Question 1

According to purchasing-power parity theory,if the same fast-food hamburger costs $2.50 in Canada and 5 euros in France,what should the nominal exchange rate be?

Accepted Answer

A)  1 / 4 euros per dollar 
B)  1 / 2 euro per dollar 
C)  1 euro per dollar 
D)  2 euro per dollar

Question 2

When a country's central bank increases the money supply,what happens to a unit of that country's money?

Accepted Answer

A)  It gains value both in terms of the domestic goods and services it can buy and in terms of the foreign currency it can buy. 
B)  It gains value in terms of the domestic goods and services it can buy,but loses value in terms of the foreign currency it can buy. 
C)  It loses value in terms of the domestic goods and services it can buy,but gains value in terms of the foreign currency it can buy. 
D)  It loses value both in terms of the domestic goods and services it can buy and in terms of the foreign currency it can buy.

Question 3

What equation is the GDP identity in an open economy?

Accepted Answer

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

Question 4

How are net exports of a country determined?

Accepted Answer

A)  the value of goods and services imported minus the value of goods and services exported 
B)  the value of goods and services exported minus the value of goods and services imported 
C)  the value of goods exported minus the value of goods imported 
D)  the value of goods imported minus the value of goods exported

Question 5

How does international trade affect the standard of living?

Accepted Answer

A)  It raises the standard of living in all trading countries. 
B)  It lowers the standard of living in all trading countries. 
C)  It raises the standard of living in the exporting country and lowers it in the importing country. 
D)  It raises the standard of living in the importing country and lowers it in the exporting country.

Question 6

If the exchange rate is 10 pesos per dollar,it is also 0.10 dollars per peso.

Accepted Answer

A) True 
 B)False

Question 7

Suppose the exchange rate is 5 units of Peruvian currency per dollar,and a hotel room in Lima,Peru,costs 450 units of Peruvian currency.How many dollars do you need to get a room in Lima?

Accepted Answer

A)  $45 
B)  $90 
C)  $455 
D)  $2250

Question 8

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 9

Under what circumstances does purchasing-power parity explain how exchange rates are determined and why is it not completely accurate?

Accepted Answer

The answer of Under what circumstances does purchasing-power parity explain...

Question 10

The large,positive net capital outflow in Canada after 1999 is primarily the result of government budget surpluses.

Accepted Answer

A) True 
 B)False

Question 11

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 12

Which of the following might part of Canadian savings be counted as?

Accepted Answer

A)  foreign direct investment 
B)  foreign portfolio investment 
C)  net capital outflow 
D)  net exports

Question 13

Suppose the price level in Canada was P = 124 last year; it is up by 3 points this year.In the U.S.,the price level was 112 last year; it is up by 2 points this year.The exchange rate was US$0.96 per C$1 last year.(For part a,approximate all results to two decimals.)
a)Compare the rate of change in the exchange rate with the difference between the foreign and domestic inflation rates.Are they equal?
b)In theory,the rate of change in the nominal exchange rate should be about the same as the inflation difference.Redo the calculations from part a,retaining this time at least four decimals in your intermediate results.Does your answer to the question in part a change?
c)What have you learned from this exercise?

Accepted Answer

The answer of Suppose the price level in Canada was...

Question 14

If goods in Canada cost the same number of dollars as German goods cost in euros,the real exchange rate would be computed as how many German goods per Canadian goods?

Accepted Answer

A)  one 
B)  the price of the Canadian goods 
C)  the amount of German currency that can be bought with one unit of Canadian currency 
D)  the amount of Canadian currency that can be bought with one unit of German currency

Question 15

Suppose that the exchange rate is 10 Moroccan dirhams per Canadian dollar.Also suppose that you can buy a crate of oranges for 300 dirhams in the Moroccan capital of Rabat and can buy a similar crate of oranges in Ottawa for $35.Which statement is consistent with these facts?

Accepted Answer

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

Question 16

Refer to Table 12-1.What currency(ies)is(are)less valuable than predicted by the purchasing-power parity theory?

Accepted Answer

A)  the yen 
B)  the yen and kroner 
C)  the baht and kroner 
D)  the boliviano

Question 17

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 18

A German company sells vehicles to a dealership in Canada.Which statement best identifies the effects of these transactions?

Accepted Answer

A)  They have no effect on Canadian net exports,and they increase German net exports. 
B)  They decrease Canadian net exports and increase German net exports. 
C)  They increase Canadian and German net exports. 
D)  They increase Canadian net exports and decrease German net exports.

Question 19

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 20

A Japanese firm buys lumber from Canada and pays for it with yen.What are the effects of this transaction?

Accepted Answer

A)  Japanese net exports increase,and Canadian net capital outflow increases. 
B)  Japanese net exports increase,and Canadian net capital outflow decreases. 
C)  Japanese net exports decrease,and Canadian net capital outflow increases. 
D)  Japanese net exports decrease,and Canadian net capital outflow decreases.

Exam 12: Open-Economy Macroeconomics: Basic Concepts