Question 1

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 2

If the price of a good in the U.S. is $10, the exchange rate is 2 units of foreign currency per dollar, and the foreign price of the same good is 30 units of foreign currency, then the real exchange rate is 2/3.

Accepted Answer

A) True 
 B)False

Question 3

Which of the following is correct? Since 1950

Accepted Answer

A)  U.S. exports and U.S. imports each about doubled.
B)  U.S. exports and U.S. imports each about tripled.
C)  U.S. exports about doubled and U.S. imports about tripled.
D)  U.S. exports about tripled and U.S. imports about doubled.E) B) and C)
F) A) and D)

Question 4

If a country has positive net capital outflows, then its net exports are

Accepted Answer

A)  positive, and its saving is larger than its domestic investment.
B)  positive, and its saving is smaller than its domestic investment.
C)  negative, and its saving is larger than its domestic investment.
D)  negative, and its saving is smaller than its domestic investment.E) None of the above
F) All of the above

Question 5

In the U.S. a box of tea costs $5. The same box of tea in Uganda costs 10,000 schillings (the currency of Uganda). If the real exchange rate is 5/4, what is the nominal exchange rate? Show your work.

Accepted Answer

The real exchange rate 5/4 = $...

Question 6

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 C)
F) B) and D)

Question 7

A British grocery chain uses previously obtained U.S. dollars to purchase oranges from the United States. This transaction

Accepted Answer

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

Question 8

Suppose the real exchange rate is 5/4 of a Canadian textbook per U.S. textbook , a U.S. textbook costs $150, and a Canadian one costs 120 Canadian dollars. To the nearest penny, what is the nominal exchange rate?

Accepted Answer

A)  .64 Canadian dollars per U.S. dollar
B)  1 Canadian dollar per U.S. dollar
C)  1.56 Canadian dollars per U.S. dollar
D)  None of the above is correct.E) A) and D)
F) C) and D)

Question 9

If business opportunities in a country become relatively less attractive relative to those of other countries, then

Accepted Answer

A)  both its net exports and net capital outflows fall.
B)  both its net exports and net capital outflows rise.
C)  its net exports fall and its net capital outflows fall.
D)  its net exports rise and its net capital outflows fallE) None of the above
F) C) and D)

Question 10

A Japanese bank buys bonds sold by Minnesota Manufacturing. Minnesota Manufacturing then uses these funds to buy machinery from Canada. Which of the following decreases?

Accepted Answer

A)  U.S. net exports but not US net capital outflow
B)  U.S. net capital outflow but not U.S. net exports
C)  U.S. net exports and U.S. net capital outflow
D)  neither U.S. net exports nor U.S. net capital outflowE) None of the above
F) All of the above

Question 11

If the exchange rate is 80 yen per dollar, then a hotel room in Tokyo that costs 25,000 yen costs $200.

Accepted Answer

A) True 
 B)False

Question 12

Suppose a Starbucks tall latte costs $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)  the euro area but not Australia
C)  Australia but not the euro area
D)  neither the euro area or AustraliaE) B) and D)
F) B) and C)

Question 13

If over the next few years inflation is higher in Mexico than in the U.S., then according to purchasing-power parity which of the following should rise?

Accepted Answer

A)  the U.S. real exchange rate but not the U.S. nominal exchange rate
B)  the U.S. nominal exchange rate but not the U.S. real exchange rate
C)  The U.S. real exchange rate but not the U.S. nominal exchange rate
D)  neither the U.S. real nor the U.S. nominal exchange rateE) None of the above
F) All of the above

Question 14

A Japanese bank buys U.S. government bonds, this purchase

Accepted Answer

A)  increases U.S. net capital outflow and has no affect on Japanese net capital outflow.
B)  increases U.S. net capital outflow and increases Japanese net capital outflow.
C)  increases U.S. net capital outflow, but decreases Japanese net capital outflow.
D)  decreases U.S. net capital outflow, but increases Japanese net capital outflow.E) B) and C)
F) All of the above

