Question 1

Consider an identical basket of goods in both the U.S. and Taiwan. For a given nominal exchange rate, in which case is it certain that the U.S. real exchange rate with Taiwan falls?

Accepted Answer

A)  the price of the basket of goods rises in the U.S. and Taiwan. 
B)  the price of the basket of goods rises in the U.S. and falls in Taiwan. 
C)  the price of the basket of goods falls in the U.S. and rises in Taiwan. 
D)  the price of the basket of goods falls in both the U.S. and Taiwan.

Question 2

A U.S. firm buys apples from New Zealand with New Zealand dollars it got in exchange for U.S. dollars. New Zealand residents then use these dollars to purchase oranges from the U.S. Which of the following increases?

Accepted Answer

A)  New Zealand's net capital outflow and New Zealand's net exports 
B)  only New Zealand's net exports 
C)  only New Zealand's net capital outflow 
D)  neither New Zealand's net exports nor New Zealand's capital outflow

Question 3

A nation's domestic investment is greater than its savings. Which of the following is correct?

Accepted Answer

A)  This nation has a negative net capital outflow. 
B)  This nation has a trade surplus. 
C)  Purchases of foreign assets by domestic residents exceed purchases of domestic assets by foreigners. 
D)  All of the above are correct.

Question 4

A nation with a trade surplus will necessarily have saving that is greater than domestic investment.

Accepted Answer

A) True 
 B)False

Question 5

If the Canadian nominal exchange rate does not change, but prices rise faster abroad than in Canada, then the Canadian real exchange rate

Accepted Answer

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

Question 6

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

Accepted Answer

A)  Albert, a German citizen, buys stock in a U.S. computer company. 
B)  Larry, a citizen of Ireland, opens a fish and chips restaurant in the United States. 
C)  Nancy, a U.S. citizen, buys bonds issued by a Japanese bank. 
D)  Dustin, a U.S. citizen, opens a country-western tavern in New Zealand.

Question 7

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

Accepted Answer

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

Question 8

Other things the same, which of the following could explain a rise in Sweden's net capital outflow?

Accepted Answer

A)  interest rates on Swedish bonds rise 
B)  the probability of default on Swedish bonds rises 
C)  Sweden enacts a law reducing taxes on income earned by foreign-owned businesses operating in Sweden 
D)  None of the above are correct.

Question 9

If the exchange rate is 2 Brazilian reals per dollar and a meal in Rio costs 20 reals, then how many dollars does it take to buy a meal in Rio?

Accepted Answer

A)  40 and your purchase will increase Brazil's net exports. 
B)  10 and your purchase will increase Brazil's net exports. 
C)  40 and your purchase will decrease Brazil's net exports. 
D)  10 and your purchase will decrease Brazil's net exports.

Question 10

From 1970 to 1998 the U.S. dollar

Accepted Answer

A)  gained value compared to the German mark because inflation was higher in the U.S. 
B)  gained value compared to the German mark because inflation was lower in the U.S. 
C)  lost value compared to the German mark because inflation was higher in the U.S. 
D)  lost value compared to the German mark because inflation was lower in the U.S.

Question 11

The nominal exchange rate is the

Accepted Answer

A)  nominal interest rate in one country divided by the nominal interest rate in the other country. 
B)  the ratio of a foreign country's interest rate to the domestic interest rate. 
C)  rate at which a person can trade the currency of one country for another. 
D)  the real exchange rate minus the inflation rate.

Question 12

While vacationing in Turkey you see a rug you consider purchasing. The seller tells you the rug costs 1,200 Turkish lire.
A. If the exchange rate is .60 lira per dollar, how many dollars does the rug cost?
B. If the dollar depreciates against the lira, will it take more or fewer dollars to buy the rug? Explain.

Accepted Answer

The answer of While vacationing in Turkey you see a...

Question 13

According to purchasing-power parity, if it took 58 Indian rupees to buy a dollar today, but it took 55 to buy it a year ago, then the dollar has

Accepted Answer

A)  appreciated, indicating inflation was higher in the U.S. than in India. 
B)  appreciated, indicating inflation was lower in the U.S. than in India. 
C)  depreciated, indicating inflation was higher in the U.S. than in India. 
D)  depreciated, indicating inflation was lower in the U.S. than in India.

Question 14

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 15

Egypt has exports of $500 million and imports of $750 million. Egypt

Accepted Answer

A)  sells more overseas then it buys from overseas; it has a trade deficit. 
B)  sells more overseas then it buys from overseas; it has a trade surplus. 
C)  buys more from overseas then it sells overseas; it has a trade deficit. 
D)  buys more from overseas then it sells overseas; it has a trade surplus.

