Question 1

Suppose that the real exchange rate between the United States and Brazil is defined in terms of baskets of goods. Other things the same, which of the following will increase the real exchange rate that is increase the number of baskets of Brazilian goods a basket of U.S. goods buys) ?

Accepted Answer

A)   an increase in the quantity of Brazilian currency that can be purchased with a dollar
B)   a decrease in the price of U.S. goods
C)   an increase in the price in Brazilian currency of Brazilian goods
D)   All of the above are correct.E) A) and B)
F) A) and C)

Question 2

Other things the same, the real exchange rate between U.S. and Belgian goods would be higher if

Accepted Answer

A)   prices in the U.S. were higher, or the number of euro the dollar purchased were higher.
B)   prices in the U.S. were higher, or the number of euro the dollar purchased were lower.
C)   prices in the U.S. were lower, or the number of euro the dollar purchased were higher.
D)   prices in the U.S. were lower, or the number of euro the dollar purchased were lower.E) All of the above
F) None of the above

Question 3

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

Accepted Answer

A)   A U.S. based mutual fund buys stock in Eastern European companies.
B)   A U.S. citizen builds and operates a coffee shop in the Netherlands.
C)   A Swiss bank buys a U.S. government bond.
D)   A German tractor factory opens a plant in Waterloo, Iowa.E) C) and D)
F) B) and D)

Question 4

When the Sykes Corporation an American company)  buys shares of Audi stock a German company)  for its pension fund, U.S. net capital outflow

Accepted Answer

A)   increases because an American company makes a portfolio investment in Germany.
B)   declines because an American company makes a portfolio investment in Germany.
C)   increases because an American company makes a direct investment in Germany.
D)   declines because an American company makes a direct investment in Germany.E) None of the above
F) B) and C)

Question 5

An Italian company exchanges euros for dollars from U.S. residents and then uses the dollars to buy U.S. products to sell in its stores in Rome. U.S. residents who exchanged their dollars for euros use the euros to buy bonds issued by French corporations. At this point

Accepted Answer

A)   both U.S. net exports and U.S. net capital outflows have risen.
B)   both U.S. net exports and U.S. net capital outflow have fallen.
C)   U.S. net exports have risen and U.S. net capital outflow have fallen.
D)   U.S. net exports have fallen and U.S. net capital outflow have risen.E) A) and B)
F) None of the above

Question 6

In 2011 the U.S. began with a trade deficit. During the year exports rose by more than imports. What should have happened to the U.S. trade deficit?

Accepted Answer

It should ...

Question 7

While on a study abroad program you see a McDonald's in Paris. A combo meal costs 8 euros. The same meal costs $6 in the U.S. and the exchange rate is .75 euros per dollar.
A. Find the real exchange rate. Show your work.
B. In terms of dollars where is the combo meal cheaper?

Accepted Answer

The real exchange rate = .75 x...

Question 8

Which of the following events would be consistent with purchasing-power parity?

Accepted Answer

A)   The price level in the United States rises more rapidly than that in Ireland and the real exchange rate defined as Irish goods per unit of U.S. goods stays the same.
B)   The money supply in the United States rises more rapidly than in Egypt and the nominal exchange rate defined as Egyptian pounds per dollar falls.
C)   Earl, a worldwide traveler, looks at exchange rates and worldwide breakfast prices one morning and finds that whatever country he decides to go to he can convert $15 into enough local currency to buy the same breakfast.
D)   All of the above are correct.E) B) and C)
F) None of the above

Question 9

Matt and Melinda are American residents. Matt buys stock issued by a German corporation. Melinda opens a shoe factory in Panama. Whose purchase, by itself, increases the U.S.'s net capital outflow?

Accepted Answer

A)   Matt's
B)   Melinda's
C)   both Matt's and Melinda's
D)   neither Matt's nor Melinda'sE) B) and C)
F) A) and C)

Question 10

A Big Mac in Japan costs 400 yen while it costs $4.50 in the U.S.. The nominal exchange rate is 100 yen per dollar. Which of the following would both make the real exchange rate move towards purchasing-power parity?

Accepted Answer

A)   the price of Big Macs in the U.S. falls, the nominal exchange rate falls
B)   the price of Big Macs in the U.S. falls, the nominal exchange rate rises
C)   the price of Big Macs in the U.S. rises, the nominal exchange rate falls
D)   the price of Big Macs in the U.S. rises, the nominal exchange rate risesE) B) and C)
F) A) and D)

Question 11

Other things the same, the real exchange rate between American and Chinese goods would be higher if

Accepted Answer

A)   prices of Chinese goods were higher, or the number of yuan a dollar purchased was higher.
B)   prices of Chinese goods were higher, or the number of yuan a dollar purchased was lower.
C)   prices of Chinese goods were lower, or the number of yuan a dollar purchased was higher.
D)   prices of Chinese goods were lower, or the number of yuan a dollar purchased was lower.E) A) and C)
F) A) and D)

Question 12

Foreign-produced goods and services that are purchased domestically are called

Accepted Answer

A)   imports.
B)   exports.
C)   net imports.
D)   net exports.E) B) and D)
F) B) and C)

Question 13

If a nation produces less than it spends what do we know about:
A. its net exports?
B. its net capital outflow?
C. its saving in relation to its domestic investment?

Accepted Answer

A. Its net exports are negativ...

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

Question 15

When a company from Germany builds an automobile factory in the United States, the German firm has engaged in foreign direct investment.

