Question 1

In an open economy national saving equals domestic investment plus net capital outflow.

Accepted Answer

A) True 
 B)False

Question 2

Carl and Carly are American residents. Carl buys stock of a corporation in Austria. Carly opens a coffee shop in Austria. Whose purchase, by itself, decreases Austria's net capital outflow?

Accepted Answer

A)   Carl's
B)   Carly's
C)   both Carl's and Carly's
D)   neither Carl's nor Carly'sE) All of the above
F) A) and C)

Question 3

A U.S. mutual fund buys stocks issued by a Columbian company. This purchase is an example of

Accepted Answer

A)   U.S. foreign direct investment. It increases Columbia's net capital outflow.
B)   U.S. foreign direct investment. It decreases Columbia's net capital outflow.
C)   U.S. foreign portfolio investment. It decreases Columbia's net capital outflow.
D)   U.S. foreign portfolio investment. It increases Columbia's net capital outflow.E) A) and B)
F) A) and C)

Question 4

Purchasing-power parity describes the forces that determine

Accepted Answer

A)   prices in the short run.
B)   prices in the long run.
C)   exchange rates in the short run.
D)   exchange rates in the long run.E) B) and C)
F) C) and D)

Question 5

If purchases of foreign assets by U.S. residents exceed purchases of U.S. assets by foreign residents, then U.S. net capital outflow is positive.

Accepted Answer

A) True 
 B)False

Question 6

Net capital outflow is defined as the purchase of

Accepted Answer

A)   foreign assets by domestic residents minus the purchase of domestic assets by foreign residents.
B)   foreign assets by domestic residents minus the purchase of foreign goods and services by domestic residents.
C)   domestic assets by foreign residents minus the purchase of domestic goods and services by foreign residents.
D)   domestic assets by foreign residents minus the purchase of foreign assets by domestic residents.E) A) and C)
F) B) and D)

Question 7

Gabrielle, an Italian citizen, uses some previously obtained dollars to purchase a bond issued by a U.S. company. This transaction

Accepted Answer

A)   decreases U.S. net capital outflow.
B)   does not change U.S. net capital outflow.
C)   increases U.S. net capital outflow by more than the value of the bond.
D)   increases U.S. net capital outflow by the value of the bond.E) B) and C)
F) A) and D)

Question 8

Jason plans to buy shrimp in Florida and sell them in Manhattan, Kansas where the price is higher. Jason plans to engage in arbitrage.

Accepted Answer

A) True 
 B)False

Question 9

If over the next year the inflation rate in the euro area is higher than the inflation rate in Japan, then the euro should depreciate relative to the Japanese yen.

Accepted Answer

A) True 
 B)False

Question 10

If Spain has a trade deficit, then

Accepted Answer

A)   foreign countries purchase more Spanish assets than Spain purchases from them. This makes Spanish saving greater than Spanish domestic investment.
B)   foreign countries purchase more Spanish assets than Spain purchases from them. This makes Spanish saving smaller then Spanish domestic investment.
C)   foreign countries purchase fewer Spanish assets than Spain purchases from them. This makes Spanish saving greater than Spanish domestic investment.
D)   foreign countries purchase fewer Spanish assets than Spain purchases from them. This makes Spanish saving greater than Spanish domestic investmentE) B) and C)
F) All of the above

Question 11

A country must have a positive net outflow of capital if it has a trade deficit.

Accepted Answer

A) True 
 B)False

Question 12

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

Accepted Answer

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

Question 13

If a McDonald's Big Mac cost $4.50 in the United States and 3.60 euros in the Euro area, then purchasing-power parity implies the nominal exchange rate is how many euros per dollar?

Accepted Answer

A)   1.25 If the value is less than this, it costs more dollars to buy a Big Mac in the U.S. than in the Euro area.
B)   1.25 If the value is less than this, it costs fewer dollars to buy a Big Mac in the U.S. then in the Euro area.
C)   .80 If the value is less than this, it costs more dollars to buy a Big Mac in the U.S. than in the Euro area.
D)   .80 If the value is less than this, it costs fewer dollars to buy a Big Mac in the U.S. than in the Euro area.E) A) and D)
F) None of the above

Question 14

Last year residents of Country A purchased $600 billion of foreign assets. Foreigners purchased $425 billion dollars of assets and $375 billion of goods and services from country A. What was the value of Country A's imports?

Accepted Answer

The value of Country...

Question 15

Last month a country sold more goods and services to residents of foreign countries than it purchased from them. What does this imply about this country's trade balance?

