Question 1

Suppose the world had only two countries and domestic residents of country A purchased $50 billion of assets from country B and country B purchased $30 billion of assets from country A. What would the net capital outflows of both countries be?

Accepted Answer

A)  $50 billion for country A and $30 billion for country B
B)  $30 billion for country A and $50 billion for country B
C)  $20 billion for country A and -$20 billion for country B
D)  -$20 billion for country A and $20 billion for country BE) None of the above
F) B) and D)

Question 2

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 3

A U.S. firm exchanges dollars for yen and then uses them to buy Japanese goods. Overall as a result of these transactions

Accepted Answer

A)  both U.S. net capital outflow and U.S. net exports rise.
B)  both U.S. net capital outflow and U.S. net exports fall.
C)  U.S. net capital outflow rises and U.S. net exports fall.
D)  U.S. net capital outflow falls and U.S. net exports rise.E) B) and C)
F) A) and D)

Question 4

If the U.S. real exchange rate appreciates, U.S. exports to Europe

Accepted Answer

A)  and European exports to the U.S. both rise.
B)  and European exports to the U.S. both fall.
C)  rise, and European exports to the U.S. fall.
D)  fall, and European exports to the U.S. rise.E) None of the above
F) C) and D)

Question 5

Table 31-2
Colombian Trade Flows 
-Refer to Table 31-2.​ What are Colombian imports?

Accepted Answer

A)  ​50 billion pesos
B)  ​60 billion pesos
C)  80 billion pesos
D)  ​100 billion pesosE) B) and D)
F) All of the above

Question 6

A country's trade balance will fall if

Accepted Answer

A)  either investment or saving rise.
B)  either investment falls or saving rises.
C)  either saving falls or investment rises.
D)  either investment or saving fall.E) A) and B)
F) All of the above

Question 7

If over the next six months inflation is higher in the U.S. than in foreign countries, then according to purchasing-power parity

Accepted Answer

A)  only the nominal exchange rate depreciates.
B)  both the real and nominal exchange rate appreciate.
C)  both the real and nominal exchange rate depreciate.
D)  only the real exchange rate appreciates.E) A) and B)
F) All of the above

Question 8

If a country has a trade surplus then

Accepted Answer

A) S > I and Y > C + I + G. B) S > I and Y C) S C + I + G. D) S < I and Y < C + I + G.E) None of the above F) A) and B)

Question 9

If you are vacationing in France and the dollar depreciates relative to the euro, then

Accepted Answer

A)  the dollar buys more euros. It will take fewer dollars to buy a good that costs 50 euros.
B)  the dollar buys more euros. It will take more dollars to buy a good that costs 50 euros.
C)  the dollar buys fewer euros. It will take fewer dollars to buy a good that costs 50 euros.
D)  the dollar buys fewer euros. It will take more dollars to buy a good that costs 50 euros.E) None of the above
F) A) and B)

Question 10

When the Mexican peso gets "stronger" relative to the dollar,

Accepted Answer

A)  the U.S. trade deficit with Mexico rises.
B)  the U.S. trade deficit with Mexico falls.
C)  the U.S. trade deficit with Mexico is unchanged.
D)  None of the above necessarily happens.E) A) and B)
F) All of the above

Question 11

A country has $60 million of saving and domestic investment of $40 million. Net exports are

Accepted Answer

A)  $20 million.
B)  -$20 million.
C)  $100 million.
D)  -$100 million.E) None of the above
F) A) and C)

Question 12

A basket of goods costs $800 in the U.S. In Belgium the basket of goods costs 640 euros and the exchange rate is .80 euros per U.S. dollar. In Japan the basket of goods costs 90,000 yen and the exchange rate is 90 yen per dollar. Which country has purchasing-power parity with the U.S.?

Accepted Answer

A)  both Belgium and Japan
B)  Belgium but not Japan
C)  Japan but not Belgium
D)  neither Belgium nor JapanE) A) and C)
F) A) and B)

Question 13

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 14

U.S. international trade has

Accepted Answer

A)  decreased because of a decrease in the trade of goods with a high value per pound.
B)  decreased because of an increase in the trade of goods with a high value per pound.
C)  increased because of a decrease in trade of goods with a high value per pound.
D)  increased because of an increase in trade of goods with a high value per pound.E) None of the above
F) A) and D)

Question 15

You are the CEO of a U.S. firm considering building a factory in Chile. If the dollar appreciates relative to the Chilean peso, then other things the same

Accepted Answer

A)  it takes fewer dollars to build the factory. By itself building the factory increases U.S. net capital outflow.
B)  it takes fewer dollars to build the factory. By itself building the factory decreases U.S. net capital outflow.
C)  it takes more dollars to build the factory. By itself building the factory increases U.S. net capital outflow.
D)  it takes more dollars to build the factory. By itself building the factory decreases U.S. net capital outflow.E) C) and D)
F) All of the above

Question 16

Which of the following is inconsistent with the others?

