Question 1

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) B) and C)
F) A) and D)

Question 2

A Guatemalan company exchanges quetzal Guatemalan currency)  for dollars and then uses the dollars to purchase construction equipment from a U.S. company. These transactions

Accepted Answer

A)   increase Guatemalan net capital outflow, and increases U.S. net exports.
B)   increase Guatemalan capital outflow, and decreases U.S. net exports.
C)   decrease Guatemalan net capital outflow, and increases U.S. net exports.
D)   decrease Guatemalan net capital outflow, and decreases U.S. net exports.E) B) and D)
F) B) and C)

Question 3

Other things the same, if the exchange rate changes from 6 Chinese yuan per dollar to 7 Chinese yuan per dollar, then the dollar

Accepted Answer

A)   appreciates and buys more Chinese goods.
B)   appreciates and buys fewer Chinese goods.
C)   depreciates and buys more Chinese goods.
D)   depreciates and buys fewer Chinese goods.E) A) and B)
F) A) and C)

Question 4

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) A) and B)
F) C) and D)

Question 5

You hold currency from a foreign country. If that country has a higher rate of inflation than the United States, then over time the foreign currency will buy

Accepted Answer

A)   more goods in that country and buy more dollars.
B)   more goods in that country but buy fewer dollars.
C)   fewer goods in that country but buy more dollars.
D)   fewer goods in that country and buy fewer dollars.E) A) and B)
F) A) and C)

Question 6

A utilities company in the Netherlands buys wind generators made by a U.S. company. It pays from them with previously obtained dollars. By itself, this exchange

Accepted Answer

A)   increases both U.S. net exports and U.S. net capital outflow.
B)   decreases both U.S. net exports and U.S. net capital outflow.
C)   increases U.S. net exports and does not affect U.S. net capital outflow.
D)   None of the above is correct.E) All of the above
F) B) and D)

Question 7

A country has $3 billion of domestic investment and net exports of $2 billion. What is its saving?

Accepted Answer

A)   $1 billion
B)   $2billion
C)   $3 billion
D)   $5 billionE) B) and C)
F) A) and D)

Question 8

A country with negative net exports has a trade surplus.

Accepted Answer

A) True 
 B)False

Question 9

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

Question 10

You are staying in London over the summer and you have a number of dollars with you. If the dollar appreciates relative to the British pound, then other things the same,

Accepted Answer

A)   the dollar would buy more pounds. The appreciation would discourage you from buying as many British goods and services.
B)   the dollar would buy more pounds. The appreciation would encourage you to buy more British goods and services.
C)   the dollar would buy fewer pounds. The appreciation would discourage you from buying as many British goods and services.
D)   the dollar would buy fewer pounds. The appreciation would encourage you to buy more British goods and services.E) A) and B)
F) A) and C)

Question 11

If a country's exports were 500 billion pesos and its imports were 300 billion pesos, what would its trade balance be?

Accepted Answer

a 200 bill...

Question 12

Assuming all other things equal, what would happen to the U.S. dollar real exchange rate under each of the following circumstances?
a. The U.S. nominal exchange rate depreciates.
b. U.S. domestic prices increase.
c. Prices in the rest of the world rise.

Accepted Answer

a. The U.S. dollar real exchan...

Question 13

A Turkish company exchanges liras for dollars and then uses the dollars to purchase medical equipment from a U.S. company. These transactions

Accepted Answer

A)   increase U.S. net exports, and increase Turkish net capital outflow.
B)   increase U.S. net exports, and decrease Turkish net capital outflow.
C)   decrease U.S. net exports, and increase Turkish net capital outflow.
D)   decrease U.S. net exports, and decrease Turkish net capital outflow.E) C) and D)
F) B) and C)

Question 14

Jen and Alica are both U.S. citizens. Jen opens a cafe in France. Alicia buys equipment from a company in Canada to use in her factory. Whose action is an example of U.S. foreign direct investment?

Accepted Answer

A)   Jen's and Alica's
B)   Jen's but not Alicia's
C)   Alicia's but not Jen's
D)   Neither Anthony's nor Tom's.E) B) and C)
F) C) and D)

Question 15

A pair of hiking boots costs $120 in the U.S., if the real exchange rate is 6/5 and the nominal exchange rate is 2 Brazilian reais per dollar, what is the price of the same hiking boots in Brazil?
Show your work.

