Question 1

In France a loaf of bread costs 3 euros. In Great Britain a loaf of bread costs 4 pounds. If the exchange rate is .9 pounds per euro, what is the real exchange rate?

Accepted Answer

A)  4/2.7 loaves of British bread per loaf of French bread 
B)  3.6/3 loaves of British bread per loaf of French bread 
C)  3/3.6 loaves of British bread per loaf of French bread 
D)  2.7/4 loaves of British bread per loaf of French bread

Question 2

If a nation produces more than it spends what do we know about:
A. its net exports?
B. its net capital outflow?
C. its saving in relation to its domestic investment?

Accepted Answer

The answer of If a nation produces more than it...

Question 3

If a dollar buys more corn in the U.S. than in Mexico, then

Accepted Answer

A)  the real exchange rate is greater than 1; a profit might be made by buying corn in the U.S. and selling it in Mexico. 
B)  the real exchange rate is greater than 1; a profit might be made by buying corn in Mexico and selling it in the U.S. 
C)  the real exchange rate is less than 1; a profit might be made by buying corn in the U.S. and selling it in Mexico. 
D)  the real exchange rate is less than 1; a profit might be made by buying corn in Mexico and selling it in the U.S.

Question 4

Most of the change from 1991 to 2000 in U.S. net capital outflow as a percent of GDP was due to a(n)

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

Suppose that the real exchange rate between the United States and Brazil is defined in terms of baskets of goods. Other things the same, which of the following will increase the real exchange rate (that is increase the number of baskets of Brazilian goods a basket of U.S. goods buys)?

Accepted Answer

A)  an increase in the quantity of Brazilian currency that can be purchased with a dollar 
B)  a decrease in the price of U.S. goods 
C)  an increase in the price in Brazilian currency of Brazilian goods 
D)  All of the above are correct.

Question 6

According to purchasing-power parity, which of the following necessarily equals the ratio of the foreign price level divided by the domestic price level?

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 7

When the Mexican peso gets "stronger" relative to the dollar,

Accepted Answer

A)  the U.S. trade deficit with Mexico rises. 
B)  the U.S. trade deficit with Mexico falls. 
C)  the U.S. trade deficit with Mexico is unchanged. 
D)  None of the above necessarily happens.

Question 8

Other things the same, if the exchange rate changes from 75 Algerian dinar per dollar to 72 Algerian dinar per dollar, the dollar has

Accepted Answer

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

Question 9

A country has $45 million of domestic investment and net capital outflow of -$60 million. What is its saving?

Accepted Answer

A)  $15 million 
B)  -$15 million 
C)  $105 million 
D)  -$105 million

Question 10

When U.S. national saving rises, domestic investment also necessarily rises.

Accepted Answer

A) True 
 B)False

Question 11

Other things the same, if a country saves less, then

Accepted Answer

A)  net capital outflow rises, so net exports rise. 
B)  net capital outflow rises, so net exports fall. 
C)  net capital outflow falls, so net exports rise. 
D)  net capital outflow falls, so net exports fall.

Question 12

A Turkish firm exchanges lira (Turkish currency) for dollars. It then uses these dollars to purchase computers from the U.S. These actions decrease U.S. net capital outflow and increase U.S. net exports.

Accepted Answer

A) True 
 B)False

Question 13

When a company from Germany builds an automobile factory in the United States, the German firm has engaged in foreign direct investment.

Accepted Answer

A) True 
 B)False

Question 14

A country has $20 billion of domestic investment and net capital outflow of $10 billion. What is saving?

Accepted Answer

A)  $10 billion 
B)  $30 billion 
C)  -$20 billion 
D)  -$30 billion

Question 15

Which of the following does purchasing-power parity conclude should equal 1?

Accepted Answer

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

Question 16

If the exchange rate is 1.25 New Zealand dollars per U.S dollar, the price of apples is $2 a pound in the U.S. and 1 New Zealand dollar per pound in New Zealand, what is the real exchange rate?

