Question 1

Suppose the exchange rate is 5 units of Peruvian currency per dollar,and a hotel room in Lima,Peru,costs 350 units of Peruvian currency.How many dollars do you need to get a room in Lima?

Accepted Answer

A) $1750 
B) $355 
C) $70 
D) $35

Question 2

According to purchasing-power parity theory,if the same fast-food hamburger costs $2.50 in Canada and 10 Tunisian dinars,what should the exchange rate be?

Accepted Answer

A) 1/4 Tunisian dinars per dollar 
B) 1 Tunisian dinar per dollar 
C) 4 Tunisian dinars per dollar 
D) 25 Tunisian dinars per dollar

Question 3

Tony,a Canadian citizen,uses some previously obtained Portuguese currency (escudo)to purchase a bond issued by a Portuguese company.How does this transaction affect Canadian net capital outflow?

Accepted Answer

A) It increases Canadian net capital outflow by more than the value of the bond. 
B) It increases Canadian net capital outflow by the value of the bond. 
C) It does not change Canadian net capital outflow. 
D) It decreases Canadian net capital outflow.

Question 4

Which of the following is an example of Canadian foreign portfolio investment?

Accepted Answer

A) Crystal, a Canadian citizen, buys bonds issued by a corporation in Turkey. 
B) Randall, a Canadian citizen, opens a cheesecake factory in Italy. 
C) Abigail, a Canadian citizen, buys software produced by Microsoft Corporation, a U.S. company. 
D) Fernando, a Spanish citizen, buys shares of stock in Research In Motion, a Canadian company.

Question 5

The country of Freedonia has a GDP of $4000,consumption of $1800,and government purchases of $500.Which of the following does this situation imply?

Accepted Answer

A) Investment is equal to -$1700. 
B) Investment plus net capital outflow is equal to $1700. 
C) Investment plus net exports is equal to $2200. 
D) Saving is equal to -$2200.

Question 6

This problem considers the effect of currency conversion fees on foreign investment.Jonathan is considering investing $1000 in Canada,where he expects an interest rate of 5 percent,or in the U.K.,where the expected interest rate would be 6 percent.The current exchange rate is £0.5/$,which could take by the end of the year any value between £0.4 and £0.6/$ with equal probability.
a)Where should Jonathan invest?
b)How does your answer change if there is a currency conversion fee of 3 percent?
c)What have you learned from this exercise?

Accepted Answer

The answer of This problem considers the effect of currency...

Question 7

If the exchange rate is 175 yen = $1,what is the cost of a bottle of rice wine that costs 5250 yen?

Accepted Answer

A) $28 
B) $30 
C) $32 
D) $34

Question 8

Table 12-1
 
-Refer to the Table 12-1.What country's good are less expensive than Canadian goods?

Accepted Answer

A) Bolivia 
B) Japan 
C) Norway 
D) Thailand

Question 9

Table 12-1
 
-Refer to the Table 12-1.What countries in the table does purchasing-power parity hold for?

Accepted Answer

A) Bolivia and Japan 
B) Bolivia and Morocco 
C) Japan and Thailand 
D) Thailand and Morocco

Question 10

As an open economy,Canadian national saving can be less than Canadian investment.

Accepted Answer

A) True 
 B)False

Question 11

Suppose Connie,a Canadian citizen,buys bonds issued by an automobile manufacturer in Sweden.Which of the following would her expenditure be?

Accepted Answer

A) Canadian foreign direct investment that would increase Canadian net capital outflow 
B) Canadian foreign direct investment that would decrease Canadian net capital outflow 
C) Canadian foreign portfolio investment that would increase Canadian net capital outflow 
D) Canadian foreign portfolio investment that would decrease Canadian net capital outflow

Question 12

Suppose the real exchange rate is 1 litre of Canadian gasoline per 2 litres of U.S.gasoline,1 litre of U.S.gasoline costs $0.50 U.S.,and a litre of Canadian gas costs $1.30 Canadian.What is the nominal exchange rate?

Accepted Answer

A) 0.38 U.S. dollars per Canadian dollar 
B) 0.65 U.S. dollars per Canadian dollar 
C) 0.77 U.S. dollars per Canadian dollar 
D) 1.30 U.S. dollars per Canadian dollar

Question 13

According to the theory of purchasing-power parity,the real exchange rate defined as foreign goods per unit of Canadian goods will equal the domestic price level divided by the foreign price level.

Accepted Answer

A) True 
 B)False

Question 14

If the Canadian real interest rate exceeds the world real interest rate,what would Canadian savers most likely do?

Accepted Answer

A) Canadian savers would prefer to buy foreign assets. 
B) Canadian savers would prefer to wait until the real interest rate falls to equal the world interest rate. 
C) Canadian savers would sell their Canadian assets and buy foreign assets instead. 
D) Canadian savers would sell their foreign assets and buy Canadian assets instead.

Question 15

How did the real interest rates paid on long-term government debt in Canada and the United States compare with each other over the period from 1984 to 2011?

Accepted Answer

A) The average real interest rate was 3.4 percent in Canada and 4.4 percent in the United States. 
B) The average real interest rate was 4.0 percent in Canada and 3.2 percent in the United States. 
C) The average real interest rate was 5.7 percent in Canada and 6.7 percent in the United States. 
D) The average real interest rate was 6.7 percent in Canada and 5.7 percent in the United States.

Question 16

In 2012,Denmark had net exports of $10 billion and sold $60 billion of goods and services abroad.What were Denmark's components of net exports?

Accepted Answer

A) $70 billion of exports and $50 billion of imports 
B) $50 billion of exports and $70 billion of imports 
C) $60 billion of exports and $50 billion of imports 
D) $50 billion of exports and $60 billion of imports

Question 17

A country has $80 million of saving and domestic investment of $30 million.What are net exports?

Accepted Answer

A) -$50 million 
B) $50 million 
C) $80 million 
D) $110 million

Question 18

Suppose that the exchange rate is 50 Bangladesh taka per Canadian dollar,and that a bushel of rice costs 200 taka in Bangladesh and $3 in Canada.Which of the following is consistent with these facts?

Accepted Answer

A) The real exchange rate is greater than one, and arbitrageurs could profit by buying rice in Canada and selling it in Bangladesh. 
B) The real exchange rate is greater than one, and arbitrageurs could profit by buying rice in Bangladesh and selling it in Canada. 
C) The real exchange rate is less than one, and arbitrageurs could profit by buying rice in Canada and selling it in Bangladesh. 
D) The real exchange rate is less than one, and arbitrageurs could profit by buying rice in Bangladesh and selling it in Canada.

Question 19

Suppose the price level in Canada (P)and the nominal exchange rate (e)between the Canadian dollar and the foreign currency remain the same,while the price level abroad increases from P₁* to P₂*.Let the real exchange rate be X.What is the percentage change in the real exchange rate?

Accepted Answer

The answer of Suppose the price level in Canada (P)and...

Question 20

Country A buys $150 of wine from country B,and B buys $30 of wool from A.Which of the following correctly indicates the two countries' net exports (in the order A,B)?

Accepted Answer

A) $180, $0 
B) $150, $30 
C) -$120, $120 
D) $120, -$120

Exam 12: Open-Economy Macroeconomics: Basic Concepts