Question 1

According to purchasing-power parity, if prices in the United States increase by a larger percentage than prices in Poland, then

Accepted Answer

A)  the real exchange defined as Polish goods per unit of U.S. goods rises.
B)  the real exchange defined as Polish goods per unit of U.S. goods falls.
C)  the nominal exchange rate defined as Polish currency per dollar rises.
D)  the nominal exchange rate defined as Polish currency per dollar falls.E) All of the above
F) C) and D)

Question 2

Which of the following equations is correct?

Accepted Answer

A)  Y = C + I + G + NCO
B)  NX = NCO
C)  NCO = S - I
D)  All of the above are correct.E) B) and C)
F) A) and D)

Question 3

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

Accepted Answer

A)  Joan, a U.S. citizen, buys bonds issued by a Swedish corporation.
B)  Russell, a U.S. citizen, opens a dairy in Italy.
C)  Both A and B are examples of U.S. portfolio investment.
D)  Neither A nor B are examples of U.S. portfolio investment.E) B) and D)
F) None of the above

Question 4

If the number of Japanese yen a dollar buys falls, but neither country's price level changes, then the real exchange rate

Accepted Answer

A)  depreciates which causes U.S. net exports to increase.
B)  depreciates which causes U.S. net exports to decrease.
C)  appreciates which causes U.S. net exports to increase.
D)  appreciates, which causes U.S. net exports to decrease.E) A) and B)
F) None of the above

Question 5

A Peruvian firm purchases construction equipment made in the U.S. and pays for it with Peruvian currency. This transaction

Accepted Answer

A)  increases U.S. net exports, and increases Peruvian net capital outflow.
B)  increases U.S. net exports, and decreases Peruvian net capital outflow.
C)  decreases U.S. net exports, and increases Peruvian net capital outflow.
D)  decreases U.S. net exports, and decreases Peruvian net capital outflow.E) A) and B)
F) All of the above

Question 6

The theory of purchasing-power 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 domestically.

Accepted Answer

A) True 
 B)False

Question 7

The price of a basket of goods and services in the U.S. is $600. In Canada the same basket of goods costs 700 Canadian dollars. If the nominal exchange rate were 1.2 Canadian dollars per U.S. dollar, what would be the real exchange rate?

Accepted Answer

A)  700/600
B)  600/700
C)  700/720
D)  None of the above is correct.E) A) and D)
F) C) and D)

Question 8

Julie and John are American residents. Julie buys stock issued by a Japanese company. John opens a sporting goods store in Mexico. Whose purchase, by itself, increases the U.S.'s net capital outflow?

Accepted Answer

A)  Julie's
B)  John's
C)  both Julie's and John's
D)  neither Julie's nor John'sE) A) and B)
F) B) and C)

Question 9

A rational investor will always purchase the bond that pays the highest real interest rate.

Accepted Answer

A) True 
 B)False

Question 10

Nominal exchange rates

Accepted Answer

A)  vary little over time.
B)  vary substantially over time.
C)  appreciate over time for most countries.
D)  depreciate over time for most countries.E) A) and B)
F) None of the above

Question 11

According to purchasing power parity, if the same basket of goods costs $100 in the U.S. and 50 pounds in Britain, then what is the nominal exchange rate?

Accepted Answer

A)  2 pounds per dollar
B)  1 pound per dollar
C)  1/2 pound per dollar
D)  None of the above is correctE) None of the above
F) B) and C)

Question 12

Suppose a lobster supper in Maine costs fewer dollars than a Lobster supper in Paris, France. Explain why this is inconsistent with purchasing-power parity and explain why the inconsistency may exist.

Accepted Answer

According to purchasing-power parity, a ...

Question 13

A U.S. firm buys cement mixers from China and pays for them with U.S. dollars.

