Question 1

Why are net exports and net capital outflow always equal?

Accepted Answer

Net exports and net capital outflow are

Question 2

The value of the goods and services Australia purchases from the U.S. are less than the value of goods and services the U.S. purchases from Australia. The U.S. has

Accepted Answer

A)  positive net exports with Australia and a trade surplus with Australia. 
B)  positive net exports with Australia and a trade deficit with Australia. 
C)  negative net exports with Australia and a trade surplus with Australia. 
D)  negative net exports with Australia and a trade deficit with Australia. 
A)  positive net exports with Australia and a trade surplus with Australia. 
B)  positive net exports with Australia and a trade deficit with Australia. 
C)  negative net exports with Australia and a trade surplus with Australia. 
D)  negative net exports with Australia and a trade deficit with Australia.

Question 3

A U.S. firm exchanges dollars for yen and then uses them to buy Japanese goods. Overall as a result of these transactions

Accepted Answer

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

Question 4

Suppose a Starbucks tall latte cost $4.00 in the United States, 5.00 euros in the euro area and $2.50 Australian dollars in Australia. Nominal exchange rates are .80 euros per dollar and 1.4 Australian dollars per U.S. dollar. Where does purchasing-power parity hold?

Accepted Answer

A)  both the euro area and Australia 
B)  the euro area but not Australia 
C)  Australia but not the euro area 
D)  neither the euro area or Australia 
A)  both the euro area and Australia 
B)  the euro area but not Australia 
C)  Australia but not the euro area 
D)  neither the euro area or Australia

Question 5

During 2011 the inflation rate in Brazil was about 6.6% while in the U.S. it was about 3.3%. At the start of 2011 the nominal exchange rate was about 1.7 Brazilian real per U.S. dollar.
If purchasing-power parity holds, about what should the nominal exchange rate have been at the end of 2011? Show your work.

Accepted Answer

1.7(1.066)

Question 6

Other things the same, if U.S. net capital outflow rises, so does U.S. saving.

Accepted Answer

A) True 
 B)False

Question 7

Other things the same, an increase in the U.S. real exchange rate makes U.S. goods more expensive relative to foreign goods.

Accepted Answer

A) True 
 B)False

Question 8

A Finnish corporation builds a factory the produces ceiling fans in the United States. This is an example of Finish

Accepted Answer

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

Question 9

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

Accepted Answer

A)  A Swedish car manufacturer opens a plant in Tennessee. 
B)  A Dutch citizen buys shares of stock in a U.S. company. 
C)  A U.S. based restaurant chain opens new restaurants in India. 
D)  A U.S. citizen buys stock in companies located in Japan. 
A)  A Swedish car manufacturer opens a plant in Tennessee. 
B)  A Dutch citizen buys shares of stock in a U.S. company. 
C)  A U.S. based restaurant chain opens new restaurants in India. 
D)  A U.S. citizen buys stock in companies located in Japan.

Question 10

Other things the same, the real exchange rate between American and French goods would be lower if

Accepted Answer

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

Question 11

Which of the following is correct?

Accepted Answer

A)  NCO = NX 
B)  NCO + I = NX 
C)  NX + NCO = Y 
D)  Y = NCO - I 
A)  NCO = NX 
B)  NCO + I = NX 
C)  NX + NCO = Y 
D)  Y = NCO - I

Question 12

If a country has Y > C + I + G, then it has

Accepted Answer

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

Question 13

Bill, a U.S. citizen, pays a Spanish architect to design a metal casting factory. Which country's exports increase?

Accepted Answer

A)  Spain's 
B)  the U.S.'s 
C)  Spain's and the U.S.'s 
D)  neither Spain's nor the U.S.'s 
A)  Spain's 
B)  the U.S.'s 
C)  Spain's and the U.S.'s 
D)  neither Spain's nor the U.S.'s

Question 14

Which type(s) of economies interact with other economies?

