Question 1

Prices in both the U.S. and China rise, but prices in China increase by a larger percentage. According to purchasing- power parity, the U.S. dollar

Accepted Answer

A)  gains value both in terms of the domestic goods and services it can buy and in terms of the Chinese currency it can buy. 
B)  gains value in terms of the domestic goods and services it can buy, but loses value in terms of the Chinese currency it can buy. 
C)  loses value in terms of the domestic goods and services it can buy, but gains value in terms of the Chinese currency it can buy. 
D)  loses value both in terms of the domestic goods and services it can buy and in terms of the Chinese currency it can buy. 
A)  gains value both in terms of the domestic goods and services it can buy and in terms of the Chinese currency it can buy. 
B)  gains value in terms of the domestic goods and services it can buy, but loses value in terms of the Chinese currency it can buy. 
C)  loses value in terms of the domestic goods and services it can buy, but gains value in terms of the Chinese currency it can buy. 
D)  loses value both in terms of the domestic goods and services it can buy and in terms of the Chinese currency it can buy.

Question 2

Suppose a Starbucks tall latte cost $4.00 in the United States and 3.20 euros in the Euro area. Also, suppose a McDonald's Big Mac costs $4.40 in the United States and 5.50 euros in Euro area. If the nominal exchange rate is .80 euros per dollar, the prices of which goods have prices that are consistent with purchasing-power parity?

Accepted Answer

A)  both the tall latte and the Big Mac 
B)  the tall latte but not the Big Mac 
C)  the Big Mac but not the tall latte 
D)  neither the tall latte nor the Big Mac 
A)  both the tall latte and the Big Mac 
B)  the tall latte but not the Big Mac 
C)  the Big Mac but not the tall latte 
D)  neither the tall latte nor the Big Mac

Question 3

If citizens of a country are not saving much, it is better to

Accepted Answer

A)  force citizens to save. 
B)  reduce investment. 
C)  have foreigners invest in the domestic economy than no one at all. 
D)  to prevent opportunities for citizens to buy capital assets abroad. 
A)  force citizens to save. 
B)  reduce investment. 
C)  have foreigners invest in the domestic economy than no one at all. 
D)  to prevent opportunities for citizens to buy capital assets abroad.

Question 4

In an open economy, gross domestic product equals $1,650 billion, government expenditure equals $250 billion, and savings equals $550 billion. What is consumption expenditure?

Accepted Answer

A)  $250 billion 
B)  $300 billion 
C)  $550 billion 
D)  $850 billion 
A)  $250 billion 
B)  $300 billion 
C)  $550 billion 
D)  $850 billion

Question 5

If a country sells more goods and services abroad than it purchases abroad, it has positive net exports and a trade surplus.

Accepted Answer

A) True 
 B)False

Question 6

In the U.S. a delivery van costs $30,000. In Uruguay the same delivery van costs 720,000 pesos. The nominal exchange rate is 20 pesos per dollar.
A. Find the real exchange rate. Show your work.
B. In terms of dollars where is the television cheaper?

Accepted Answer

The real exchange rate = 30,00

Question 7

A Swiss company sells chocolates to a retailer in the United States. These sales by themselves

Accepted Answer

A)  decrease U.S. net export and Swiss net exports. 
B)  decrease U.S. net exports and increase Swiss net exports. 
C)  increase U.S. and Swiss net exports. 
D)  increase U.S. net exports and decrease Swiss net exports. 
A)  decrease U.S. net export and Swiss net exports. 
B)  decrease U.S. net exports and increase Swiss net exports. 
C)  increase U.S. and Swiss net exports. 
D)  increase U.S. net exports and decrease Swiss net exports.

Question 8

Greg, a U.S. citizen, opens an ice cream store in Bermuda. His expenditures are U.S.

Accepted Answer

A)  foreign portfolio investment that increase U.S. net capital outflow. 
B)  foreign portfolio investment that decrease U.S. net capital outflow. 
C)  foreign direct investment that increase U.S. net capital outflow. 
D)  foreign direct investment that decrease U.S. net capital outflow. 
A)  foreign portfolio investment that increase U.S. net capital outflow. 
B)  foreign portfolio investment that decrease U.S. net capital outflow. 
C)  foreign direct investment that increase U.S. net capital outflow. 
D)  foreign direct investment that decrease U.S. net capital outflow.

Question 9

According to purchasing-power parity, what is the relationship between changes in price levels between two countries and changes in nominal exchange rates?

Accepted Answer

Purchasing-power parity asserts that the

Question 10

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 11

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 12

The nominal exchange rate is 4 Saudi Arabian riyals, 8 Moroccan dirham, 60 Indian rupees, or .8 euros per U.S. dollar. A fast food breakfast costs $5 in the U.S., 30 riyals in Saudi Arabia, 40 Moroccan dirham in Morocco, 250 Indian rupees in India, and 5 euros in France. According to these numbers, where is the real exchange rate between American and foreign goods the lowest?

Accepted Answer

A)  Saudi Arabia 
B)  Morocco 
C)  India 
D)  Britain 
A)  Saudi Arabia 
B)  Morocco 
C)  India 
D)  Britain

Question 13

Last year a country had exports of $50 billion, imports of $60 billion, and domestic investment of $40 billion. What was its saving last year?

