Question 1

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

Accepted Answer

A)   Albert, a German citizen, buys stock in a U.S. computer company.
B)   Larry, a citizen of Ireland, opens a fish and chips restaurant in the United States.
C)   Nancy, a U.S. citizen, buys bonds issued by a Japanese bank.
D)   Dustin, a U.S. citizen, opens a country-western tavern in New Zealand.E) A) and B)
F) A) and C)

Question 2

A country purchases $3 billion of foreign-produced goods and services and sells $2 billion dollars of domestically produced goods and services to foreign countries. It has

Accepted Answer

A)   exports of $3 billion and a trade surplus of $1 billion.
B)   exports of $3 billion and a trade deficit of $1 billion.
C)   exports of $2 billion and a trade surplus of $1 billion.
D)   exports of $2 billion and a trade deficit of $1 billion.E) A) and D)
F) C) and D)

Question 3

In an open economy, gross domestic product equals $1,970 billion, government expenditure equals $300 billion, investment equals $500 billion, and net capital outflow equals $280 billion. What is consumption expenditure?

Accepted Answer

A)   $280 billion
B)   $780 billion
C)   $890 billion
D)   $1,170 billionE) A) and B)
F) A) and C)

Question 4

A U.S. mutual fund buys stock issued by a corporation in Colombia. A U.S. grocery store chain builds and manages a new warehouse in Honduras. Which one(s) of these is foreign direct investment? Which one(s) would be taken into account when computing U.S. net capital outflows?

Accepted Answer

The building of the ...

Question 5

According to purchasing-power parity, if the price of a basket of goods in the U.S. rose from $2,000 to $2,104 and the price of the same basket of goods rose from 800 units to 832 units of some other country's currency, then the

Accepted Answer

A)   nominal exchange rate would appreciate.
B)   nominal exchange rate would depreciate.
C)   real exchange rate would appreciate.
D)   real exchange rate would depreciate.E) C) and D)
F) All of the above

Question 6

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 B)
F) A) and C)

Question 7

Suppose the real exchange rate is 1.25 pounds of bananas in Guatemala per pound of bananas in the U.S. If a pound of bananas in the U.S. costs $.50, and the exchange rate is 10 Guatemalan Quetzals per dollar, what is the price of bananas in Guatemala?

Accepted Answer

A)   2.50 Quetzals per pound
B)   4.00 Quetzals per pound
C)   5.75 Quetzals per pound
D)   6.25 Quetzals per poundE) B) and D)
F) None of the above

Question 8

If a German firm buys goods from a U.S. firm with dollars it obtains by exchanging euros for dollars, both U.S. net exports and U.S. net capital outflow increase.

Accepted Answer

A) True 
 B)False

Question 9

Bob traps lobsters in Maine and sells them to a restaurant in Mexico. Other things the same, these sales

Accepted Answer

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

Question 10

If a country had a trade surplus of $50 billion and then its exports rose by $30 billion and its imports rose by $20 billion, its net exports would now be

Accepted Answer

A)   $0 billion.
B)   $20 billion.
C)   $40 billion.
D)   $60 billion.E) B) and C)
F) A) and B)

Question 11

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 12

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) All of the above

Question 13

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

Question 14

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

Question 15

The dollar is said to appreciate against the euro if

Accepted Answer

A)   the exchange rate falls. Other things the same, it will cost fewer euros to buy U.S. goods.
B)   the exchange rate falls. Other things the same, it will cost more euros to buy U.S. goods.
C)   the exchange rate rises. Other things the same, it will cost fewer euros to buy U.S. goods.
D)   the exchange rate rises. Other things the same, it will cost more euros to buy U.S. goods.E) None of the above
F) A) and B)

Question 16

If the exchange rate is .60 British pounds = $1, a bottle of ale that costs 3 pounds costs
A)  $1.80.

Accepted Answer

A)   $5.
B)   $4.80.
B)   None of the above is correct.C) None of the above
D) All of the above

Question 17

Purchasing-power parity implies that the nominal exchange rate given as foreign currency per unit of U.S. currency must rise if the price level(s)  in

Accepted Answer

A)   foreign countries rise.
B)   the United States rises.
C)   all countries rise.
D)   all countries fall.E) C) and D)
F) A) and D)

Question 18

Suppose that Bill, a resident of the U.S., buys software from a company in Japan. Explain why and in what directions this changes U.S. net exports and U.S. net capital outflow.

Accepted Answer

The purchase of a foreign good by a U.S....

Question 19

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 20

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

Exam 31: Open-Economy Macroeconomics: Basic Concepts

A U.S. mutual fund buys stock issued by a corporation in Colombia. A U.S. grocery store chain builds and manages a new warehouse in Honduras. Which one(s) of these is foreign direct investment? Which one(s) would be taken into account when computing U.S. net capital outflows?

Correct AnswerverifiedThe building of the ...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

If a country had a trade surplus of $50 billion and then its exports rose by $30 billion and its imports rose by $20 billion, its net exports would now be

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

If saving is greater than domestic investment, then

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

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

Correct AnswerverifiedShow Answer

In an open economy, gross domestic product equals $1,970 billion, government expenditure equals $300 billion, investment equals $500 billion, and net capital outflow equals $280 billion. What is consumption expenditure?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

If the exchange rate is .60 British pounds = $1, a bottle of ale that costs 3 pounds costs A) $1.80.

Correct AnswerverifiedShow Answer

The dollar is said to appreciate against the euro if

Correct AnswerverifiedShow Answer

If a German firm buys goods from a U.S. firm with dollars it obtains by exchanging euros for dollars, both U.S. net exports and U.S. net capital outflow increase.

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

Suppose that Bill, a resident of the U.S., buys software from a company in Japan. Explain why and in what directions this changes U.S. net exports and U.S. net capital outflow.

Correct AnswerverifiedThe purchase of a foreign good by a U.S....View AnswerShow Answer

Bob traps lobsters in Maine and sells them to a restaurant in Mexico. Other things the same, these sales

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

Suppose the real exchange rate is 1.25 pounds of bananas in Guatemala per pound of bananas in the U.S. If a pound of bananas in the U.S. costs $.50, and the exchange rate is 10 Guatemalan Quetzals per dollar, what is the price of bananas in Guatemala?

Correct AnswerverifiedShow Answer

Purchasing-power parity implies that the nominal exchange rate given as foreign currency per unit of U.S. currency must rise if the price level(s) in

Correct AnswerverifiedShow Answer

A country purchases $3 billion of foreign-produced goods and services and sells $2 billion dollars of domestically produced goods and services to foreign countries. It has

Correct AnswerverifiedShow Answer

According to purchasing-power parity, if the price of a basket of goods in the U.S. rose from $2,000 to $2,104 and the price of the same basket of goods rose from 800 units to 832 units of some other country's currency, then the

Correct AnswerverifiedShow Answer

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The purchase of a foreign good by a U.S....
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