Accepted Answer

A)  only closed economies 
B)  only open economies 
C)  closed economies and open economies 
D)  neither closed nor open economies 
A)  only closed economies 
B)  only open economies 
C)  closed economies and open economies 
D)  neither closed nor open economies

Question 15

According to purchasing-power parity, if it took 1,100 Korean Won to buy a dollar this year, but it took 1,000 to buy it last year, then the dollar has

Accepted Answer

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

Question 16

If the real exchange rate between the U.S. and Argentina is 1, then

Accepted Answer

A)  purchasing-power parity holds, and 1 U.S. dollar buys 1 Argentinean bolivar. 
B)  purchasing-power parity holds, and the amount of dollars needed to buy goods in the U.S. is the same as the amount needed to buy enough Argentinean bolivars to buy the same goods in Argentina. 
C)  purchasing-power parity does not hold, but 1 U.S. dollar buys 1 Argentinean bolivar. 
D)  purchasing-power parity does not hold, but the amount of dollars needed to buy goods in the U.S. is the same as the amount needed to buy enough Argentinean bolivars to buy the same goods in Argentina. 
A)  purchasing-power parity holds, and 1 U.S. dollar buys 1 Argentinean bolivar. 
B)  purchasing-power parity holds, and the amount of dollars needed to buy goods in the U.S. is the same as the amount needed to buy enough Argentinean bolivars to buy the same goods in Argentina. 
C)  purchasing-power parity does not hold, but 1 U.S. dollar buys 1 Argentinean bolivar. 
D)  purchasing-power parity does not hold, but the amount of dollars needed to buy goods in the U.S. is the same as the amount needed to buy enough Argentinean bolivars to buy the same goods in Argentina.

Question 17

One year a country has negative net exports. The next year it still has negative net exports and imports have risen more than exports.

Accepted Answer

A)  its trade surplus fell. 
B)  its trade surplus rose. 
C)  its trade deficit fell. 
D)  its trade deficit rose 
A)  its trade surplus fell. 
B)  its trade surplus rose. 
C)  its trade deficit fell. 
D)  its trade deficit rose

Question 18

From 2000 to 2012 the U.S. had a trade

Accepted Answer

A)  surplus and a large net capital inflow. 
B)  surplus and a large net capital outflow. 
C)  deficit and a large net capital inflow. 
D)  deficit and a large net capital outflow. 
A)  surplus and a large net capital inflow. 
B)  surplus and a large net capital outflow. 
C)  deficit and a large net capital inflow. 
D)  deficit and a large net capital outflow.

Question 19

If a U.S. dollar purchases 4 Argentinean pesos, and a gallon of milk costs $3 in the U.S. and 6 pesos in Argentina what is the real exchange rate?

Accepted Answer

A)  2 
B)  3/2 
C)  2/3 
D)  1/2 
A)  2 
B)  3/2 
C)  2/3 
D)  1/2

Question 20

A farm equipment retailer in Azerbaijan exchanges Azerbaijan manats (the currency of Azerbaijan) for $300,000 a bank in Azerbaijan was holding. It uses the $300,000 to buy farm equipment from a U.S. company. The U.S. company deposits half of these funds in a U.S. bank and exchanges the other half for euros from a bank in London.
As a result of these transactions, by how much, if at all, and in which direction did:
A. U.S. net exports change?
B. U.S. net capital outflow change?

Accepted Answer

A. U.S. net exports

Exam 31: Open-Economy Macroeconomics: Basic Concepts

Why are net exports and net capital outflow always equal?

The value of the goods and services Australia purchases from the U.S. are less than the value of goods and services the U.S. purchases from Australia. The U.S. has

A U.S. firm exchanges dollars for yen and then uses them to buy Japanese goods. Overall as a result of these transactions

Suppose a Starbucks tall latte cost $4.00 in the United States, 5.00 euros in the euro area and $2.50 Australian dollars in Australia. Nominal exchange rates are .80 euros per dollar and 1.4 Australian dollars per U.S. dollar. Where does purchasing-power parity hold?

Other things the same, if U.S. net capital outflow rises, so does U.S. saving.

Other things the same, an increase in the U.S. real exchange rate makes U.S. goods more expensive relative to foreign goods.

A Finnish corporation builds a factory the produces ceiling fans in the United States. This is an example of Finish

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

Other things the same, the real exchange rate between American and French goods would be lower if

Which of the following is correct?

If a country has Y > C + I + G, then it has

Bill, a U.S. citizen, pays a Spanish architect to design a metal casting factory. Which country's exports increase?

Which type(s) of economies interact with other economies?

According to purchasing-power parity, if it took 1,100 Korean Won to buy a dollar this year, but it took 1,000 to buy it last year, then the dollar has

If the real exchange rate between the U.S. and Argentina is 1, then

One year a country has negative net exports. The next year it still has negative net exports and imports have risen more than exports.

From 2000 to 2012 the U.S. had a trade

If a U.S. dollar purchases 4 Argentinean pesos, and a gallon of milk costs $3 in the U.S. and 6 pesos in Argentina what is the real exchange rate?

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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