Accepted Answer

A)  $30 billion 
B)  $20 billion 
C)  $10 billion 
D)  -$10 billion 
A)  $30 billion 
B)  $20 billion 
C)  $10 billion 
D)  -$10 billion

Question 14

Suppose that the nominal exchange rate is 80 yen per dollar, that the price of a basket of goods in the U.S. is $500 and the price of a basket of goods in Japan is 50,000 yen. Suppose that these values change to 100 yen per dollar, $600, and 70,000 yen. Then the real exchange rate would

Accepted Answer

A)  appreciate which by itself would make U.S. net exports fall. 
B)  appreciate which by itself would make U.S. net exports rise. 
C)  depreciate which by itself would make U.S. net exports fall. 
D)  depreciate which by itself would make U.S. net exports rise. 
A)  appreciate which by itself would make U.S. net exports fall. 
B)  appreciate which by itself would make U.S. net exports rise. 
C)  depreciate which by itself would make U.S. net exports fall. 
D)  depreciate which by itself would make U.S. net exports rise.

Question 15

During 2011, the price level in the U.S. rose at a faster rate than the price level in Japan. Other things the same, according to purchasing-power parity, this difference in inflation rates should have caused

Accepted Answer

A)  the nominal exchange rate of the dollar to appreciate relative to the yen. 
B)  the real exchange rate of the dollar to appreciate relative to the yen. 
C)  the nominal exchange rate of the dollar to depreciate relative to the yen. 
D)  the real exchange rate of the dollar to depreciate relative to the yen. 
A)  the nominal exchange rate of the dollar to appreciate relative to the yen. 
B)  the real exchange rate of the dollar to appreciate relative to the yen. 
C)  the nominal exchange rate of the dollar to depreciate relative to the yen. 
D)  the real exchange rate of the dollar to depreciate relative to the yen.

Question 16

By itself, when a Japanese bank purchases a bond issued by a U.S. corporation, U.S. net capital outflow rises.

Accepted Answer

A) True 
 B)False

Question 17

If a nation is selling more goods and services to foreigners than it is buying from them, then on net it must be selling assets abroad.

Accepted Answer

A) True 
 B)False

Question 18

If the Kenyan nominal exchange rate declines, and prices are unchanged in Kenya and abroad, then the Kenyan 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 19

If a country has net exports of $8 billion and sold $40 billion of goods and services abroad, then it has

Accepted Answer

A)  $48 billion of imports and $40 billion of exports. 
B)  $48 billion of exports and $40 billion of imports. 
C)  $40 billion of imports and $32 billion of exports. 
D)  $40 billion of exports and $32 billion of imports. 
A)  $48 billion of imports and $40 billion of exports. 
B)  $48 billion of exports and $40 billion of imports. 
C)  $40 billion of imports and $32 billion of exports. 
D)  $40 billion of exports and $32 billion of imports.

Question 20

The nominal exchange rate is about 2 Aruban florin per dollar. If a basket of goods in the United States costs $40, how many florins must a basket of goods in Aruba cost for purchasing-power parity to hold?

Accepted Answer

A)  20 florin 
B)  40 florin 
C)  60 florin 
D)  80 florin 
A)  20 florin 
B)  40 florin 
C)  60 florin 
D)  80 florin

Exam 31: Open-Economy Macroeconomics: Basic Concepts

Prices in both the U.S. and China rise, but prices in China increase by a larger percentage. According to purchasing- power parity, the U.S. dollar

If citizens of a country are not saving much, it is better to

In an open economy, gross domestic product equals $1,650 billion, government expenditure equals $250 billion, and savings equals $550 billion. What is consumption expenditure?

If a country sells more goods and services abroad than it purchases abroad, it has positive net exports and a trade surplus.

In the U.S. a delivery van costs $30,000. In Uruguay the same delivery van costs 720,000 pesos. The nominal exchange rate is 20 pesos per dollar. A. Find the real exchange rate. Show your work. B. In terms of dollars where is the television cheaper?

A Swiss company sells chocolates to a retailer in the United States. These sales by themselves

Greg, a U.S. citizen, opens an ice cream store in Bermuda. His expenditures are U.S.

According to purchasing-power parity, what is the relationship between changes in price levels between two countries and changes in nominal exchange rates?

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

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

Last year a country had exports of $50 billion, imports of $60 billion, and domestic investment of $40 billion. What was its saving last year?

Suppose that the nominal exchange rate is 80 yen per dollar, that the price of a basket of goods in the U.S. is $500 and the price of a basket of goods in Japan is 50,000 yen. Suppose that these values change to 100 yen per dollar, $600, and 70,000 yen. Then the real exchange rate would

During 2011, the price level in the U.S. rose at a faster rate than the price level in Japan. Other things the same, according to purchasing-power parity, this difference in inflation rates should have caused

By itself, when a Japanese bank purchases a bond issued by a U.S. corporation, U.S. net capital outflow rises.

If a nation is selling more goods and services to foreigners than it is buying from them, then on net it must be selling assets abroad.

If the Kenyan nominal exchange rate declines, and prices are unchanged in Kenya and abroad, then the Kenyan real exchange rate

If a country has net exports of $8 billion and sold $40 billion of goods and services abroad, then it has

The nominal exchange rate is about 2 Aruban florin per dollar. If a basket of goods in the United States costs $40, how many florins must a basket of goods in Aruba cost for purchasing-power parity to hold?

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