Question 1

A rational investor will always purchase the bond that pays the highest real interest rate.

Accepted Answer

A) True 
 B)False  False

Question 2

If the exchange rate is 125 yen per dollar.Then a hotel room in Tokyo that costs 25,000 yen costs $200.

Accepted Answer

A) True 
 B)False  True

Question 3

Derive the relation between savings,domestic investment,and net capital outflow using the national income accounting identity.

Accepted Answer

Start from the national income accounting identity,
(1) Y = C + I + G + NX.
Recall from Chapter 25 that national saving is the income that is left after paying for current consumption and government expenditure,
(2) S = Y - C - G.
Rearranging,(1)we obtain Y - C - G = I + NX,and substituting in (2)
(3) S = I + NX.
Because net exports also equal net capital outflow,we can also write this equation as
(4) S = I + NCO.

Question 4

Other things the same,the purchase of a U.S.government bond by a resident of Singapore decreases U.S.net capital outflow and increases Singapore's net capital outflow.

Accepted Answer

A) True 
 B)False

Question 5

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

Question 6

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 7

If a country has negative net capital outflows,then its net exports are

Accepted Answer

A)  positive and its saving is larger than its domestic investment.
B)  positive and its saving is smaller than its domestic investment.
C)  negative and its saving is larger than its domestic investment.
D)  negative and its saving is smaller than its domestic investment.

Question 8

A country has $60 million of saving and domestic investment of $40 million.Net exports are

Accepted Answer

A)  $20 million.
B)  -$20 million.
C)  $100 million.
D)  -$100 million.

Question 9

If the U.S.real exchange rate appreciates relative to the euro,U.S.exports to Europe

Accepted Answer

A)  and European exports to the U.S.both rise.
B)  and European exports to the U.S.both fall.
C)  rise, and European exports to the U.S.fall.
D)  fall, and European exports to the U.S.rise.

Question 10

A depreciation of the U.S.real exchange rate induces U.S.consumers to buy

Accepted Answer

A)  fewer domestic goods and fewer foreign goods.
B)  more domestic goods and fewer foreign goods.
C)  fewer domestic goods and more foreign goods.
D)  more domestic goods and more foreign goods.

Question 11

In an open economy,gross domestic product equals $1,850 billion,consumption expenditure equals $975 billion,government expenditure equals $225 billion,investment equals $500 billion,and net exports equals $150 billion.What is national savings?

Accepted Answer

A)  $0
B)  $500 billion
C)  $650 billion
D)  $975 billion

Question 12

According to the theory of purchasing-power parity,the nominal exchange rate between two countries must reflect the different

Accepted Answer

A)  price levels in those countries.
B)  resource endowments in those countries.
C)  income levels in those countries.
D)  standards of living between those countries.

Question 13

Clear Brook Farms,a U.S.manufacturer of frozen vegetarian entrees,sells cases of their product to stores overseas.Its sales

Accepted Answer

A)  decrease U.S.exports but increase U.S.net exports.
B)  decrease both U.S.exports and U.S.net exports.
C)  increase both U.S.exports and U.S.net exports.
D)  increase U.S.exports but decrease U.S.net exports.

Question 14

Ivan,a Russian citizen,sells several hundred cases of caviar to a restaurant chain in the United States.By itself,this sale

Accepted Answer

A)  increases U.S.net exports and has no effect on Russian net exports.
B)  increases U.S.net exports and decreases Russian net exports.
C)  decreases U.S.net exports and has no effect on Russian net exports.
D)  decreases U.S.net exports and increases Russian net exports.

Question 15

If Argentina's domestic investment exceeds national saving,then Argentina has

Accepted Answer

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

Question 16

If a country changes its corporate tax laws so that domestic firms build and manage more firms overseas,then this country will

Accepted Answer

A)  increase foreign direct investment which increases net capital outflow.
B)  increase foreign direct investment which decreases net capital outflow.
C)  increase foreign portfolio investment which increases net capital outflow.
D)  increase foreign portfolio investment which decreases net capital outflow.

Question 17

In every economy,national saving equals domestic investment plus net capital outflow.

Accepted Answer

A) True 
 B)False

Question 18

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

Accepted Answer

A)  Toni, a U.S.citizen, buys bonds issued by a Swedish corporation.
B)  Randall, a U.S.citizen, opens a cheesecake factory in Italy.
C)  Both A and B are examples of U.S.portfolio investment.
D)  Neither A nor B are examples of U.S.portfolio investment.

Question 19

Suppose the Mexican nominal exchange rate does not change,but prices rise faster abroad than in Mexico.Based on this information,the Mexican real exchange rate

Accepted Answer

A)  does not change.
B)  rises.
C)  declines.
D)  None of the above is necessarily correct.

Question 20

If US goods cost 1/5 of one dollar for every Markka Finnish goods cost,the real exchange rate would be computed as how many Finnish goods per U.S.goods?

Accepted Answer

A)  five
B)  one fifth the price of the U.S.goods
C)  the amount of Markka that can be bought with 1/5 of one dollar.
D)  None of the above is correct.

Exam 31: Open-Economy Macroeconomics: Basic Concepts

A rational investor will always purchase the bond that pays the highest real interest rate.

If the exchange rate is 125 yen per dollar.Then a hotel room in Tokyo that costs 25,000 yen costs $200.

Derive the relation between savings,domestic investment,and net capital outflow using the national income accounting identity.

Other things the same,the purchase of a U.S.government bond by a resident of Singapore decreases U.S.net capital outflow and increases Singapore's net capital outflow.

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

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.

If a country has negative net capital outflows,then its net exports are

A country has $60 million of saving and domestic investment of $40 million.Net exports are

If the U.S.real exchange rate appreciates relative to the euro,U.S.exports to Europe

A depreciation of the U.S.real exchange rate induces U.S.consumers to buy

In an open economy,gross domestic product equals $1,850 billion,consumption expenditure equals $975 billion,government expenditure equals $225 billion,investment equals $500 billion,and net exports equals $150 billion.What is national savings?

According to the theory of purchasing-power parity,the nominal exchange rate between two countries must reflect the different

Clear Brook Farms,a U.S.manufacturer of frozen vegetarian entrees,sells cases of their product to stores overseas.Its sales

Ivan,a Russian citizen,sells several hundred cases of caviar to a restaurant chain in the United States.By itself,this sale

If Argentina's domestic investment exceeds national saving,then Argentina has

If a country changes its corporate tax laws so that domestic firms build and manage more firms overseas,then this country will

In every economy,national saving equals domestic investment plus net capital outflow.

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

Suppose the Mexican nominal exchange rate does not change,but prices rise faster abroad than in Mexico.Based on this information,the Mexican real exchange rate

If US goods cost 1/5 of one dollar for every Markka Finnish goods cost,the real exchange rate would be computed as how many Finnish goods per U.S.goods?