Question 1

When the central bank of some country prints large quantities of money, that county's currency loses value both in terms of the goods and services it buys and in terms of the amount of foreign currencies it can buy.

Accepted Answer

A) True 
 B)False

Question 2

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.E) A) and D)
F) A) and C)

Question 3

If a U.S. dollar purchases 4 Argentinean pesos, and a gallon of milk costs $3 in the U.S. and 6 pesos in Argentina what is the real exchange rate?

Accepted Answer

A)  2
B)  3/2
C)  2/3
D)  1/2E) None of the above
F) A) and D)

Question 4

If purchases of French assets by foreigners are less than French purchases of foreign assets, then France has a

Accepted Answer

A)  positive net capital outflow and a trade surplus.
B)  positive net capital outflow and a trade deficit.
C)  negative net capital outflow and a trade surplus.
D)  negative net capital outflow and a trade deficit.E) A) and B)
F) A) and C)

Question 5

Use the (hypothetical)  information in the following table to answer the following questions.
Table 31-2 
-Refer to Table 31-2. In real terms, U.S. goods are more expensive than goods in which country(ies) ?

Accepted Answer

A)  Britain
B)  Germany and Japan
C)  Japan
D)  Germany and VenezuelaE) A) and C)
F) C) and D)

Question 6

Last year residents of country A purchased $400 billion of foreign assets and $200 of foreign goods. Foreigners purchased $300 billion dollars of country A's assets. What was the value of country A's exports?

Accepted Answer

The value of country...

Question 7

John, a U.S. citizen, opens up a Sports bar in Tokyo. This is an example of U.S.

Accepted Answer

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

Question 8

The value of the goods and services Australia purchases from the U.S. are less than the value of goods and services the U.S. purchases from Australia. The U.S. has

Accepted Answer

A)  positive net exports with Australia and a trade surplus with Australia.
B)  positive net exports with Australia and a trade deficit with Australia.
C)  negative net exports with Australia and a trade surplus with Australia.
D)  negative net exports with Australia and a trade deficit with Australia.E) A) and D)
F) A) and C)

Question 9

If the nominal exchange rate e is foreign currency per dollar, the domestic price is P, and the foreign price is P*, then the real exchange rate is defined as

Accepted Answer

A)  P*/(Pe) .
B)  P/(P*e) .
C)  e(P*/P) .
D)  e(P/P*) ,E) None of the above
F) All of the above

Question 10

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.E) B) and D)
F) A) and B)

Question 11

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

A. Its net exports are positiv...

Question 12

If the U.S. price level is increasing by 3 percent annually and the Japanese price level is increasing by 1 percent annually, then according to purchasing-power parity, by about what percent would the nominal exchange rate be changing?

Accepted Answer

A)  decreasing by 4 percent
B)  decreasing by 2 percent
C)  increasing by 4 percent
D)  increasing by 2 percentE) C) and D)
F) B) and D)

Question 13

Eric, a resident of Sweden, purchases a book printed in the U.S. Which country's exports increase?

Accepted Answer

A)  Sweden's
B)  the U.S.'s
C)  Sweden's and the U.S.'s
D)  neither Sweden's nor the U.S.'sE) A) and B)
F) A) and C)

Question 14

What does purchasing-power parity imply about the real exchange rate? Explain what this means.

Accepted Answer

That it is equal to one. The n...

Question 15

Which of the following statements is correct for an open economy with a trade surplus?

