Question 1

If purchasing-power parity holds, when a country's central bank decreases the money supply, its

Accepted Answer

A)  price level rises and its currency appreciates relative to other currencies in the world. 
B)  price level falls and its currency appreciates relative to other currencies in the world. 
C)  price level rises and its currency depreciates relative to other currencies in the world. 
D)  price level falls and its currency depreciates relative to other currencies in the world.

Question 2

If France had positive net exports last year, then it

Accepted Answer

A)  sold more abroad than it purchased abroad and had a trade surplus. 
B)  sold more abroad than it purchased abroad and had a trade deficit. 
C)  bought more abroad than it sold abroad and had a trade surplus. 
D)  bought more abroad than it sold abroad and had a trade deficit.

Question 3

Purchasing-power parity says that the nominal exchange rate must equal the real exchange rate.

Accepted Answer

A) True 
 B)False

Question 4

Most of the change from 1980 to 1987 in U.S. net capital outflow as a percent of GDP was due to an)

Accepted Answer

A)  decrease in U.S. investment. 
B)  decrease in U.S. national saving. 
C)  increase in U.S. investment. 
D)  increase in U.S. national saving.

Question 5

If the exchange rate is 12.5 pesos per U.S. dollar, it is also 1/12.5 U.S. dollars per peso.

Accepted Answer

A) True 
 B)False

Question 6

Suppose that a U.S. dollar buys more gold in Australia than it buys in Russia. What does purchasing-power parity imply should happen?

Accepted Answer

The answer of Suppose that a U.S. dollar buys more...

Question 7

Suppose a Starbucks tall latte cost $4.00 in the United States and 3.20 euros in the Euro area. Also, suppose a McDonald's Big Mac costs $4.40 in the United States and 5.50 euros in Euro area. If the nominal exchange rate is .80 euros per dollar, the prices of which goods have prices that are consistent with purchasing-power parity?

Accepted Answer

A)  both the tall latte and the Big Mac 
B)  the tall latte but not the Big Mac 
C)  the Big Mac but not the tall latte 
D)  neither the tall latte nor the Big Mac

Question 8

All saving in the U.S. economy shows up as

Accepted Answer

A)  investment in the U.S. economy. 
B)  U.S. net capital outflow. 
C)  either investment in the U.S. economy or U.S. net capital outflow. 
D)  None of the above is correct.

Question 9

When Ghana sells chocolate to the United States, U.S. net exports

Accepted Answer

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

Question 10

A country has $40 billion of domestic investment and net capital outflows of -$20 billion. What is the country's saving?

Accepted Answer

A)  -$60 billion 
B)  -$20 billion 
C)  $20 billion 
D)  $60 billion

Question 11

Reduced barriers to trade help explain an increase in U.S. exports and imports relative to GDP since 1950.

Accepted Answer

A) True 
 B)False

Question 12

Prices in both the U.S. and India rise, but prices in India increase by a smaller percentage. According to purchasing- power parity the U.S. dollar

Accepted Answer

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

Question 13

A country recently had saving of 300 billion euros and domestic investment of 200 billion euros. What was the value of this country's net exports? Explain how you found your answer.

Accepted Answer

The answer of A country recently had saving of 300...

Question 14

Other things the same, which of the following could be a consequence of an appreciation of the U.S. real exchange rate?

Accepted Answer

A)  John, a French citizen, decides that Iowa pork is now relatively less expensive and orders more for his restaurant. 
B)  Nick, a U.S. citizen, decides that the trip to Nepal he's been thinking about is now affordable. 
C)  Roberta, a U.S. citizen, decides to import fewer windshield wipers for her auto parts company. 
D)  All of the above are correct.

Question 15

An American retailer sells dollars to obtain euros. It then uses the euros to buy ready-to-assemble furniture from Sweden. These transactions

Accepted Answer

A)  increase U.S. net capital outflow because foreigners obtain U.S. assets. 
B)  decrease U.S. net capital outflow because foreigners obtain U.S. assets. 
C)  increase U.S. net capital outflow because the U.S. buys capital goods. 
D)  decrease U.S. net capital outflow because the U.S. buys capital goods.

