U.S. dollars. New Zealand residents then use these dollars to purchase oranges from the U.S. Which of the following increases?

Accepted Answer

A)  New Zealand's net capital outflow and New Zealand's net exports 
B)  only New Zealand's net exports 
C)  only New Zealand's net capital outflow 
D)  neither New Zealand's net exports nor New Zealand's capital outflow 
A)  New Zealand's net capital outflow and New Zealand's net exports 
B)  only New Zealand's net exports 
C)  only New Zealand's net capital outflow 
D)  neither New Zealand's net exports nor New Zealand's capital outflow

Question 18

Net exports measures the difference between a country's

Accepted Answer

A)  income and expenditures. 
B)  sale of goods and services abroad and purchase of foreign goods and services. 
C)  sale of domestic assets abroad and purchase of foreign assets. 
D)  All of the above are correct. 
A)  income and expenditures. 
B)  sale of goods and services abroad and purchase of foreign goods and services. 
C)  sale of domestic assets abroad and purchase of foreign assets. 
D)  All of the above are correct.

Question 19

According to the doctrine of purchasing-power parity, which of the following should depreciate if over the next year the inflation rate is higher in the U.S. than in the Euro area?

Accepted Answer

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

Question 20

When Ghana sells chocolate to the United States, U.S. net exports

Accepted Answer

A)  increase, and U.S. net capital outflow increases. 
B)  increase, and U.S. net capital outflow decreases. 
C)  decrease, and U.S. net capital outflow increases. 
D)  decrease, and U.S. net capital outflow decreases. 
A)  increase, and U.S. net capital outflow increases. 
B)  increase, and U.S. net capital outflow decreases. 
C)  decrease, and U.S. net capital outflow increases. 
D)  decrease, and U.S. net capital outflow decreases.

Exam 31: Open-Economy Macroeconomics: Basic Concepts

Which of the following is an example of U.S. foreign direct investment and by itself increases U.S. net capital outflow?

If saving is less than domestic investment, then

During some year a country had exports of $50 billion, imports of $70 billion, and domestic investment of $100 billion. What was its saving during the year?

It is possible for a country to have domestic investment that exceeds national saving.

Citizens in India buy music from the U.S. To do so they use Indian rupees to purchase U.S. dollars. If U.S. citizens hold these rupees rather than spending them, what happens to U.S. net exports and U.S. net capital outflows?

A country has $3 billion of domestic investment and net exports of -$2 billion. What is its saving?

You hold currency from a foreign country. If that country has a higher rate of inflation than the United States, then over time the foreign currency will buy

If the Canadian nominal exchange rate does not change, but prices rise faster abroad than in Canada, then the Canadian real exchange rate

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

Suppose a bottle of wine costs 20 euros in France and 25 dollars in the United States. If the exchange rate is .80 euros per dollar, what is the real exchange rate?

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

International trade

A country recently had GDP of $1,200 billion. Its consumption expenditures were $700 billion, its government spent $200 billion, and it had domestic investment of $175 billion. What was the value of this country's net capital outflow? Show your work.

In the U.S. a television costs $400. In South Africa the same television costs 3000 rand (the currency of South Africa). The nominal exchange rate is 8 rand per dollar. A. Find the real exchange rate. Show your work. B. In terms of dollars where is the television cheapest?

According to purchasing-power parity, if it took 58 Indian rupees to buy a dollar today, but it took 55 to buy it a year ago, then the dollar has

A U.S. firm buys apples from New Zealand with New Zealand dollars it got in exchange for U.S. dollars. New Zealand residents then use these dollars to purchase oranges from the U.S. Which of the following increases?

Net exports measures the difference between a country's

According to the doctrine of purchasing-power parity, which of the following should depreciate if over the next year the inflation rate is higher in the U.S. than in the Euro area?

When Ghana sells chocolate to the United States, U.S. net exports

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

Filters