Question 1

If a country has a trade deficit

Accepted Answer

A)   it has positive net exports and positive net capital outflow.
B)   it has positive net exports and negative net capital outflow.
C)   it has negative net exports and positive net capital outflow.
D)   it has negative net exports and negative net capital outflow.E) A) and B)
F) A) and C)

Question 2

Since 1980 U.S. net capital outflow has been

Accepted Answer

A)   negative, meaning that foreigners were buying more capital assets from the United States than Americans were buying abroad.
B)   negative, meaning that Americans were buying more capital assets abroad than foreigners were buying from the United States.
C)   positive, meaning that foreigners were buying more capital assets from the United States than Americans were buying abroad.
D)   positive, meaning that Americans were buying more capital assets abroad than foreigners were buying from the United States.E) A) and D)
F) All of the above

Question 3

When Microsoft establishes a distribution center in France, U.S. net capital outflow

Accepted Answer

A)   increases because Microsoft makes a portfolio investment in France.
B)   decreases because Microsoft makes a portfolio investment in France.
C)   increases because Microsoft makes a direct investment in capital in France.
D)   decreases because Microsoft makes a direct investment in capital France.E) A) and D)
F) A) and C)

Question 4

What is the logic behind the theory of purchasing-power parity?

Accepted Answer

The logic behind purchasing-power parity...

Question 5

If purchasing-power parity holds, a dollar will buy

Accepted Answer

A)   one unit of each foreign currency.
B)   foreign currency equal to the U.S. price level divided by the foreign country's price level.
C)   enough foreign currency to buy as many goods as it does in the United States.
D)   None of the above is implied by purchasing-power parity.E) B) and D)
F) A) and C)

Question 6

A U.S. firm buys sardines from Morocco and pays for them with U.S. dollars. Other things the same, 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 B)
F) C) and D)

Question 7

A Starbucks Grande Latte costs $3.75 in the U.S. and 28 yuan in China. The nominal exchange rate is 6.75 yuan per dollar. The real exchange rate is

Accepted Answer

A)   1.106. If purchasing-power parity held the nominal exchange rate would be higher.
B)   1.106. If purchasing-power parity held the nominal exchange rate would be lower.
C)   .904. If purchasing power parity held the nominal exchange rate would be higher.
D)   .904. If purchasing-power parity held the nominal exchange rate would be lower.E) B) and C)
F) A) and D)

Question 8

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 9

Which of the following equations is always correct in an open economy?

Accepted Answer

A)   I = Y - C
B)   I = S
C)   I = S - NCO
D)   I = S + NXE) A) and B)
F) None of the above

Question 10

Net capital outflow equals the difference between a country's

Accepted Answer

A)   income and expenditure.
B)   investment and saving.
C)   purchases of foreign goods and services and sales of goods and services abroad.
D)   purchases of foreign assets and sales of domestic assets abroad.E) All of the above
F) B) and C)

Question 11

If purchasing-power parity holds but then U.S. prices rise, which of the following move the exchange rate back towards purchasing-power parity?

Accepted Answer

A)   foreign prices rise or the U.S. nominal exchange rate rises
B)   foreign prices rise or the U.S. nominal exchange rate falls
C)   foreign prices fall or the U.S. nominal exchange rate rises
D)   foreign prices fall or the U.S. nominal exchange rate fallsE) None of the above
F) B) and C)

Question 12

If the price of a sofa is $800 in the U.S. and 2400 pesos in Argentina, and the exchange rate is 4 pesos per dollar, what is the real exchange rate?

Accepted Answer

A)   3
B)   4/3
C)   3/4
D)   None of the above is correct.E) B) and D)
F) B) and C)

Question 13

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)   eP*/P) .
D)   eP/P*) ,E) A) and B)
F) A) and C)

Question 14

Lydia, a citizen of Italy, produces scarves and purses that she sells to department stores in the United States. Other things the same, these sales

Accepted Answer

A)   increase U.S. net exports and have no effect on Italian net exports.
B)   decrease U.S. net exports and have no effect on Italian net exports.
C)   increase U.S. net exports and decrease Italian net exports.
D)   decrease U.S. net exports and increase Italian net exports.E) A) and C)
F) B) and D)

Question 15

The increase in the trade deficit in the 1980's reflected a decrease in national saving that is associated with an increase in the government budget deficit.