Accepted Answer

This count...

Question 16

A country has $20 billion of domestic investment and net capital outflow of $10 billion. What is saving?

Accepted Answer

A)   $10 billion
B)   $30 billion
C)   -$20 billion
D)   -$30 billionE) None of the above
F) C) and D)

Question 17

If the Mexican nominal exchange rate does not change, but prices rise faster in Mexico than in all other countries, then the Mexican real exchange rate

Accepted Answer

A)   does not change.
B)   rises.
C)   declines.
D)   There is not enough information to answer the questionE) C) and D)
F) All of the above

Question 18

A certain cell phone sells for 2400 yuan in China and for $300 in the U.S. The nominal exchange rate is 6.5 yuan per dollar.
A. Find the real exchange rate. Show your work.
B. In terms of dollars where is the cell phone cheaper?

Accepted Answer

The real exchange rate = $300 ...

Question 19

According to purchasing-power parity, if it took 55 Indian rupees to buy a dollar today, but it took 58 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) A) and B)
F) None of the above

Question 20

A Swiss watchmaker opens a factory in the United States. This is an example of Swiss

Accepted Answer

A)   exports.
B)   imports.
C)   foreign portfolio investment.
D)   foreign direct investment.E) None of the above
F) A) and B)

Exam 13: Open-Economy Macroeconomics: Basic Concepts

If Spain has a trade deficit, then

Correct AnswerverifiedShow Answer

According to purchasing-power parity, if it took 55 Indian rupees to buy a dollar today, but it took 58 to buy it a year ago, then the dollar has

Correct AnswerverifiedShow Answer

Carl and Carly are American residents. Carl buys stock of a corporation in Austria. Carly opens a coffee shop in Austria. Whose purchase, by itself, decreases Austria's net capital outflow?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

A certain cell phone sells for 2400 yuan in China and for $300 in the U.S. The nominal exchange rate is 6.5 yuan per dollar. A. Find the real exchange rate. Show your work. B. In terms of dollars where is the cell phone cheaper?

Correct AnswerverifiedThe real exchange rate = $300 ...View AnswerShow Answer

Gabrielle, an Italian citizen, uses some previously obtained dollars to purchase a bond issued by a U.S. company. This transaction

Correct AnswerverifiedShow Answer

Last year residents of Country A purchased $600 billion of foreign assets. Foreigners purchased $425 billion dollars of assets and $375 billion of goods and services from country A. What was the value of Country A's imports?

Correct AnswerverifiedThe value of Country...View AnswerShow Answer

If over the next year the inflation rate in the euro area is higher than the inflation rate in Japan, then the euro should depreciate relative to the Japanese yen.

Correct AnswerverifiedShow Answer

If purchases of foreign assets by U.S. residents exceed purchases of U.S. assets by foreign residents, then U.S. net capital outflow is positive.

Correct AnswerverifiedShow Answer

A Swiss watchmaker opens a factory in the United States. This is an example of Swiss

Correct AnswerverifiedShow Answer

If a McDonald's Big Mac cost $4.50 in the United States and 3.60 euros in the Euro area, then purchasing-power parity implies the nominal exchange rate is how many euros per dollar?

Correct AnswerverifiedShow Answer

Net capital outflow is defined as the purchase of

Correct AnswerverifiedShow Answer

In an open economy national saving equals domestic investment plus net capital outflow.

Correct AnswerverifiedShow Answer

If the Mexican nominal exchange rate does not change, but prices rise faster in Mexico than in all other countries, then the Mexican real exchange rate

Correct AnswerverifiedShow Answer

Purchasing-power parity describes the forces that determine

Correct AnswerverifiedShow Answer

Jason plans to buy shrimp in Florida and sell them in Manhattan, Kansas where the price is higher. Jason plans to engage in arbitrage.

Correct AnswerverifiedShow Answer

A country must have a positive net outflow of capital if it has a trade deficit.

Correct AnswerverifiedShow Answer

A country has $20 billion of domestic investment and net capital outflow of $10 billion. What is saving?

Correct AnswerverifiedShow Answer

Last month a country sold more goods and services to residents of foreign countries than it purchased from them. What does this imply about this country's trade balance?

Correct AnswerverifiedThis count...View AnswerShow Answer

A U.S. mutual fund buys stocks issued by a Columbian company. This purchase is an example of

Correct AnswerverifiedShow Answer

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The real exchange rate = $300 ...
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The value of Country...
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This count...
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