Accepted Answer

A)  The purchase of the cement mixers increases U.S. net exports and the payment with dollars increases U.S. net capital outflow.
B)  The purchase of cement mixers increases U.S. net exports and the payment with dollars decreases U.S. net capital outflow.
C)  The purchase of cement mixers decreases U.S. net exports and the payment with dollars increases U.S. net capital outflow.
D)  The purchase of cement mixers decreases U.S. net exports and the payment with dollars decreases U.S. net capital outflow.E) C) and D)
F) All of the above

Question 14

Both foreign direct investment and foreign portfolio investment by U.S. residents increase U.S. net capital outflow.

Accepted Answer

A) True 
 B)False

Question 15

Other things the same, if a country saves more, 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.E) None of the above
F) A) and B)

Question 16

From 2007 to 2009 the U.S. trade deficit fell as U.S. investment fell.

Accepted Answer

A) True 
 B)False

Question 17

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

Question 18

Table 18-1
 
-Refer to Table 18-1. What are Bolivia's exports?

Accepted Answer

A)  $60 billion
B)  $35 billion
C)  $10 billion
D)  None of the above are correct.E) A) and B)
F) A) and C)

Question 19

If the U.S. real exchange rate is greater than 1, then there is the possiblity of arbitraging by buying foreign goods to sell in the U.S.

Accepted Answer

A) True 
 B)False

Question 20

An increase in U.S. sales of movies to other countries raises U.S.

Accepted Answer

A)  exports and so raises the U.S. trade balance.
B)  exports and so reduces the U.S. trade balance.
C)  imports and so raises the U.S. trade balance.
D)  imports and so reduces the U.S. trade balance.E) A) and C)
F) B) and D)

Exam 18: Open-Economy Macroeconomic Models

Table 18-1 -Refer to Table 18-1. What are Bolivia's exports?

Correct AnswerverifiedShow Answer

Julie and John are American residents. Julie buys stock issued by a Japanese company. John opens a sporting goods store in Mexico. Whose purchase, by itself, increases the U.S.'s net capital outflow?

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Which of the following equations is correct?

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A rational investor will always purchase the bond that pays the highest real interest rate.

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

Correct AnswerverifiedShow Answer

If the number of Japanese yen a dollar buys falls, but neither country's price level changes, then the real exchange rate

Correct AnswerverifiedShow Answer

Both foreign direct investment and foreign portfolio investment by U.S. residents increase U.S. net capital outflow.

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Nominal exchange rates

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Suppose a lobster supper in Maine costs fewer dollars than a Lobster supper in Paris, France. Explain why this is inconsistent with purchasing-power parity and explain why the inconsistency may exist.

Correct AnswerverifiedAccording to purchasing-power parity, a ...View AnswerShow Answer

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

Correct AnswerverifiedShow Answer

The theory of purchasing-power 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 domestically.

Correct AnswerverifiedShow Answer

From 2007 to 2009 the U.S. trade deficit fell as U.S. investment fell.

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According to purchasing-power parity, if prices in the United States increase by a larger percentage than prices in Poland, then

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

A U.S. firm buys cement mixers from China and pays for them with U.S. dollars.

Correct AnswerverifiedShow Answer

A Peruvian firm purchases construction equipment made in the U.S. and pays for it with Peruvian currency. This transaction

Correct AnswerverifiedShow Answer

The price of a basket of goods and services in the U.S. is $600. In Canada the same basket of goods costs 700 Canadian dollars. If the nominal exchange rate were 1.2 Canadian dollars per U.S. dollar, what would be the real exchange rate?

Correct AnswerverifiedShow Answer

An increase in U.S. sales of movies to other countries raises U.S.

Correct AnswerverifiedShow Answer

If the U.S. real exchange rate is greater than 1, then there is the possiblity of arbitraging by buying foreign goods to sell in the U.S.

Correct AnswerverifiedShow Answer

According to purchasing power parity, if the same basket of goods costs $100 in the U.S. and 50 pounds in Britain, then what is the nominal exchange rate?

Correct AnswerverifiedShow Answer

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According to purchasing-power parity, a ...
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