Accepted Answer

A)  2.50 
B)  2 
C)  1.25 
D)  .75

Question 17

If Spain has a trade deficit, then

Accepted Answer

A)  foreign countries purchase more Spanish assets than Spain purchases from them. This makes Spanish saving greater than Spanish domestic investment. 
B)  foreign countries purchase more Spanish assets than Spain purchases from them. This makes Spanish saving smaller then Spanish domestic investment. 
C)  foreign countries purchase fewer Spanish assets than Spain purchases from them. This makes Spanish saving greater than Spanish domestic investment. 
D)  foreign countries purchase fewer Spanish assets than Spain purchases from them. This makes Spanish saving greater than Spanish domestic investment.

Question 18

The nominal exchange rate is .80 euros per U.S. dollar and a basket of goods in France costs 1,000 euros while the same basket costs $800 in the U.S. The nominal exchange rate is 1.2 Australian dollars per U.S. dollar and a basket of goods in Australia costs 960 Australian dollars while the same basket costs $800 in the U.S.. Which country has purchasing-power parity with the U.S.?

Accepted Answer

A)  both France and Australia 
B)  France but not Australia 
C)  Australia but not France 
D)  neither France nor Australia

Question 19

A U.S. company uses U.K. pounds it already owned to purchase bonds issued by a company in the U.K. Which of these countries has an increase in net capital outflow?

Accepted Answer

A)  The U.S. and the U.K. 
B)  The U.S. but not the U.K. 
C)  The U.K. but not the U.S. 
D)  Neither the U.S. nor the U.K.

Question 20

A Swiss watchmaker opens a factory in the United States. This is an example of Swiss

Accepted Answer

A)  exports. 
B)  imports. 
C)  foreign portfolio investment. 
D)  foreign direct investment.

Exam 31: Open-Economy Macroeconomics: Basic Concepts

In France a loaf of bread costs 3 euros. In Great Britain a loaf of bread costs 4 pounds. If the exchange rate is .9 pounds per euro, what is the real exchange rate?

If a nation produces more than it spends what do we know about: A. its net exports? B. its net capital outflow? C. its saving in relation to its domestic investment?

If a dollar buys more corn in the U.S. than in Mexico, then

Most of the change from 1991 to 2000 in U.S. net capital outflow as a percent of GDP was due to a(n)

Suppose that the real exchange rate between the United States and Brazil is defined in terms of baskets of goods. Other things the same, which of the following will increase the real exchange rate (that is increase the number of baskets of Brazilian goods a basket of U.S. goods buys) ?

According to purchasing-power parity, which of the following necessarily equals the ratio of the foreign price level divided by the domestic price level?

When the Mexican peso gets "stronger" relative to the dollar,

Other things the same, if the exchange rate changes from 75 Algerian dinar per dollar to 72 Algerian dinar per dollar, the dollar has

A country has $45 million of domestic investment and net capital outflow of -$60 million. What is its saving?

When U.S. national saving rises, domestic investment also necessarily rises.

Other things the same, if a country saves less, then

A Turkish firm exchanges lira (Turkish currency) for dollars. It then uses these dollars to purchase computers from the U.S. These actions decrease U.S. net capital outflow and increase U.S. net exports.

When a company from Germany builds an automobile factory in the United States, the German firm has engaged in foreign direct investment.

A country has $20 billion of domestic investment and net capital outflow of $10 billion. What is saving?

Which of the following does purchasing-power parity conclude should equal 1?

If the exchange rate is 1.25 New Zealand dollars per U.S dollar, the price of apples is $2 a pound in the U.S. and 1 New Zealand dollar per pound in New Zealand, what is the real exchange rate?

If Spain has a trade deficit, then

A U.S. company uses U.K. pounds it already owned to purchase bonds issued by a company in the U.K. Which of these countries has an increase in net capital outflow?

A Swiss watchmaker opens a factory in the United States. This is an example of Swiss