Question 1

If a country changes its corporate tax laws so that foreign businesses build and manage more business in that country, then the net capital outflow of that country

Accepted Answer

A)  and the net capital outflow of other countries rise.
B)  rises and the net capital outflow of other countries fall.
C)  falls and the net capital outflow of other countries rise.
D)  None of the above are correct.E) A) and D)
F) C) and D)

Question 2

What does purchasing-power parity imply about the real exchange rate?

Accepted Answer

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

Question 3

Perhaps the most dramatic change in the U.S. economy over the past four decades has been the increasing relative importance of international trade and finance.

Accepted Answer

A) True 
 B)False

Question 4

Suppose a Starbucks tall latte cost $4.00 in the United States, 5.00 euros in the euro area and $2.50 Australian dollars in Australia. Nominal exchange rates are .80 euros per dollar and 1.4 Australian dollars per U.S. dollar. Where does purchasing power parity hold?

Accepted Answer

A)  Both the euro area and Australia.
B)  Neither the euro area or Australia.
C)  The euro area but not Australia.
D)  Australia but not the euro area.E) All of the above
F) C) and D)

Question 5

Mike, a U.S. citizen, buys $1,000 worth of olives from Greece. By itself this purchase

Accepted Answer

A)  increases U.S. imports by $1,000 and increases U.S. net exports by $1,000.
B)  increases U.S. imports by $1,000 and decreases U.S. net exports by $1,000.
C)  increases U.S. exports by $1,000 and increases U.S. net exports by $1,000.
D)  increases U.S. exports by $1,000 and decreases U.S. net exports by $1,000.E) All of the above
F) A) and B)

Question 6

Which of the following events would be consistent with purchasing-power parity?

Accepted Answer

A)  The price level in the United States rises more rapidly than that in Ireland and the real exchange rate defined as Irish goods per unit of U.S. goods stays the same.
B)  The money supply in the United States rises more rapidly than in Egypt and the nominal exchange rate defined as Egyptian pounds per dollar falls.
C)  Earl, a worldwide traveler, looks at exchange rates and worldwide breakfast prices one morning and finds that whatever country he decides to go to he can convert $15 into enough local currency to buy the same breakfast.
D)  All of the above are correct.E) A) and D)
F) None of the above

Question 7

From 1991-2000, U.S. net capital outflow as a percent of GDP became a

Accepted Answer

A)  larger positive number.
B)  smaller positive number.
C)  larger negative number.
D)  smaller negative number.E) C) and D)
F) None of the above

Question 8

Foreign-produced goods and services that are purchased domestically are called

Accepted Answer

A)  imports.
B)  exports.
C)  net imports.
D)  net exports.E) C) and D)
F) All of the above

Question 9

Other things the same, if the dollar depreciates relative to the Japanese yen, then

Accepted Answer

A)  the exchange rate falls. It will cost fewer yen to travel in the U.S.
B)  the exchange rate falls. It will cost more yen to travel in the U.S.
C)  the exchange rate rises. It will cost fewer yen to travel in the U.S.
D)  the exchange rate rises. It will cost more yen to travel in the U.S.E) A) and B)
F) A) and C)

Question 10

Suppose a bottle of wine costs 20 euros in France and 25 dollars in the United States. If the exchange rate is .80 euros per dollar, what is the real exchange rate?

Accepted Answer

The real exchange rate = nomin...

Question 11

If saving is greater than domestic investment, then

Accepted Answer

A)  there is a trade deficit and Y > C + I + G.
B)  there is a trade deficit and Y 
C)  there is a trade surplus and Y > C + I + G.
D)  there is a trade surplus and Y < C + I + G.E) A) and B)
F) A) and C)

Question 12

If a U.S. textbook publishing company sells texts overseas, 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 B)

Question 13

If the exchange rate is 3 units of Peruvian currency per dollar and a hotel room in Lima costs 300 units of Peruvian currency, then how many dollars do you need to get a room?

Accepted Answer

A)  900 and your purchase will increase Peru's net exports.
B)  100 and your purchase will increase Peru's net exports.
C)  900 and your purchase will have no effect on Peru's net exports.
D)  100 and your purchase will have no effect on Peru's net exports.E) A) and C)
F) A) and B)

Question 14

Many economists believe that the theory of purchasing-power parity describes the forces that determine exchange rates in the long run.

