Question 1

According to purchasing-power parity, if prices in the United States increase by a larger percentage than prices in the United Kingdom, then the

Accepted Answer

A)   real exchange rate rises.
B)   nominal exchange rate rises.
C)   real exchange rate falls.
D)   nominal exchange rate falls.E) C) and D)
F) All of the above

Question 2

When making investment decisions, investors

Accepted Answer

A)   compare the real interest rates offered on different bonds.
B)   compare the nominal, but not the real, interest rates offered on different bonds.
C)   purchase the highest-priced bond available.
D)   All of the above are correct.E) C) and D)
F) None of the above

Question 3

An increase in U.S. sales of movies to other countries raises U.S.

Accepted Answer

A)   exports and so raises the U.S. trade balance.
B)   exports and so reduces the U.S. trade balance.
C)   imports and so raises the U.S. trade balance.
D)   imports and so reduces the U.S. trade balance.E) All of the above
F) B) and C)

Question 4

An American brewery sells dollars to obtain euros. It then uses the euros to buy brewing equipment from a German company. These transactions

Accepted Answer

A)   increase U.S. net capital outflow because Germans obtain U.S. assets.
B)   decrease U.S. net capital outflow because Germans obtain U.S. assets.
C)   increase U.S. net capital outflow because the U.S. buys capital goods.
D)   decrease U.S. net capital outflow because the U.S. buys capital goods.E) A) and D)
F) B) and C)

Question 5

A country recently had a GDP of $1000 billion. Its consumption expenditures were $650 billion, its government spent $250 billion, and it had domestic investment of $150 billion. What was the value of this country's net capital outflow?
Explain how you found your answer.

Accepted Answer

saving = GDP - consumption - government ...

Question 6

If purchasing-power parity holds, then the value of the

Accepted Answer

A)   nominal exchange rate is equal to one. A dollar buys as many goods in the U.S. as it does overseas.
B)   nominal exchange rate is equal to one. A dollar buys the quantity of foreign currency equal to the U.S. price level divided by the foreign country's price level.
C)   real exchange rate is equal to one. A dollar buys as many goods in the U.S. as it does overseas.
D)   real exchange rate is equal to one. A dollar buys the quantity of foreign currency equal to the U.S. price level divided by the foreign country's price level.E) C) and D)
F) All of the above

Question 7

Last year residents of country A purchased $400 billion of foreign assets and $200 of foreign goods. Foreigners purchased $300 billion dollars of country A's assets. What was the value of country A's exports?

Accepted Answer

The value of country...

Question 8

According to purchasing-power parity, when a country's central bank decreases the money supply, a unit of money

Accepted Answer

A)   gains value both in terms of the domestic goods and services it can buy and in terms of the foreign currency it can buy.
B)   gains value in terms of the domestic goods and services it can buy, but loses value in terms of the foreign currency it can buy.
C)   loses value in terms of the domestic goods and services it can buy, but gains value in terms of the foreign currency it can buy.
D)   loses value both in terms of the domestic goods and services it can buy and in terms of the foreign currency it can buy.E) A) and B)
F) A) and C)

Question 9

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

Question 10

If a country had a trade surplus of $100 billion and then its exports rose by $40 billion and its imports rose by $30 billion, its net exports would now be

Accepted Answer

A)   $110 billion
B)   $90 billion.
C)   $70 billion.
D)   $60 billion.E) None of the above
F) A) and C)

Question 11

Suppose that more British decide to vacation in the U.S. and that the British purchase more U.S. Treasury bonds. Ignoring how payments are made for these purchases,

Accepted Answer

A)   the first action by itself raises U.S. net exports, the second action by itself raises U.S. net capital outflow.
B)   the first action by itself raises U.S. net exports, the second action by itself lowers U.S. net capital outflow.
C)   the first action by itself lowers U.S. net exports, the second action by itself raises U.S. net capital outflow.
D)   the first action by itself lowers U.S. net exports, the second action by itself lowers U.S. net capital outflow.E) A) and D)
F) A) and C)

Question 12

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

Question 13

Suppose the real exchange rate is 3/4 gallon of country A's gasoline per gallon of U.S. gasoline, a gallon of U.S. gasoline costs $3.00 U.S., and a gallon of gas in country A costs 6 units of their currency. What is the nominal exchange rate?

Accepted Answer

A)   3/8 of a unit of country A's currency per dollar.
B)   3/2 units of country A's currency per dollar.
C)   8/3 units of country A's currency per dollar.
D)   None of the above is correct.E) None of the above
F) A) and B)

Question 14

Purchasing-power parity theory does not hold at all times because

Accepted Answer

A)   many goods are not easily transported.
B)   the same goods produced in different countries may be imperfect substitutes for each other.
C)   Both a and b are correct.
D)   prices are different across countries.E) A) and B)
F) None of the above

Question 15

If the price of a sofa is $800 in the U.S. and 2400 pesos in Argentina, and the exchange rate is 4 pesos per dollar, what is the real exchange rate?