Question 16

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 17

If a country had a trade surplus of $100 billion and then its exports rose by $40 billion and its imports rose by $30 billion, its net exports would now be

Accepted Answer

A)  $110 billion 
B)  $90 billion. 
C)  $70 billion. 
D)  $60 billion.

Question 18

The theory of purchasing­power parity states that a unit of a country's currency should be able to buy the same quantity of goods in foreign countries as it does in the domestic economy.

Accepted Answer

A) True 
 B)False

Question 19

Carl and Carly are American residents. Carl buys stock of a corporation in Austria. Carly opens a coffee shop in Austria. Whose purchase, by itself, decreases Austria's net capital outflow?

Accepted Answer

A)  Carl's 
B)  Carly's 
C)  both Carl's and Carly's 
D)  neither Carl's nor Carly's

Question 20

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...

Exam 18: Open-Economy Macroeconomics: Basic Concepts

Consider an identical basket of goods in both the U.S. and Taiwan. For a given nominal exchange rate, in which case is it certain that the U.S. real exchange rate with Taiwan falls?

A U.S. firm buys apples from New Zealand with New Zealand dollars it got in exchange for U.S. dollars. New Zealand residents then use these dollars to purchase oranges from the U.S. Which of the following increases?

A nation's domestic investment is greater than its savings. Which of the following is correct?

A nation with a trade surplus will necessarily have saving that is greater than domestic investment.

If the Canadian nominal exchange rate does not change, but prices rise faster abroad than in Canada, then the Canadian real exchange rate

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

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

Other things the same, which of the following could explain a rise in Sweden's net capital outflow?

If the exchange rate is 2 Brazilian reals per dollar and a meal in Rio costs 20 reals, then how many dollars does it take to buy a meal in Rio?

From 1970 to 1998 the U.S. dollar

The nominal exchange rate is the

According to purchasing-power parity, if it took 58 Indian rupees to buy a dollar today, but it took 55 to buy it a year ago, then the dollar has

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

Egypt has exports of $500 million and imports of $750 million. Egypt

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

If a country had a trade surplus of $100 billion and then its exports rose by $40 billion and its imports rose by $30 billion, its net exports would now be

The theory of purchasingpower parity states that a unit of a country's currency should be able to buy the same quantity of goods in foreign countries as it does in the domestic economy.

Carl and Carly are American residents. Carl buys stock of a corporation in Austria. Carly opens a coffee shop in Austria. Whose purchase, by itself, decreases Austria's net capital outflow?

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

Exam 18: Open-Economy Macroeconomics: Basic Concepts

Consider an identical basket of goods in both the U.S. and Taiwan. For a given nominal exchange rate, in which case is it certain that the U.S. real exchange rate with Taiwan falls?

A U.S. firm buys apples from New Zealand with New Zealand dollars it got in exchange for U.S. dollars. New Zealand residents then use these dollars to purchase oranges from the U.S. Which of the following increases?

A nation's domestic investment is greater than its savings. Which of the following is correct?

A nation with a trade surplus will necessarily have saving that is greater than domestic investment.

If the Canadian nominal exchange rate does not change, but prices rise faster abroad than in Canada, then the Canadian real exchange rate

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

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

Other things the same, which of the following could explain a rise in Sweden's net capital outflow?

If the exchange rate is 2 Brazilian reals per dollar and a meal in Rio costs 20 reals, then how many dollars does it take to buy a meal in Rio?

From 1970 to 1998 the U.S. dollar

The nominal exchange rate is the

According to purchasing-power parity, if it took 58 Indian rupees to buy a dollar today, but it took 55 to buy it a year ago, then the dollar has

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

Egypt has exports of $500 million and imports of $750 million. Egypt

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

If a country had a trade surplus of $100 billion and then its exports rose by $40 billion and its imports rose by $30 billion, its net exports would now be

The theory of purchasing­power parity states that a unit of a country's currency should be able to buy the same quantity of goods in foreign countries as it does in the domestic economy.

Carl and Carly are American residents. Carl buys stock of a corporation in Austria. Carly opens a coffee shop in Austria. Whose purchase, by itself, decreases Austria's net capital outflow?

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

The theory of purchasingpower parity states that a unit of a country's currency should be able to buy the same quantity of goods in foreign countries as it does in the domestic economy.