Question 1

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.E) A) and B)
F) None of the above

Question 2

A country has a trade deficit. Which of the following must also be true?

Accepted Answer

A)  net capital outflow is positive and domestic investment is larger than saving
B)  net capital outflow is positive and saving is larger than domestic investment
C)  net capital outflow is negative and domestic investment is larger than saving
D)  net capital outflow is negative and saving is larger than domestic investmentE) C) and D)
F) All of the above

Question 3

In an open economy, national saving can be less than investment.

Accepted Answer

A) True 
 B)False

Question 4

During a hyperinflation the real domestic value of a country's currency

Accepted Answer

A)  falls and its nominal exchange rate depreciates.
B)  falls and its nominal exchange rate appreciates.
C)  rises and its nominal exchange rate depreciates.
D)  rises and its nominal exchange rate appreciates.E) All of the above
F) B) and C)

Question 5

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

Question 6

If the dollar buys less cotton in Egypt than in the United States, then traders could make a profit by

Accepted Answer

A)  buying cotton in the United States and selling it in Egypt, which would tend to raise the price of cotton in the United States.
B)  buying cotton in the United States and selling it in Egypt, which would tend to raise the price of cotton in Egypt.
C)  buying cotton in Egypt and selling it in the United States, which would tend to raise the price of cotton in Egypt.
D)  buying cotton in Egypt and selling it in the United States, which would tend to raise the price of cotton in the United States.E) A) and B)
F) C) and D)

Question 7

If the Kenyan nominal exchange rate declines, and prices are unchanged in Kenya and abroad, then the Kenyan real exchange rate

Accepted Answer

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

Question 8

Suppose that money supply growth continues to be higher in Turkey than it is in the United States. What does purchasing-power parity imply will happen to the real and to the nominal exchange rate?

Accepted Answer

Higher money growth leads to higher pric...

Question 9

Other things the same, if the exchange rate changes from .8 euros per dollar to .9 euros per dollar, the dollar

Accepted Answer

A)  depreciates so U.S. goods become less expensive relative to foreign goods.
B)  depreciates so U.S. goods become more expensive relative to foreign goods.
C)  appreciates so U.S. goods become less expensive relative to foreign goods.
D)  appreciates so U.S. goods become more expensive relative to foreign goods.E) All of the above
F) A) and D)

Question 10

Under what circumstances does purchasing-power parity explain how exchange rates are determined, and why is it not completely accurate?

Accepted Answer

Purchasing-power parity works well in he...

Question 11

Visitors to a country hosting a world soccer tournament purchase food, souvenirs, and accommodations while attending the tournament. Which of the following should these expenditures raise?

Accepted Answer

A)  ​The host country's net exports and its net capital outflow.
B)  The host country's net exports but not its net capital outflow.
C)  The host country's net capital outflow but nor its net exports.
D)  Neither the host country's net exports not its net capital outflow.E) A) and B)
F) All of the above

Question 12

If Saudi Arabia had negative 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.E) A) and B)
F) C) and D)

Question 13

If the U.S. real exchange rate with Japan is greater than 1, then U.S. goods are relatively cheap.

Accepted Answer

A) True 
 B)False

Question 14

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

Question 15

The large trade deficits in the U.S. during the 1990's were primarily associated with a rise in domestic investment spending rather than a rise in the budget deficit.

Accepted Answer

A) True 
 B)False

Question 16

Ivan, a Russian citizen, sells several hundred cases of caviar to a restaurant chain in the United States. By itself, this sale

Accepted Answer

A)  increases U.S. net exports and decreases Russian net exports.
B)  increases U.S. net exports and has no effect on Russian net exports.
C)  decreases U.S. net exports and increases Russian net exports.
D)  decreases U.S. net exports and has no effect on Russian net exports.E) B) and D)
F) None of the above

Question 17

A U.S. citizen buys bonds issued by an automobile manufacturer in Japan. Her expenditures are U.S.

Accepted Answer

A)  foreign direct investment that increase U.S. net capital outflow.
B)  foreign direct investment that decrease U.S. net capital outflow.
C)  foreign portfolio investment that increase U.S. net capital outflow.
D)  foreign portfolio investment that decrease U.S. net capital outflow.E) A) and B)
F) A) and C)

Question 18

A country with negative net exports has a trade surplus.

Accepted Answer

A) True 
 B)False

Question 19

According to purchasing-power parity theory, the nominal exchange rate between the U.S. and another country should equal the U.S. price level divided by the price level in the foreign country.

Accepted Answer

A) True 
 B)False

Question 20

Table 31-2
Colombian Trade Flows 
-Refer to Table 31-2.​ What are Colombian net exports?

Accepted Answer

A)  ​20 billion pesos
B)  10 billion pesos
C)  ​-10 billion pesos
D)  -​20 billion pesosE) B) and D)
F) B) and C)

Exam 31: Open-Economy Macroeconomics: Basic Concepts

A country with negative net exports has a trade surplus.

Correct AnswerverifiedShow Answer

If France had positive net exports last year, then it

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Other things the same, if the exchange rate changes from .8 euros per dollar to .9 euros per dollar, the dollar

Correct AnswerverifiedShow Answer

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) ?

Correct AnswerverifiedShow Answer

According to purchasing-power parity theory, the nominal exchange rate between the U.S. and another country should equal the U.S. price level divided by the price level in the foreign country.

Correct AnswerverifiedShow Answer

The large trade deficits in the U.S. during the 1990's were primarily associated with a rise in domestic investment spending rather than a rise in the budget deficit.

Correct AnswerverifiedShow Answer

Ivan, a Russian citizen, sells several hundred cases of caviar to a restaurant chain in the United States. By itself, this sale

Correct AnswerverifiedShow Answer

A U.S. citizen buys bonds issued by an automobile manufacturer in Japan. Her expenditures are U.S.

Correct AnswerverifiedShow Answer

Suppose that money supply growth continues to be higher in Turkey than it is in the United States. What does purchasing-power parity imply will happen to the real and to the nominal exchange rate?

Correct AnswerverifiedHigher money growth leads to higher pric...View AnswerShow Answer

A country has a trade deficit. Which of the following must also be true?

Correct AnswerverifiedShow Answer

If the U.S. real exchange rate with Japan is greater than 1, then U.S. goods are relatively cheap.

Correct AnswerverifiedShow Answer

If the Kenyan nominal exchange rate declines, and prices are unchanged in Kenya and abroad, then the Kenyan real exchange rate

Correct AnswerverifiedShow Answer

In an open economy, national saving can be less than investment.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

During a hyperinflation the real domestic value of a country's currency

Correct AnswerverifiedShow Answer

Table 31-2 Colombian Trade Flows -Refer to Table 31-2.​ What are Colombian net exports?

Correct AnswerverifiedShow Answer

Under what circumstances does purchasing-power parity explain how exchange rates are determined, and why is it not completely accurate?

Correct AnswerverifiedPurchasing-power parity works well in he...View AnswerShow Answer

If Saudi Arabia had negative net exports last year, then it

Correct AnswerverifiedShow Answer

Visitors to a country hosting a world soccer tournament purchase food, souvenirs, and accommodations while attending the tournament. Which of the following should these expenditures raise?

Correct AnswerverifiedShow Answer

If the dollar buys less cotton in Egypt than in the United States, then traders could make a profit by

Correct AnswerverifiedShow Answer

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Higher money growth leads to higher pric...
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Table 31-2 Colombian Trade Flows -Refer to Table 31-2. What are Colombian net exports?

Correct Answer
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Purchasing-power parity works well in he...
View Answer

Correct Answer
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