Accepted Answer

A) True 
 B)False

Question 15

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

Question 16

If a country's net exports fall, then its net capital outflow falls by the same amount.

Accepted Answer

A) True 
 B)False

Question 17

Other things the same, an increase in the nominal exchange rate raises the real exchange rate.

Accepted Answer

A) True 
 B)False

Question 18

The country of Freedonia has a GDP of $2,100, consumption of $1,200, and government purchases of $400. This implies that it has

Accepted Answer

A)  domestic investment of $500.
B)  domestic investment plus net capital outflow of $500.
C)  domestic investment minus net capital outflow of $500.
D)  None of the above is correct.E) A) and B)
F) A) and C)

Question 19

An American farm equipment dealer sells dollars to obtain euros. It then uses the euros to buy farm equipment from a German company. This exchange

Accepted Answer

A)  increases U.S. net capital outflow because Germans obtain U.S. assets.
B)  decreases U.S. net capital outflow because Germans obtain U.S. assets.
C)  increases U.S. net capital outflow because the U.S. buys capital goods.
D)  decreases U.S. net capital outflow because the U.S. buys capital goods.E) A) and C)
F) A) and B)

Question 20

U.S. exports make up less than 20 percent of GDP.

Accepted Answer

A) True 
 B)False

Exam 18: Open-Economy Macroeconomic Models

If saving is greater than domestic investment, then

Correct AnswerverifiedShow Answer

Other things the same, if the dollar depreciates relative to the Japanese yen, then

Correct AnswerverifiedShow Answer

U.S. exports make up less than 20 percent of GDP.

Correct AnswerverifiedShow Answer

The country of Freedonia has a GDP of $2,100, consumption of $1,200, and government purchases of $400. This implies that it has

Correct AnswerverifiedShow Answer

Mike, a U.S. citizen, buys $1,000 worth of olives from Greece. By itself this purchase

Correct AnswerverifiedShow Answer

Foreign-produced goods and services that are purchased domestically are called

Correct AnswerverifiedShow Answer

Suppose a bottle of wine costs 20 euros in France and 25 dollars in the United States. If the exchange rate is .80 euros per dollar, what is the real exchange rate?

Correct AnswerverifiedThe real exchange rate = nomin...View AnswerShow Answer

Many economists believe that the theory of purchasing-power parity describes the forces that determine exchange rates in the long run.

Correct AnswerverifiedShow Answer

If a country's net exports fall, then its net capital outflow falls by the same amount.

Correct AnswerverifiedShow Answer

Other things the same, an increase in the nominal exchange rate raises the real exchange rate.

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 the exchange rate is 3 units of Peruvian currency per dollar and a hotel room in Lima costs 300 units of Peruvian currency, then how many dollars do you need to get a room?

Correct AnswerverifiedShow Answer

Perhaps the most dramatic change in the U.S. economy over the past four decades has been the increasing relative importance of international trade and finance.

Correct AnswerverifiedShow Answer

An American farm equipment dealer sells dollars to obtain euros. It then uses the euros to buy farm equipment from a German company. This exchange

Correct AnswerverifiedShow Answer

What does purchasing-power parity imply about the real exchange rate?

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

From 1991-2000, U.S. net capital outflow as a percent of GDP became a

Correct AnswerverifiedShow Answer

If a U.S. textbook publishing company sells texts overseas, U.S. net exports

Correct AnswerverifiedShow Answer

Suppose a Starbucks tall latte cost $4.00 in the United States, 5.00 euros in the euro area and $2.50 Australian dollars in Australia. Nominal exchange rates are .80 euros per dollar and 1.4 Australian dollars per U.S. dollar. Where does purchasing power parity hold?

Correct AnswerverifiedShow Answer

Which of the following events would be consistent with purchasing-power parity?

Correct AnswerverifiedShow Answer

If a country changes its corporate tax laws so that foreign businesses build and manage more business in that country, then the net capital outflow of that country

Correct AnswerverifiedShow Answer

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The real exchange rate = nomin...
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That it is equal to one. The n...
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