Accepted Answer

The real exchange rate 6/5 = $...

Question 16

If prices in Mexico rise at a higher rate than prices in the U.S., then according to purchasing-power parity the U.S. nominal exchange rate with Mexico should rise.

Accepted Answer

A) True 
 B)False

Question 17

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 18

If U.S. exports are $300 billion and U.S. imports total $350 billion, which of the following is correct?

Accepted Answer

A)   The U.S. has a trade surplus of $350 billion.
B)   The U.S. has a trade surplus of $50 billion.
C)   The U.S. has a trade deficit of $350 billion.
D)   The U.S. has a trade deficit of $50 billion.E) B) and D)
F) None of the above

Question 19

If a Starbucks tall latte cost $3.20 in the United States and 3 euros in the Euro area, then purchasing-power parity implies the nominal exchange rate is how many euros per dollar?

Accepted Answer

A)   .938 If the exchange rate is less than this, it costs more dollars to buy a tall latte in the U.S. than in the Euro area.
B)   .938 If the exchange rate is less than this, it costs fewer dollars to buy a tall latte in the U.S. then in the Euro area.
C)   1.067 If the exchange rate is less than this, it costs more dollars to buy a tall latte in the U.S. than in the Euro area.
D)   1.067 If the exchange rate is less than this, it costs fewer dollars to buy a tall latte in the U.S. than in the Euro area.E) B) and C)
F) All of the above

Question 20

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

Accepted Answer

A) True 
 B)False

Exam 18: Open-Economy Macroeconomics: Basic Concepts

A Guatemalan company exchanges quetzal Guatemalan currency) for dollars and then uses the dollars to purchase construction equipment from a U.S. company. These transactions

Correct AnswerverifiedShow Answer

If prices in Mexico rise at a higher rate than prices in the U.S., then according to purchasing-power parity the U.S. nominal exchange rate with Mexico should rise.

Correct AnswerverifiedShow Answer

If a Starbucks tall latte cost $3.20 in the United States and 3 euros in the Euro area, then purchasing-power parity implies the nominal exchange rate is how many euros per dollar?

Correct AnswerverifiedShow Answer

If a country's exports were 500 billion pesos and its imports were 300 billion pesos, what would its trade balance be?

Correct Answerverifieda 200 bill...View AnswerShow Answer

If U.S. exports are $300 billion and U.S. imports total $350 billion, which of the following is correct?

Correct AnswerverifiedShow Answer

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

A country has $3 billion of domestic investment and net exports of $2 billion. What is its saving?

Correct AnswerverifiedShow Answer

Jen and Alica are both U.S. citizens. Jen opens a cafe in France. Alicia buys equipment from a company in Canada to use in her factory. Whose action is an example of U.S. foreign direct investment?

Correct AnswerverifiedShow Answer

Assuming all other things equal, what would happen to the U.S. dollar real exchange rate under each of the following circumstances? a. The U.S. nominal exchange rate depreciates. b. U.S. domestic prices increase. c. Prices in the rest of the world rise.

Correct Answerverifieda. The U.S. dollar real exchan...View AnswerShow Answer

Other things the same, if the exchange rate changes from 6 Chinese yuan per dollar to 7 Chinese yuan per dollar, then the dollar

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

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

Correct AnswerverifiedShow Answer

A Turkish company exchanges liras for dollars and then uses the dollars to purchase medical equipment from a U.S. company. These transactions

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 pair of hiking boots costs $120 in the U.S., if the real exchange rate is 6/5 and the nominal exchange rate is 2 Brazilian reais per dollar, what is the price of the same hiking boots in Brazil? Show your work.

Correct AnswerverifiedThe real exchange rate 6/5 = $...View AnswerShow Answer

A utilities company in the Netherlands buys wind generators made by a U.S. company. It pays from them with previously obtained dollars. By itself, this exchange

Correct AnswerverifiedShow Answer

You are staying in London over the summer and you have a number of dollars with you. If the dollar appreciates relative to the British pound, then other things the same,

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

You hold currency from a foreign country. If that country has a higher rate of inflation than the United States, then over time the foreign currency will buy

Correct AnswerverifiedShow Answer

A country with negative net exports has a trade surplus.

Correct AnswerverifiedShow Answer

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a 200 bill...
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According to purchasing-power parity, a ...
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a. The U.S. dollar real exchan...
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The real exchange rate 6/5 = $...
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