Question 1

If the exchange rate is 5 Egyptian pounds per U.S. dollar, a watch that costs $25 US dollars costs

Accepted Answer

A) 125 Egyptian pounds 
B) 50 Egyptian pounds 
C) 5 Egyptian pounds 
D) None of the above is correct.

Question 2

According to purchasing-power parity, if two countries have the same price level because they have the same prices for all goods and services, then which of the following would equal 1?

Accepted Answer

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

Question 3

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

Accepted Answer

A) True 
 B)False

Question 4

If purchasing power parity holds, then if the price of a basket of goods in the U.S. rose from $1,500 to $2,000 and the price of the same basket in Mexico rose from 12,000 pesos to 18,000 pesos

Accepted Answer

A) inflation was higher in the U.S. than Mexico so the U.S. dollar would appreciate. 
B) inflation was higher in the U.S. than Mexico so the U.S.dollar would depreciate. 
C) inflation was lower in the U.S. than Mexico so the U.S. dollar would appreciate. 
D) inflation was lower in the U.S. than Mexico so the U.S dollar would depreciate.

Question 5

A good in the U.S. costs $20. The same good costs 150 pesos in Mexico. If the nominal exchange rate is 10 pesos per dollar, what is the real exchange rate?

Accepted Answer

A) 4/3 so the good is more expensive in the U.S. 
B) 4/3 so the good is more expensive in Mexico 
C) 3/4 so the good is more expensive in the U.S. 
D) 3/4 so the good is more expensive in Mexico

Question 6

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 7

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

Question 8

Use the (hypothetical) information in the following table to answer the following questions.
Table 31-2 
-Refer to Table 31-2. Which currency(ies) is(are) have a higher nominal exchange rate than predicted by the doctrine of purchasing-power parity?

Accepted Answer

A) the bolivar and the pound 
B) the euro and the riyal 
C) the yen 
D) the pound

Question 9

A country recently had saving of 300 billion euros and domestic investment of 200 billion euros. What was the value of this country's net exports? Explain how you found your answer.

Accepted Answer

The answer of A country recently had saving of 300...

Question 10

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.

Question 11

Since 1980 U.S. net capital outflow has been

Accepted Answer

A) negative, meaning that foreigners were buying more capital assets from the United States than Americans were buying abroad. 
B) negative, meaning that Americans were buying more capital assets abroad than foreigners were buying from the United States. 
C) positive, meaning that foreigners were buying more capital assets from the United States than Americans were buying abroad. 
D) positive, meaning that Americans were buying more capital assets abroad than foreigners were buying from the United States.

Question 12

From 1970 to 1998 the U.S. dollar

Accepted Answer

A) gained value compared to the Italian lira because inflation was higher in Italy. 
B) gained value compared to the Italian lira because inflation was lower in Italy. 
C) lost value compared to the Italian lira because inflation was higher in Italy. 
D) lost value compared to the Italian lira because inflation was lower in Italy.

Question 13

If purchasing-power parity holds, when a country's central bank increases the money supply, its

Accepted Answer

A) price level rises and its currency appreciates relative to other currencies in the world. 
B) price level rises and its currency depreciates relative to other currencies in the world. 
C) price level falls and its currency appreciates relative to other currencies in the world. 
D) price level falls and its currency depreciates relative to other currencies in the world.

Question 14

If the price of a sofa is $800 in the U.S. and 2400 pesos in Argentina, and the exchange rate is 4 pesos per dollar, what is the real exchange rate?

Accepted Answer

A) 3 
B) 4/3 
C) 3/4 
D) None of the above is correct.

Question 15

Suppose that a country has $120 billion of national saving, and $80 billion of domestic investment. Is this possible? Where did the other $40 billion of national savings go?

Accepted Answer

The answer of Suppose that a country has $120 billion...

Question 16

In an open economy, gross domestic product equals $3,500 billion, consumption expenditure equals $2100 billion, government expenditure equals $400 billion, investment equals $800 billion, and net exports equals $200 billion. What is national savings?

Accepted Answer

A) $200 billion 
B) $600 billion 
C) $800 billion 
D) $1,000 billion

Question 17

If a dollar buys more rice in the China. than in the U.S., then

Accepted Answer

A) the real exchange rate is greater than 1; a profit might be made by buying rice in the U.S. and selling it in China. 
B) the real exchange rate is greater than 1; a profit might be made by buying rice in China. and selling it in the U.S. 
C) the real exchange rate is less than 1; a profit might be made by buying rice in the U.S. and selling it in China. 
D) the real exchange rate is less than 1; a profit might be made by buying rice in China and selling it in the U.S.

Question 18

Which of the following is correct?

Accepted Answer

A) U.S. exports as a percentage of GDP have about tripled since 1950. The U.S. currently has a trade deficit. 
B) U.S. exports as a percentage of GDP have about tripled since 1950. The U.S. currently has a trade surplus. 
C) U.S. exports as a percentage of GDP have about doubled since 1950. The U.S. currently has a trade deficit. 
D) U.S. exports as a percentage of GDP have about doubled since 1950. The U.S. currently has a trade surplus.

Question 19

If the real exchange rate between the U.S. and Japan is 1, the nominal exchange rate is 100 yen per U.S. dollar and the price of chicken in the U.S. is $2.50 per pound, what is the price of chicken in Japan?

Accepted Answer

A) 400 yen per pound 
B) 250 yen per pound 
C) 100 yen per pound 
D) 40 yen per pound

Question 20

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) prevent opportunities for citizens to buy capital assets abroad.

Exam 31: Open-Economy Macroeconomics: Basic Concepts