Question 15

If the real exchange rate is less than 1, then the

Accepted Answer

A)  nominal exchange rate x U.S. price > foreign price. The dollars required to purchase a good in the U.S. would buy more than enough foreign currency to buy the same good overseas.
B)  nominal exchange rate x U.S. price > foreign price. The dollars required to purchase a good in the U.S. would not buy enough foreign currency to buy the same good overseas.
C)  nominal exchange rate x U.S. price 
D)  nominal exchange rate x U.S. price < foreign price. The dollars required to purchase a good in the U.S. would not buy enough foreign currency to buy the same good overseas.E) A) and B)
F) C) and D)

Question 16

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

Accepted Answer

A)  A Greek company opens a cheese factory in the U.S.
B)  A German mutual fund buys stock issued by a U.S. corporation.
C)  A U.S. beverage company opens a bottling plant in Russia.
D)  A U.S. bank buys bonds issued by an Argentinean company.E) A) and D)
F) B) and C)

Question 17

If the U.S. has a trade deficit and the nominal exchange rate depreciates, then other things the same

Accepted Answer

A)  the trade deficit rises and net capital outflow rises.
B)  the trade deficit rises and net capital outflow falls.
C)  the trade deficit falls and net capital outflows rise.
D)  the trade deficit falls and net capital outflows fall.E) B) and C)
F) A) and D)

Question 18

From 1970 to 1998 the U.S. dollar

Accepted Answer

A)  gained value compared to the German mark because inflation was higher in the U.S.
B)  gained value compared to the German mark because inflation was lower in the U.S.
C)  lost value compared to the German mark because inflation was higher in the U.S.
D)  lost value compared to the German mark because inflation was lower in the U.S.E) All of the above
F) A) and B)

Question 19

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) All of the above
F) C) and D)

Question 20

Jill, a U.S. citizen, uses some euros to purchase a bond issued by a French vineyard. This exchange

Accepted Answer

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

Exam 31: Open-Economy Macroeconomics: Basic Concepts

If business opportunities in a country become relatively less attractive relative to those of other countries, then

Correct AnswerverifiedShow Answer

A Japanese bank buys U.S. government bonds, this purchase

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

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 exchange rate is 80 yen per dollar, then a hotel room in Tokyo that costs 25,000 yen costs $200.

Correct AnswerverifiedShow Answer

If the real exchange rate is less than 1, then the

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

A Japanese bank buys bonds sold by Minnesota Manufacturing. Minnesota Manufacturing then uses these funds to buy machinery from Canada. Which of the following decreases?

Correct AnswerverifiedShow Answer

If the U.S. has a trade deficit and the nominal exchange rate depreciates, then other things the same

Correct AnswerverifiedShow Answer

Suppose a Starbucks tall latte costs $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

If the price of a good in the U.S. is $10, the exchange rate is 2 units of foreign currency per dollar, and the foreign price of the same good is 30 units of foreign currency, then the real exchange rate is 2/3.

Correct AnswerverifiedShow Answer

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

Jill, a U.S. citizen, uses some euros to purchase a bond issued by a French vineyard. This exchange

Correct AnswerverifiedShow Answer

A British grocery chain uses previously obtained U.S. dollars to purchase oranges from the United States. This transaction

Correct AnswerverifiedShow Answer

From 1970 to 1998 the U.S. dollar

Correct AnswerverifiedShow Answer

Which of the following is correct? Since 1950

Correct AnswerverifiedShow Answer

If over the next few years inflation is higher in Mexico than in the U.S., then according to purchasing-power parity which of the following should rise?

Correct AnswerverifiedShow Answer

If a country has positive net capital outflows, then its net exports are

Correct AnswerverifiedShow Answer

Suppose the real exchange rate is 5/4 of a Canadian textbook per U.S. textbook , a U.S. textbook costs $150, and a Canadian one costs 120 Canadian dollars. To the nearest penny, what is the nominal exchange rate?

Correct AnswerverifiedShow Answer

In the U.S. a box of tea costs $5. The same box of tea in Uganda costs 10,000 schillings (the currency of Uganda). If the real exchange rate is 5/4, what is the nominal exchange rate? Show your work.

Correct AnswerverifiedThe real exchange rate 5/4 = $...View AnswerShow Answer

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The building of the ...
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The real exchange rate 5/4 = $...
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