Question 1

How has the introduction of the euro affected arbitrage?

Accepted Answer

A)  It has eliminated the possibility of arbitrage within Europe. 
B)  It has eliminated the possibility of arbitrage based on exchange-rate differences within Europe. 
C)  It has increased the possibilities for arbitrage within Europe. 
D)  It has not affected the possibilities for arbitrage within Europe.

Question 2

Suppose that money-supply growth continues to be higher in Turkey than it is in Canada. What does purchasing-power parity imply will happen to the real and to the nominal exchange rate?

Accepted Answer

The answer of Suppose that money-supply growth continues to be...

Question 3

What is the most likely effect of an appreciation of the Canadian real exchange rate on the quantity of Alberta beef demanded by French citizens?

Accepted Answer

A)  French citizens will buy less of Alberta beef. 
B)  French citizens will buy more of Alberta beef. 
C)  The quantity of Alberta beef demanded by French citizens will not change because the nominal exchange rate has not changed. 
D)  The quantity of Alberta beef demanded by French citizens will not change because it is the French real interest rate that matters for French citizens.

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

Negative net exports are the same as a trade surplus.

Accepted Answer

A) True 
 B)False

Question 6

What are foreign-produced goods and services that are sold domestically called?

Accepted Answer

A)  imports 
B)  exports 
C)  net imports 
D)  net exports

Question 7

Canada sells machinery to a South African company, which pays Canada with South African currency (the rand). What happens to Canadian net capital outflow from this transaction?

Accepted Answer

A)  It increases because Canada acquires foreign assets. 
B)  It decreases because Canada acquires foreign assets. 
C)  It increases because Canada sells capital goods. 
D)  It decreases because Canada sells capital goods.

Question 8

What does purchasing-power parity explain?

Accepted Answer

A)  It explains prices in the short run. 
B)  It explains prices in the long run. 
C)  It explains exchange rates in the short run. 
D)  It explains exchange rates in the long run.

Question 9

Paula, a citizen of Spain, decides to purchase bonds issued by Columbia instead of Canadian bonds, even though the Columbian bonds have a higher risk of default. What might be an economic reason for her decision?

Accepted Answer

A)  Columbia has a lower inflation rate. 
B)  The Columbian bonds pay a higher rate of interest. 
C)  The Canadian government is more stable than the Columbian government. 
D)  Columbian bonds have shorter maturity periods than Canadian bonds.

Question 10

A firm in India sells spices to a Canadian chain of culinary stores. Which statement best identifies the effects of this transaction?

Accepted Answer

A)  It increases Canadian and Indian net exports. 
B)  It decreases Canadian and Indian net exports. 
C)  It increases Canadian net exports and decreases Indian net exports. 
D)  It decreases Canadian net exports and increases Indian net exports.

Question 11

If the Canadian dollar gets weaker relative to the Japanese yen, what might happen?

Accepted Answer

A)  Canadian trade surplus will fall. 
B)  Canadian trade deficit will fall. 
C)  Japanese trade surplus will rise. 
D)  Japanese trade deficit will fall.

Question 12

In 2015, Ghana had $4 billion of net exports and bought $1 billion of goods from foreign countries. What were Ghana's components of net exports?

Accepted Answer

A)  $5 billion in exports and $1 billion in imports 
B)  $4 billion in imports and $1 billion in exports 
C)  $3 billion in exports and $1 billion in imports 
D)  $1 billion in imports and $3 billion in exports

Question 13

From 1970 to 1998, the Canadian dollar depreciated against the German mark and appreciated against the Italian lira because Canada experienced more inflation than Germany but less inflation than Italy.

Accepted Answer

A) True 
 B)False

Question 14

What does a trade deficit imply?

Accepted Answer

A)  saving is greater than domestic investment and Y > C + I + G 
B)  saving is greater than domestic investment and Y  C + I + G 
D)  saving is less than domestic investment and Y < C + I + G

Question 15

Consider this statement: "Canada is characterized by perfect capital mobility." Which of the following best explains what this statement means?

Accepted Answer

A)  that labour can easily move across Canada's borders 
B)  that purchasing-power parity holds in Canada 
C)  that Canada's net foreign investment is zero 
D)  that investors' funds can easily move across Canada's borders

Question 16

Suppose the real exchange rate X between Canada and the U.S. is constant. Let the price level in Canada be P, the price level in the U.S. be P*, and the nominal exchange rate bee. Suppose the price level in Canada increases from P₁ to P₂ and the price level in the U.S. increases from P₁* to P₂*. Show that the rate of change in e, which is equal to (E₂ - E₁)/E₁ × 100 is approximately equal to the difference in the inflation rates in the two countries. Note that the nominal exchange rate is e = XP*/P. What have you learned from this exercise?

Accepted Answer

The answer of Suppose the real exchange rate X between...

Question 17

When Canada increases its net capital outflow, it causes Canadian national saving to decrease.

Accepted Answer

A) True 
 B)False

Question 18

According to purchasing-power parity theory, if the same fast-food hamburger costs $2.00 in Canada and 10 Tunisian dinars, what should the exchange rate be?

Accepted Answer

A)  1/5 Tunisian dinars per dollar 
B)  1 Tunisian dinar per dollar 
C)  5 Tunisian dinars per dollar 
D)  25 Tunisian dinars per dollar

Question 19

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 20

If it took as many dollars to buy goods in Canada as it did to buy enough currency to buy the same goods in Kenya, the real exchange rate would be computed as how many Kenyan goods per Canadian goods?

Accepted Answer

A)  one 
B)  the number of dollars needed to buy Canadian goods divided by the number of shillings needed to buy Kenyan goods 
C)  the number of shillings needed to buy Kenyan goods divided by the number of dollars needed to buy Canadian goods 
D)  a number equal to the nominal exchange rate

Exam 12: Open-Economy Macroeconomics: Basic Concepts

How has the introduction of the euro affected arbitrage?

Suppose that money-supply growth continues to be higher in Turkey than it is in Canada. What does purchasing-power parity imply will happen to the real and to the nominal exchange rate?

What is the most likely effect of an appreciation of the Canadian real exchange rate on the quantity of Alberta beef demanded by French citizens?

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

Negative net exports are the same as a trade surplus.

What are foreign-produced goods and services that are sold domestically called?

Canada sells machinery to a South African company, which pays Canada with South African currency (the rand) . What happens to Canadian net capital outflow from this transaction?

What does purchasing-power parity explain?

Paula, a citizen of Spain, decides to purchase bonds issued by Columbia instead of Canadian bonds, even though the Columbian bonds have a higher risk of default. What might be an economic reason for her decision?

A firm in India sells spices to a Canadian chain of culinary stores. Which statement best identifies the effects of this transaction?

If the Canadian dollar gets weaker relative to the Japanese yen, what might happen?

In 2015, Ghana had $4 billion of net exports and bought $1 billion of goods from foreign countries. What were Ghana's components of net exports?

From 1970 to 1998, the Canadian dollar depreciated against the German mark and appreciated against the Italian lira because Canada experienced more inflation than Germany but less inflation than Italy.

What does a trade deficit imply?

Consider this statement: "Canada is characterized by perfect capital mobility." Which of the following best explains what this statement means?

When Canada increases its net capital outflow, it causes Canadian national saving to decrease.

According to purchasing-power parity theory, if the same fast-food hamburger costs $2.00 in Canada and 10 Tunisian dinars, what should the exchange rate be?

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

If it took as many dollars to buy goods in Canada as it did to buy enough currency to buy the same goods in Kenya, the real exchange rate would be computed as how many Kenyan goods per Canadian goods?