Accepted Answer

A)  Y - C - G > I
B)  this country had a trade surplus
C)  the purchase of foreign assets by this country's residents exceed foreigner's purchases of this country's assets
D)  this country's investment exceeded its domestic savingE) A) and D)
F) None of the above

Question 17

Other things the same, if the U.S. real exchange rate appreciates, U.S. net exports

Accepted Answer

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

Question 18

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

Accepted Answer

A)  A Chinese company opens a restaurant in the U.S.
B)  An Australian bank buys stocks issued by a U.S. corporation.
C)  A U.S. bank buys bonds issued by an Australian corporation.
D)  A U.S. company opens an auto parts factory in Canada.E) C) and D)
F) A) and D)

Question 19

Many economists believe that the theory of purchasing-power parity describes the forces that determine exchange rates in the long run.

Accepted Answer

A) True 
 B)False

Question 20

Citizens in India buy music from the U.S. To do so they use Indian rupees to purchase U.S. dollars. If U.S. citizens hold these rupees rather than spending them, what happens to U.S. net exports and U.S. net capital outflows?

Accepted Answer

A)  both U.S. net exports and U.S. net capital outflow rise
B)  both U.S. net exports and U.S. net capital outflow fall
C)  U.S. net exports rise and U.S. net capital outflow fall
D)  U.S. net exports fall and U.S. net capital outflow riseE) All of the above
F) B) and C)

Exam 31: Open-Economy Macroeconomics: Basic Concepts

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

Correct AnswerverifiedShow Answer

If a country has a trade surplus then

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Table 31-2 Colombian Trade Flows -Refer to Table 31-2.​ What are Colombian imports?

Correct AnswerverifiedShow Answer

If over the next six months inflation is higher in the U.S. than in foreign countries, then according to purchasing-power parity

Correct AnswerverifiedShow Answer

A basket of goods costs $800 in the U.S. In Belgium the basket of goods costs 640 euros and the exchange rate is .80 euros per U.S. dollar. In Japan the basket of goods costs 90,000 yen and the exchange rate is 90 yen per dollar. Which country has purchasing-power parity with the U.S.?

Correct AnswerverifiedShow Answer

Other things the same, if the U.S. real exchange rate appreciates, U.S. net exports

Correct AnswerverifiedShow Answer

A country's trade balance will fall if

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 country has $60 million of saving and domestic investment of $40 million. Net exports are

Correct AnswerverifiedShow Answer

U.S. international trade has

Correct AnswerverifiedShow Answer

When the Mexican peso gets "stronger" relative to the dollar,

Correct AnswerverifiedShow Answer

You are the CEO of a U.S. firm considering building a factory in Chile. If the dollar appreciates relative to the Chilean peso, then other things the same

Correct AnswerverifiedShow Answer

A U.S. firm exchanges dollars for yen and then uses them to buy Japanese goods. Overall as a result of these transactions

Correct AnswerverifiedShow Answer

If you are vacationing in France and the dollar depreciates relative to the euro, then

Correct AnswerverifiedShow Answer

Citizens in India buy music from the U.S. To do so they use Indian rupees to purchase U.S. dollars. If U.S. citizens hold these rupees rather than spending them, what happens to U.S. net exports and U.S. net capital outflows?

Correct AnswerverifiedShow Answer

Many economists believe that the theory of purchasing-power parity describes the forces that determine exchange rates in the long run.

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

Which of the following is inconsistent with the others?

Correct AnswerverifiedShow Answer

If the U.S. real exchange rate appreciates, U.S. exports to Europe

Correct AnswerverifiedShow Answer

Suppose the world had only two countries and domestic residents of country A purchased $50 billion of assets from country B and country B purchased $30 billion of assets from country A. What would the net capital outflows of both countries be?

Correct AnswerverifiedShow Answer

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Table 31-2 Colombian Trade Flows -Refer to Table 31-2. What are Colombian imports?

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According to purchasing-power parity, a ...
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