Question 1

A farm equipment retailer in Azerbaijan exchanges Azerbaijan manats the currency of Azerbaijan) for $300,000 a bank in Azerbaijan was holding. It uses the $300,000 to buy farm equipment from a U.S. company. The U.S. company deposits half of these funds in a U.S. bank and exchanges the other half for euros from a bank in London.
As a result of these transactions, by how much, if at all, and in which direction did:
A. U.S. net exports change?
B. U.S. net capital outflow change?

Accepted Answer

The answer of A farm equipment retailer in Azerbaijan exchanges...

Question 2

According to purchasing-power parity, if the same basket of goods costs $100 in the U.S. and 50 pounds in Britain, then what is the nominal exchange rate?

Accepted Answer

A)  2 pounds per dollar 
B)  1 pound per dollar 
C)  1/2 pound per dollar 
D)  None of the above is correct

Question 3

Which of the following statements is incorrect for an open economy?

Accepted Answer

A)  A country can have a trade deficit, trade surplus, or balanced trade. 
B)  A country that has a trade deficit has positive net capital outflow. 
C)  Net exports must equal net capital outflow. 
D)  National saving equals domestic investment plus net capital outflow.

Question 4

If the exchange rate is .60 British pounds = $1, a bottle of ale that costs 3 pounds costs

Accepted Answer

A)  $1.80. 
B)  $4.80. 
C)  $5. 
D)  None of the above is correct.

Question 5

The country of Sylvania has a GDP of $900, investment of $200, government purchases of $200, and net capital outflow of -$100. What is consumption?

Accepted Answer

A)  $700 
B)  $600 
C)  $500 
D)  $300

Question 6

Which of the following is correct?

Accepted Answer

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

Question 7

A Japanese flour mill buys wheat from the United States and pays for it with yen. Other things the same, Japanese

Accepted Answer

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

Question 8

U.S.-based John Deere sells machinery to residents of South Africa who pay with South African currency the rand).

Accepted Answer

A)  This increases U.S. net capital outflow because the U.S. acquires foreign assets. 
B)  This decreases U.S. net capital outflow because the U.S. acquires foreign assets. 
C)  This increases U.S. net capital outflow because the U.S. sells capital goods. 
D)  This decreases U.S. net capital outflow because the U.S. sells capital goods.

Question 9

A bushel of apples costs $15.00 in the U.S. The same apples cost 1,600 yen in Japan. If the exchange rate is 80 yen per dollar, is there a possibility for arbitrage? Explain and defend your answer. As part of your defense, find the real exchange rate.

Accepted Answer

The answer of A bushel of apples costs $15.00 in...

Question 10

A country's trade balance will fall if

Accepted Answer

A)  either investment or saving rise. 
B)  either investment falls or saving rises. 
C)  either saving falls or investment rises. 
D)  either investment or saving fall.

Question 11

A British grocery chain uses previously obtained U.S. dollars to purchase oranges from the United States. This transaction

Accepted Answer

A)  increases British net capital outflow, and increases U.S. net exports. 
B)  increases British net capital outflow, and decreases U.S. net exports. 
C)  decreases British net capital outflow, and increases U.S. net exports. 
D)  decreases British net capital outflow, and decreases U.S. net exports.

Question 12

A company in Panama pays for a U.S. architect to design a factory building. By itself this transaction

Accepted Answer

A)  increases U.S. exports and so increases the U.S. trade balance. 
B)  increases U.S. exports and so decreases the U.S. trade balance. 
C)  increases U.S. imports and so increases the U.S. trade balance. 
D)  increases U.S. imports and so decreases the U.S. trade balance.

Question 13

The nominal exchange rate is about 2 Aruban florin per dollar. If a basket of goods in the United States costs $40, how many florins must a basket of goods in Aruba cost for purchasing-power parity to hold?

Accepted Answer

A)  20 florin 
B)  40 florin 
C)  60 florin 
D)  80 florin

Question 14

A tall latte in China costs 30 yuan. The same latte in the U.S. costs 4 dollars. If the exchange rate is 6.5 yuan per dollar then, the real exchange rate is

Accepted Answer

A)  .867 so the good is more expensive in the U.S. 
B)  .867 so the good is more expensive in China. 
C)  1.154 so the god is more expensive in the U.S. 
D)  1.154 so the good is more expensive in China.

Question 15

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 16

A country recently had saving of 250 billion euro and domestic investment of 400 billion euro. What was the value of this country's net exports? Show your work.

Accepted Answer

The answer of A country recently had saving of 250...

Question 17

Good that cost one half dollar in the U.S. cost one euro in Germany, the real exchange rate would be computed as how many German goods per U.S. goods?

Accepted Answer

A)  one half 
B)  one half the price of the U.S. goods 
C)  one half the number of euros it takes to buy a U.S. dollar 
D)  None of the above is correct.

Question 18

If domestic residents of other countries purchase $600 billion of U.S. assets and U.S residents purchase $500 billion of foreign assets, then U.S. net capital outflow is

Accepted Answer

A)  $100 billion and the U.S. has a trade surplus. 
B)  $100 billion and the U.S has a trade deficit. 
C)  -$100 billion and the U.S. has a trade surplus. 
D)  -$100 billion and the U.S. has a trade deficit.

Question 19

Other things the same, if the exchange rate changes from 30 Thai bhat per dollar to 25 Thai bhat per dollar, then the dollar has

Accepted Answer

A)  appreciated and so buys more Thai goods. 
B)  appreciated and so buys fewer Thai goods. 
C)  depreciated and so buys more Thai goods. 
D)  depreciated and so buys fewer Thai goods.

Question 20

Citizens in India buy music from the U.S. To do so they use Indian rupees to purchase U.S. dollars. If U.S. citizens hold these rupees rather than spending them, what happens to U.S. net exports and U.S. net capital outflows?

Accepted Answer

A)  both U.S. net exports and U.S. net capital outflow rise 
B)  both U.S. net exports and U.S. net capital outflow fall 
C)  U.S. net exports rise and U.S. net capital outflow fall 
D)  U.S. net exports fall and U.S. net capital outflow rise

Exam 13: Open-Economy Macroeconomics: Basic Concepts