Accepted Answer

A) True 
 B)False

Question 16

On behalf of your firm, you make frequent trips to Tokyo. You notice that you always have to pay more dollars to get your hair cut than you pay in the U.S. This observation is

Accepted Answer

A)   consistent with purchasing-power parity if prices in Japan are rising more rapidly than prices in the United States.
B)   consistent with purchasing-power parity if prices in Japan are rising less rapidly than prices in the United States.
C)   inconsistent with purchasing-power parity, but might be explained by limited opportunities for arbitrage in haircuts across international borders.
D)   None of the above is correct.E) All of the above
F) C) and D)

Question 17

If Norway sold more goods and services abroad than it purchased from abroad, then it had

Accepted Answer

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

Question 18

A country with negative net exports has a trade surplus.

Accepted Answer

A) True 
 B)False

Question 19

If prices in the U.S. rise faster than prices in the United Kingdom, then according to the doctrine of purchasing- power parity the U.S. nominal exchange rate should rise

Accepted Answer

A) True 
 B)False

Question 20

A U.S. bank loaned a Canadian oil company 1 million U.S. dollars. The Canadian company then used the entire loan to buy mining equipment from a U.S. company.
As a result of these transactions, by how much and in which direction did:
A. U.S. net exports change?
B. U.S. net capital outflow change?

Accepted Answer

A. U.S. net exports ...

Exam 13: Open-Economy Macroeconomics: Basic Concepts

Which of the following equations is always correct in an open economy?

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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

Net capital outflow equals the difference between a country's

Correct AnswerverifiedShow Answer

If prices in the U.S. rise faster than prices in the United Kingdom, then according to the doctrine of purchasing- power parity the U.S. nominal exchange rate should rise

Correct AnswerverifiedShow Answer

A U.S. firm buys sardines from Morocco and pays for them with U.S. dollars. Other things the same, U.S. net exports

Correct AnswerverifiedShow Answer

If the price of a sofa is $800 in the U.S. and 2400 pesos in Argentina, and the exchange rate is 4 pesos per dollar, what is the real exchange rate?

Correct AnswerverifiedShow Answer

Since 1980 U.S. net capital outflow has been

Correct AnswerverifiedShow Answer

If Norway sold more goods and services abroad than it purchased from abroad, then it had

Correct AnswerverifiedShow Answer

A country with negative net exports has a trade surplus.

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When Microsoft establishes a distribution center in France, U.S. net capital outflow

Correct AnswerverifiedShow Answer

If a country has a trade deficit

Correct AnswerverifiedShow Answer

A U.S. bank loaned a Canadian oil company 1 million U.S. dollars. The Canadian company then used the entire loan to buy mining equipment from a U.S. company. As a result of these transactions, by how much and in which direction did: A. U.S. net exports change? B. U.S. net capital outflow change?

Correct AnswerverifiedA. U.S. net exports ...View AnswerShow Answer

If purchasing-power parity holds but then U.S. prices rise, which of the following move the exchange rate back towards purchasing-power parity?

Correct AnswerverifiedShow Answer

A Starbucks Grande Latte costs $3.75 in the U.S. and 28 yuan in China. The nominal exchange rate is 6.75 yuan per dollar. The real exchange rate is

Correct AnswerverifiedShow Answer

Lydia, a citizen of Italy, produces scarves and purses that she sells to department stores in the United States. Other things the same, these sales

Correct AnswerverifiedShow Answer

On behalf of your firm, you make frequent trips to Tokyo. You notice that you always have to pay more dollars to get your hair cut than you pay in the U.S. This observation is

Correct AnswerverifiedShow Answer

If purchasing-power parity holds, a dollar will buy

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

What is the logic behind the theory of purchasing-power parity?

Correct AnswerverifiedThe logic behind purchasing-power parity...View AnswerShow Answer

The increase in the trade deficit in the 1980's reflected a decrease in national saving that is associated with an increase in the government budget deficit.

Correct AnswerverifiedShow Answer

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A. U.S. net exports ...
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The logic behind purchasing-power parity...
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