Question 1

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 2

A country purchases $3 billion of foreign-produced goods and services and sells $2 billion dollars of domestically produced goods and services to foreign countries.It has

Accepted Answer

A)  exports of $3 billion and a trade surplus of $1 billion. 
B)  exports of $3 billion and a trade deficit of $1 billion. 
C)  exports of $2 billion and a trade surplus of $1 billion. 
D)  exports of $2 billion and a trade deficit of $1 billion.

Question 3

If it took as many dollars to buy goods in the United States as it did to buy enough currency to buy the same goods in India,the real exchange rate would be computed as how many Indian goods per U.S.goods?

Accepted Answer

A)  one 
B)  the number of dollars needed to buy U.S.goods divided by the number of rupees needed to buy Indian goods 
C)  the number of rupees needed to buy Indian goods divided by the number of dollars needed to buy U.S.goods 
D)  None of the above is correct.

Question 4

According to purchasing-power parity,what is the relationship between changes in price levels between two countries and changes in nominal exchange rates?

Accepted Answer

The answer of According to purchasing-power parity,what is the relationship...

Question 5

According to purchasing power parity,if over the course of a year the price level in the U.S.rises more than in Japan,then which of the following falls?

Accepted Answer

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

Question 6

If a country has $2.4 billion of net exports and purchases $4.8 billion of goods and services from foreign countries,then it has

Accepted Answer

A)  $7.2 billion of exports and $4.8 billion of imports. 
B)  $7.2 billion of imports and $4.8 billion of exports. 
C)  $4.8 billion of exports and $2.4 billion of imports. 
D)  $4.8 billion of imports and $2.4 billion of exports.

Question 7

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 8

Gabrielle,an Italian citizen,uses some previously obtained dollars to purchase a bond issued by a U.S.company.This transaction

Accepted Answer

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

Question 9

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

Accepted Answer

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

Question 10

Suppose that Bill,a resident of the U.S. ,buys software from a company in Japan.Explain why and in what directions this changes U.S.net exports and U.S.net capital outflow.

Accepted Answer

The answer of Suppose that Bill,a resident of the U.S....

Question 11

Purchasing-power parity implies that the nominal exchange rate given as foreign currency per unit of U.S.currency must rise if the price levels in

Accepted Answer

A)  foreign countries rise. 
B)  the United States rises. 
C)  both countries rise. 
D)  both countries fall.

Question 12

Suppose that money supply growth continues to be higher in Turkey than it is in the United States.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...

Question 13

An open economy's GDP is always given by

Accepted Answer

A)  Y = C + I + G. 
B)  Y = C + I + G + T. 
C)  Y = C + I + G + S. 
D)  Y = C + I + G + NX.

Question 14

Which of the following equations is correct?

Accepted Answer

A)  S = I + C 
B)  S = I - NX 
C)  S = I + NCO 
D)  S = NX - NCO.

Question 15

Other things the same,a country could move from having a trade surplus to having a trade deficit if either

Accepted Answer

A)  saving rose or domestic investment rose. 
B)  saving rose or domestic investment fell. 
C)  saving fell or domestic investment rose. 
D)  saving fell or domestic investment fell.

Question 16

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 17

Suppose a Starbucks tall-latte cost $4.00 in the United States and 5.00 euros in the euro area and $2.50 Australian dollars in Australia.Nominal exchange rates are .80 euros per dollar and 1.4 Australian dollars per U.S.dollar.Where does purchasing power parity hold?

Accepted Answer

A)  Both the euro area and Australia. 
B)  Neither the euro area or Australia. 
C)  The euro area but not Australia. 
D)  Australia but not the euro area.

Question 18

If purchasing-power parity holds,a dollar will buy

Accepted Answer

A)  more goods in foreign countries than in the United States. 
B)  as many goods in foreign countries as it does in the United States. 
C)  fewer goods in foreign countries than it does in the United States. 
D)  None of the above is implied by purchasing-power parity.

Question 19

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 20

Other things the same,an increase in the foreign price level leads to an increase in the real exchange rate.

Accepted Answer

A) True 
 B)False

Exam 31: Open-Economy Macroeconomics: Basic Concepts