Question 1

Other things the same, an increase in domestic prices raises the real exchange rate.

Accepted Answer

A) True 
 B)False

Question 2

When Jamie, a U.S. citizen, purchases a wool jacket made in Ireland, the purchase is

Accepted Answer

A) both a U.S. and Irish import. 
B) a U.S. import and an Irish export. 
C) a U.S. export and an Irish import. 
D) neither an export nor an import for either country.

Question 3

According to purchasing-power parity, 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 of goods rose from 600 units of some other country's currency to 1,000 units of that country's currency, then the

Accepted Answer

A) nominal exchange rate would appreciate. 
B) nominal exchange rate would depreciate. 
C) real exchange rate would appreciate. 
D) real exchange rate would depreciate.

Question 4

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.

Question 5

If a country has a trade deficit

Accepted Answer

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

Question 6

A dozen eggs cost $2 in the U.S. and 12 pesos in Argentina. If the real exchange rate is 5/6, what is the nominal exchange rate? Show your work.

Accepted Answer

The answer of A dozen eggs cost $2 in the...

Question 7

The nominal exchange rate is the

Accepted Answer

A) nominal interest rate in one country divided by the nominal interest rate in the other country. 
B) the ratio of a foreign country's interest rate to the domestic interest rate. 
C) rate at which a person can trade the currency of one country for another. 
D) the real exchange rate minus the inflation rate.

Question 8

The nominal exchange rate is 30 Thai bhat for one U.S. dollar. A sub sandwich combo deal in the U.S. costs $6 dollars in the U.S. and 120 bhat in Thailand. The real exchange rate is

Accepted Answer

A) 3/8 
B) 2/3 
C) 3/2 
D) 8/3

Question 9

If purchasing-power parity holds, then the value of the

Accepted Answer

A) real exchange rate is equal to one. 
B) nominal exchange rate is equal to one. 
C) real exchange rate is equal to the nominal exchange rate. 
D) real exchange rate is equal to the difference in inflation rates between the two countries.

Question 10

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.

Question 11

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 answer of Suppose a bottle of wine costs 20...

Question 12

If the purchasing power of the dollar is always the same at home and abroad, then the nominal exchange rate defined as units of foreign currency per dollar decreases if the U.S. price level rises more than the price level in foreign countries.

Accepted Answer

A) True 
 B)False

Question 13

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.

Question 14

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

Accepted Answer

A) Albert, a German citizen, buys stock in a U.S. computer company. 
B) Larry, a citizen of Ireland, opens a fish and chips restaurant in the United States. 
C) Nancy, a U.S. citizen, buys bonds issued by a Japanese bank. 
D) Dustin, a U.S. citizen, opens a country-western tavern in New Zealand.

Question 15

Other things the same, if the exchange rate changes from 6 Chinese yuan per dollar to 7 Chinese yuan per dollar, then the dollar

Accepted Answer

A) appreciates and buys more Chinese goods. 
B) appreciates and buys fewer Chinese goods. 
C) depreciates and buys more Chinese goods. 
D) depreciates and buys fewer Chinese goods.

Question 16

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.

Question 17

According to purchasing-power parity, if a basket of goods costs $100 in the U.S. and the same basket costs 800 pesos in Argentina, then what is the nominal exchange rate?

Accepted Answer

A) 8 pesos per dollar 
B) 1 peso per dollar 
C) 1/8 peso per dollar 
D) none of the above is correct

Question 18

If a country's exports were 500 billion pesos and its imports were 300 billion pesos, what would its trade balance be?

Accepted Answer

The answer of If a country's exports were 500 billion...

Question 19

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.

Question 20

In an open economy, gross domestic product equals $2,450 billion, consumption expenditure equals $1,390 billion, government expenditure equals $325 billion, investment equals $510 and net capital outflow equals $225 billion. What is national saving?

Accepted Answer

A) $225 billion 
B) $510 billion 
C) $735 billion 
D) $1,390 billion

Exam 31: Open-Economy Macroeconomics: Basic Concepts