Accepted Answer

A) True 
 B)False

Question 16

If a U.S. firm buys Chinese toys using previously obtained Chinese currency, then both U.S. net exports and U.S. net capital outflow decrease.

Accepted Answer

A) True 
 B)False

Question 17

Suppose that the real exchange rate between the United States and South Korea is defined in terms of baskets of goods. Other things the same, which of the following will increase the real exchange rate that is increase the number of baskets of South Korean goods a basket of U.S goods buys) ?

Accepted Answer

A)   a decrease in the quantity of South Korean currency that can be purchased with a dollar
B)   a decrease in the price of U.S. baskets of goods
C)   a decrease in the price in South Korean currency of South Korean goods.
D)   None of the above is correct.E) B) and C)
F) All of the above

Question 18

Suppose that real interest rates in the U.S. rise relative to real interest rates in other countries. This increase would make foreigners

Accepted Answer

A)   more willing to purchase U.S. bonds, so U.S. net capital outflow would fall.
B)   more willing to purchase U.S. bonds, so U.S. net capital outflow would rise.
C)   less willing to purchase U.S. bonds, so U.S. net capital outflow would fall.
D)   less willing to purchase U.S. bonds, so U.S. net capital outflow would rise.E) C) and D)
F) A) and B)

Question 19

One year a country has negative net exports. The next year it still has negative net exports and imports have risen more than exports.

Accepted Answer

A)   its trade surplus fell.
B)   its trade surplus rose.
C)   its trade deficit fell.
D)   its trade deficit roseE) All of the above
F) A) and D)

Question 20

If the Kenyan nominal exchange rate declines, and prices are unchanged in Kenya and abroad, then the Kenyan real exchange rate

Accepted Answer

A)   does not change.
B)   rises.
C)   declines
D)   None of the above is necessarily correct.E) All of the above
F) A) and D)

Exam 13: Open-Economy Macroeconomics: Basic Concepts

Suppose that the real exchange rate between the United States and Brazil is defined in terms of baskets of goods. Other things the same, which of the following will increase the real exchange rate that is increase the number of baskets of Brazilian goods a basket of U.S. goods buys) ?

Correct AnswerverifiedShow Answer

In 2011 the U.S. began with a trade deficit. During the year exports rose by more than imports. What should have happened to the U.S. trade deficit?

Correct AnswerverifiedIt should ...View AnswerShow Answer

Matt and Melinda are American residents. Matt buys stock issued by a German corporation. Melinda opens a shoe factory in Panama. Whose purchase, by itself, increases the U.S.'s net capital outflow?

Correct AnswerverifiedShow Answer

When a company from Germany builds an automobile factory in the United States, the German firm has engaged in foreign direct investment.

Correct AnswerverifiedShow Answer

A Big Mac in Japan costs 400 yen while it costs $4.50 in the U.S.. The nominal exchange rate is 100 yen per dollar. Which of the following would both make the real exchange rate move towards purchasing-power parity?

Correct AnswerverifiedShow Answer

Foreign-produced goods and services that are purchased domestically are called

Correct AnswerverifiedShow Answer

When the Sykes Corporation an American company) buys shares of Audi stock a German company) for its pension fund, U.S. net capital outflow

Correct AnswerverifiedShow Answer

Which of the following events would be consistent with purchasing-power parity?

Correct AnswerverifiedShow Answer

If a U.S. firm buys Chinese toys using previously obtained Chinese currency, then both U.S. net exports and U.S. net capital outflow decrease.

Correct AnswerverifiedShow Answer

Other things the same, the real exchange rate between American and Chinese goods would be higher if

Correct AnswerverifiedShow Answer

Suppose that real interest rates in the U.S. rise relative to real interest rates in other countries. This increase would make foreigners

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

If a nation produces less than it spends what do we know about: A. its net exports? B. its net capital outflow? C. its saving in relation to its domestic investment?

Correct AnswerverifiedA. Its net exports are negativ...View AnswerShow Answer

Other things the same, the real exchange rate between U.S. and Belgian goods would be higher if

Correct AnswerverifiedShow Answer

One year a country has negative net exports. The next year it still has negative net exports and imports have risen more than exports.

Correct AnswerverifiedShow Answer

Suppose that the real exchange rate between the United States and South Korea is defined in terms of baskets of goods. Other things the same, which of the following will increase the real exchange rate that is increase the number of baskets of South Korean goods a basket of U.S goods buys) ?

Correct AnswerverifiedShow Answer

If the Kenyan nominal exchange rate declines, and prices are unchanged in Kenya and abroad, then the Kenyan real exchange rate

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

While on a study abroad program you see a McDonald's in Paris. A combo meal costs 8 euros. The same meal costs $6 in the U.S. and the exchange rate is .75 euros per dollar. A. Find the real exchange rate. Show your work. B. In terms of dollars where is the combo meal cheaper?

Correct AnswerverifiedThe real exchange rate = .75 x...View AnswerShow Answer

An Italian company exchanges euros for dollars from U.S. residents and then uses the dollars to buy U.S. products to sell in its stores in Rome. U.S. residents who exchanged their dollars for euros use the euros to buy bonds issued by French corporations. At this point

Correct AnswerverifiedShow Answer

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A. Its net exports are negativ...
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The real exchange rate = .75 x...
View Answer

Correct Answer
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