Question 1

If a dollar currently purchases 12.5 pesos and someone forecasts that in a year it will purchase 14 pesos, then the forecast is given in

Accepted Answer

A)   real terms and implies the dollar will appreciate.
B)   real terms and implies the dollar will depreciate.
C)   nominal terms and implies the dollar will appreciate.
D)   nominal terms and implies the dollar will depreciate.E) None of the above
F) C) and D)

Question 2

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 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

Oceania buys $100 of wine from Escudia and Escudia buys $80 of wool from Oceania. Suppose this is the only trade that these countries do. What are the net exports of Oceania and Escudia, in that order?

Accepted Answer

A)   $80 and $100
B)   $-20 and $20
C)   $20 and -$20
D)   None of the above is correct.E) All of the above
F) B) and D)

Question 5

Net capital outflow equals the difference between a country's

Accepted Answer

A)   income and expenditure.
B)   investment and saving.
C)   purchases of foreign goods and services and sales of goods and services abroad.
D)   purchases of foreign assets and sales of domestic assets abroad.E) C) and D)
F) B) and C)

Question 6

In the 1970s and 1980s the U.S. dollar depreciated against the German mark and appreciated against the Italian lira because U.S. inflation was lower than in Germany but higher than in Italy.

Accepted Answer

A) True 
 B)False

Question 7

If a nation is selling more goods and services to foreigners than it is buying from them, then on net it must be buying assets abroad.

Accepted Answer

A) True 
 B)False

Question 8

If a country's trade surplus falls, its net capital outflow rises.

Accepted Answer

A) True 
 B)False

Question 9

If purchasing-power parity holds, a bushel of rice costs $10 in the U.S., and the nominal exchange rate is 25 Thai baht per dollar, what is the price of rice in Thailand?

Accepted Answer

A)   400 baht
B)   250 bhat
C)   100 bhat
D)   None of the above is correct.E) All of the above
F) B) and D)

Question 10

If a country were to save more, but its domestic investment remained the same, then which of the following would rise?

Accepted Answer

A)   both net capital outflow and net exports
B)   net capital outflow but not net exports
C)   net exports but not net exports
D)   neither net exports nor net capital outflowE) A) and D)
F) B) and C)

Question 11

By itself, when a Japanese bank purchases a bond issued by a U.S. corporation, U.S. net capital outflow rises.

Accepted Answer

A) True 
 B)False

Question 12

A pair of jeans cost $25 in the U.S. and 1600 dinar in Algeria. If the nominal exchange rate is 75 dinar per U.S. dollar, then the real exchange rate is

Accepted Answer

A)   more than one, so a profit could be made by buying jeans in Algeria and selling them in the U.S.
B)   more than one, so a profit could be made by buying jeans in the U.S. and selling them in Algeria.
C)   less than one, so a profit could be made by buying jeans in Algeria and selling them in the U.S.
D)   less than one, so a profit could be made by buying jeans in the U.S. and selling them in Algeria.E) B) and D)
F) None of the above

Question 13

Can purchasing-power parity be used to explain the fact that the U.S. dollar depreciated by more than 50 percent against the German mark between 1970 and 1998, but appreciated by more than 100 percent against the Italian lira during the same period? Defend your answer.

Accepted Answer

The theory of purchasing-power parity su...

Question 14

According to purchasing-power parity theory, the nominal exchange rate between the U.S. and another country should equal the U.S. price level divided by the price level in the foreign country.

Accepted Answer

A) True 
 B)False

Question 15

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

Question 16

Table 31-1
 
-Refer to Table 31-1. What are Bolivia's exports?

Accepted Answer

A)   $60 billion
B)   $35 billion
C)   $10 billion
D)   None of the above are correct.E) B) and C)
F) C) and D)

Question 17

If Norway sold more goods and services abroad than it purchased from abroad, then it had

Accepted Answer

A)   positive net exports which is a trade surplus.
B)   positive net exports which is a trade deficit.
C)   negative net exports which is a trade surplus.
D)   negative net exports which is a trade deficit.E) None of the above
F) B) and C)

Question 18

Which of the following does purchasing-power parity imply?

Accepted Answer

A)   The purchasing power of the dollar is the same in the U.S. as in foreign countries.
B)   The price of domestic goods relative to foreign goods cannot change.
C)   The nominal exchange rate is the ratio of U.S. prices to foreign prices.
D)   All of the above are correct.E) B) and D)
F) None of the above

Question 19

A Japanese flour mill buys wheat from the United States and pays for it with yen. Other things the same, Japanese

Accepted Answer

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

Question 20

After 1980 in the United States,

Accepted Answer

A)   national saving fell below investment and net capital outflow was a large positive number.
B)   national saving fell below investment and net capital outflow was a large negative number.
C)   investment fell below saving and net capital outflow was a large positive number.
D)   investment fell below saving, so net capital outflow was a large negative number.E) A) and B)
F) B) and C)

Exam 18: Open-Economy Macroeconomics: Basic Concepts

Can purchasing-power parity be used to explain the fact that the U.S. dollar depreciated by more than 50 percent against the German mark between 1970 and 1998, but appreciated by more than 100 percent against the Italian lira during the same period? Defend your answer.

Correct AnswerverifiedThe theory of purchasing-power parity su...View AnswerShow Answer

A Japanese flour mill buys wheat from the United States and pays for it with yen. Other things the same, Japanese

Correct AnswerverifiedShow Answer

If Norway sold more goods and services abroad than it purchased from abroad, then it had

Correct AnswerverifiedShow Answer

Net capital outflow equals the difference between a country's

Correct AnswerverifiedShow Answer

By itself, when a Japanese bank purchases a bond issued by a U.S. corporation, U.S. net capital outflow rises.

Correct AnswerverifiedShow Answer

After 1980 in the United States,

Correct AnswerverifiedShow Answer

In the 1970s and 1980s the U.S. dollar depreciated against the German mark and appreciated against the Italian lira because U.S. inflation was lower than in Germany but higher than in Italy.

Correct AnswerverifiedShow Answer

Which of the following does purchasing-power parity imply?

Correct AnswerverifiedShow Answer

If a nation is selling more goods and services to foreigners than it is buying from them, then on net it must be buying assets abroad.

Correct AnswerverifiedShow Answer

Oceania buys $100 of wine from Escudia and Escudia buys $80 of wool from Oceania. Suppose this is the only trade that these countries do. What are the net exports of Oceania and Escudia, in that order?

Correct AnswerverifiedShow Answer

If a country were to save more, but its domestic investment remained the same, then which of the following would rise?

Correct AnswerverifiedShow 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

If a dollar currently purchases 12.5 pesos and someone forecasts that in a year it will purchase 14 pesos, then the forecast is given in

Correct AnswerverifiedShow Answer

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

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

If purchasing-power parity holds, a bushel of rice costs $10 in the U.S., and the nominal exchange rate is 25 Thai baht per dollar, what is the price of rice in Thailand?

Correct AnswerverifiedShow Answer

According to purchasing-power parity theory, the nominal exchange rate between the U.S. and another country should equal the U.S. price level divided by the price level in the foreign country.

Correct AnswerverifiedShow Answer

Table 31-1 -Refer to Table 31-1. What are Bolivia's exports?

Correct AnswerverifiedShow Answer

A pair of jeans cost $25 in the U.S. and 1600 dinar in Algeria. If the nominal exchange rate is 75 dinar per U.S. dollar, then the real exchange rate is

Correct AnswerverifiedShow Answer

If a country's trade surplus falls, its net capital outflow rises.

Correct AnswerverifiedShow Answer

Correct Answer
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