Question 16

If the dollar buys fewer bananas in Guatemala than in Honduras, then traders could make a profit by

Accepted Answer

A)  buying bananas in Honduras and selling them in Guatemala, which would tend to raise the price of bananas in Honduras. 
B)  buying bananas in Honduras and selling them in Guatemala, which would tend to raise the price of bananas in Guatemala. 
C)  buying bananas in Guatemala and selling them in Honduras, which would tend to raise the price of bananas in Guatemala. 
D)  buying bananas in Guatemala and selling them in Honduras, which would tend to raise the price of bananas in Honduras.

Question 17

A U.S. grocery chain buys bananas from Honduras and pays for them with U.S. dollars.

Accepted Answer

A)  The purchase of the bananas increases U.S. net exports and the payment with dollars increases U.S. net capital outflow. 
B)  The purchase of bananas increases U.S. net exports and the payment with dollars decreases U.S. net capital outflow. 
C)  The purchase of bananas decreases U.S. net exports and the payment with dollars increases U.S. net capital outflow. 
D)  The purchase of bananas decreases U.S. net exports and the payment with dollars decreases U.S. net capital outflow.

Question 18

A pair of running shoes costs $70 in the U.S. If the price of the same shoes is 4500 rupees in India and the exchange rate is 60 rupees per dollar, than the real exchange rate is

Accepted Answer

A)  more than 1, so a profit could be made by buying these shoes in the U.S. and selling them in India. 
B)  more than 1, so a profit could be made by buying these shoes in India and selling them in the U.S. 
C)  less than 1, so a profit could be made by buying these shoes in the U.S. and selling them in India. 
D)  less than 1, so a profit could be made by buying these shoes in India and selling them in the U.S.

Question 19

During 2011, the price level in the U.S. rose at a faster rate than the price level in Japan. Other things the same, according to purchasing-power parity, this difference in inflation rates should have caused

Accepted Answer

A)  the nominal exchange rate of the dollar to appreciate relative to the yen. 
B)  the real exchange rate of the dollar to appreciate relative to the yen. 
C)  the nominal exchange rate of the dollar to depreciate relative to the yen. 
D)  the real exchange rate of the dollar to depreciate relative to the yen.

Question 20

Paul, a U.S. citizen, builds a telescope factory in Israel. His expenditures

Accepted Answer

A)  increase U.S. and Israeli net capital outflow. 
B)  increase U.S. net capital outflow, but decrease Israeli net capital outflow. 
C)  decrease U.S. net capital outflow, but increase Israeli net capital outflow. 
D)  None of the above is correct.

Exam 13: Open-Economy Macroeconomics: Basic Concepts

If purchasing-power parity holds, when a country's central bank decreases the money supply, its

If France had positive net exports last year, then it

Purchasing-power parity says that the nominal exchange rate must equal the real exchange rate.

Most of the change from 1980 to 1987 in U.S. net capital outflow as a percent of GDP was due to an)

If the exchange rate is 12.5 pesos per U.S. dollar, it is also 1/12.5 U.S. dollars per peso.

Suppose that a U.S. dollar buys more gold in Australia than it buys in Russia. What does purchasing-power parity imply should happen?

All saving in the U.S. economy shows up as

When Ghana sells chocolate to the United States, U.S. net exports

A country has $40 billion of domestic investment and net capital outflows of -$20 billion. What is the country's saving?

Reduced barriers to trade help explain an increase in U.S. exports and imports relative to GDP since 1950.

Prices in both the U.S. and India rise, but prices in India increase by a smaller percentage. According to purchasing- power parity the U.S. dollar

A country recently had saving of 300 billion euros and domestic investment of 200 billion euros. What was the value of this country's net exports? Explain how you found your answer.

Other things the same, which of the following could be a consequence of an appreciation of the U.S. real exchange rate?

An American retailer sells dollars to obtain euros. It then uses the euros to buy ready-to-assemble furniture from Sweden. These transactions

If the dollar buys fewer bananas in Guatemala than in Honduras, then traders could make a profit by

A U.S. grocery chain buys bananas from Honduras and pays for them with U.S. dollars.

A pair of running shoes costs $70 in the U.S. If the price of the same shoes is 4500 rupees in India and the exchange rate is 60 rupees per dollar, than the real exchange rate is

During 2011, the price level in the U.S. rose at a faster rate than the price level in Japan. Other things the same, according to purchasing-power parity, this difference in inflation rates should have caused

Paul, a U.S. citizen, builds a telescope factory in Israel. His expenditures