Accepted Answer

A)  The trade surplus cannot last for very many years.
B)  The trade surplus must be offset by negative net capital outflow.
C)  The trade surplus implies that the country's national saving is greater than domestic investment.
D)  None of the above is correct.E) None of the above
F) A) and D)

Question 16

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.E) A) and C)
F) A) and B)

Question 17

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.E) A) and B)
F) B) and C)

Question 18

If a dollar currently purchases 12.5 pesos and someone forecasts that in a year it will purchase 14 pesos, then the forecast is given in

Accepted Answer

A)  real terms and implies the dollar will appreciate.
B)  real terms and implies the dollar will depreciate.
C)  nominal terms and implies the dollar will appreciate.
D)  nominal terms and implies the dollar will depreciate.E) B) and D)
F) None of the above

Question 19

A pair of hiking boots costs $120 in the U.S., if the real exchange rate is 6/5 and the nominal exchange rate is 2 Brazilian reais per dollar, what is the price of the same hiking boots in Brazil?
Show your work.

Accepted Answer

The real exchange rate 6/5 = $...

Question 20

Which of the following is an example of U.S. foreign direct investment and by itself increases U.S. net capital outflow?

Accepted Answer

A)  A U.S. electronics company opens and operates a new factory in India.
B)  A Swiss bank buys bonds issued by a U.S. company.
C)  A U.S. pension fund buys bonds issued by the Japanese government.
D)  A French restaurant opens and operates a restaurant in New York.E) B) and C)
F) C) and D)

Exam 31: Open-Economy Macroeconomics: Basic Concepts

Last year residents of country A purchased $400 billion of foreign assets and $200 of foreign goods. Foreigners purchased $300 billion dollars of country A's assets. What was the value of country A's exports?

Correct AnswerverifiedThe value of country...View AnswerShow Answer

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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?

Correct AnswerverifiedA. Its net exports are positiv...View AnswerShow Answer

A pair of hiking boots costs $120 in the U.S., if the real exchange rate is 6/5 and the nominal exchange rate is 2 Brazilian reais per dollar, what is the price of the same hiking boots in Brazil? Show your work.

Correct AnswerverifiedThe real exchange rate 6/5 = $...View AnswerShow Answer

John, a U.S. citizen, opens up a Sports bar in Tokyo. This is an example of U.S.

Correct AnswerverifiedShow Answer

If a dollar currently purchases 12.5 pesos and someone forecasts that in a year it will purchase 14 pesos, then the forecast is given in

Correct AnswerverifiedShow Answer

Which of the following is an example of U.S. foreign direct investment and by itself increases U.S. net capital outflow?

Correct AnswerverifiedShow Answer

Eric, a resident of Sweden, purchases a book printed in the U.S. Which country's exports increase?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

What does purchasing-power parity imply about the real exchange rate? Explain what this means.

Correct AnswerverifiedThat it is equal to one. The n...View AnswerShow Answer

The value of the goods and services Australia purchases from the U.S. are less than the value of goods and services the U.S. purchases from Australia. The U.S. has

Correct AnswerverifiedShow Answer

If the nominal exchange rate e is foreign currency per dollar, the domestic price is P, and the foreign price is P*, then the real exchange rate is defined as

Correct AnswerverifiedShow Answer

If a U.S. dollar purchases 4 Argentinean pesos, and a gallon of milk costs $3 in the U.S. and 6 pesos in Argentina what is the real exchange rate?

Correct AnswerverifiedShow Answer

Use the (hypothetical) information in the following table to answer the following questions. Table 31-2 -Refer to Table 31-2. In real terms, U.S. goods are more expensive than goods in which country(ies) ?

Correct AnswerverifiedShow Answer

When the central bank of some country prints large quantities of money, that county's currency loses value both in terms of the goods and services it buys and in terms of the amount of foreign currencies it can buy.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

If purchases of French assets by foreigners are less than French purchases of foreign assets, then France has a

Correct AnswerverifiedShow Answer

If the U.S. price level is increasing by 3 percent annually and the Japanese price level is increasing by 1 percent annually, then according to purchasing-power parity, by about what percent would the nominal exchange rate be changing?

Correct AnswerverifiedShow Answer

Which of the following statements is correct for an open economy with a trade surplus?

Correct AnswerverifiedShow Answer

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The value of country...
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A. Its net exports are positiv...
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The real exchange rate 6/5 = $...
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That it is equal to one. The n...
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