Accepted Answer

A)   3
B)   4/3
C)   3/4
D)   None of the above is correct.E) B) and C)
F) A) and B)

Question 16

According to purchasing-power parity, inflation in the U.S. causes the dollar to

Accepted Answer

A)   depreciate relative to all other currencies.
B)   depreciate relative to currencies of countries that have lower inflation rates.
C)   appreciate relative to all other countries.
D)   appreciate relative to currencies of countries that have lower inflation rates.E) A) and B)
F) A) and C)

Question 17

When a Japanese auto maker opens a factory in the U.S., U.S. net capital outflow

Accepted Answer

A)   increases because the foreign company makes a portfolio investment in the U.S.
B)   declines because the foreign company makes a portfolio investment in the U.S.
C)   increases because the foreign company makes a direct investment in capital in the U.S.
D)   declines because the foreign company makes a direct investment in capital in the U.S.E) B) and C)
F) A) and B)

Question 18

Other things the same, if the exchange rate changes from 6 Chinese yuan per dollar to 7 Chinese yuan per dollar, then the dollar

Accepted Answer

A)   appreciates and buys more Chinese goods.
B)   appreciates and buys fewer Chinese goods.
C)   depreciates and buys more Chinese goods.
D)   depreciates and buys fewer Chinese goods.E) B) and C)
F) A) and D)

Question 19

Firms in Saudi Arabia sell oil to the U.S. Other things the same, these oil sales

Accepted Answer

A)   increase Saudi net exports and net capital outflow.
B)   decrease Saudi net exports and net capital outflow.
C)   increase Saudi net exports and decrease Saudi net capital outflow.
D)   decrease Saudi net exports and increase Saudi net capital outflow.E) C) and D)
F) A) and D)

Question 20

Suppose that U.S. citizens purchase more cars made in Korea, and Koreans purchase more bonds issued by U.S. corporations. Other things the same, these actions

Accepted Answer

A)   raise both U.S. net exports and U.S. net capital outflows.
B)   raise U.S. net exports and lower U.S. net capital outflows.
C)   lower both U.S. net exports and U.S. net capital outflows.
D)   lower U.S. net exports and raise U.S. net capital outflows.E) B) and D)
F) C) and D)

Exam 31: Open-Economy Macroeconomics: Basic Concepts

When making investment decisions, investors

Correct AnswerverifiedShow Answer

If purchasing-power parity holds, then the value of the

Correct AnswerverifiedShow Answer

According to purchasing-power parity, if prices in the United States increase by a larger percentage than prices in the United Kingdom, then the

Correct AnswerverifiedShow Answer

When a Japanese auto maker opens a factory in the U.S., U.S. net capital outflow

Correct AnswerverifiedShow Answer

If a country had a trade surplus of $100 billion and then its exports rose by $40 billion and its imports rose by $30 billion, its net exports would now be

Correct AnswerverifiedShow Answer

An American brewery sells dollars to obtain euros. It then uses the euros to buy brewing equipment from a German company. These transactions

Correct AnswerverifiedShow Answer

Last year residents of country A purchased $400 billion of foreign assets and $200 of foreign goods. Foreigners purchased $300 billion dollars of country A's assets. What was the value of country A's exports?

Correct AnswerverifiedThe value of country...View AnswerShow Answer

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

Correct AnswerverifiedShow Answer

A country recently had a GDP of $1000 billion. Its consumption expenditures were $650 billion, its government spent $250 billion, and it had domestic investment of $150 billion. What was the value of this country's net capital outflow? Explain how you found your answer.

Correct Answerverifiedsaving = GDP - consumption - government ...View AnswerShow Answer

Suppose that U.S. citizens purchase more cars made in Korea, and Koreans purchase more bonds issued by U.S. corporations. Other things the same, these actions

Correct AnswerverifiedShow Answer

Other things the same, if the exchange rate changes from 6 Chinese yuan per dollar to 7 Chinese yuan per dollar, then the dollar

Correct AnswerverifiedShow Answer

Suppose that more British decide to vacation in the U.S. and that the British purchase more U.S. Treasury bonds. Ignoring how payments are made for these purchases,

Correct AnswerverifiedShow Answer

Firms in Saudi Arabia sell oil to the U.S. Other things the same, these oil sales

Correct AnswerverifiedShow Answer

According to purchasing-power parity, inflation in the U.S. causes the dollar to

Correct AnswerverifiedShow Answer

An increase in U.S. sales of movies to other countries raises U.S.

Correct AnswerverifiedShow Answer

Suppose the real exchange rate is 3/4 gallon of country A's gasoline per gallon of U.S. gasoline, a gallon of U.S. gasoline costs $3.00 U.S., and a gallon of gas in country A costs 6 units of their currency. What is the nominal exchange rate?

Correct AnswerverifiedShow Answer

If the price of a sofa is $800 in the U.S. and 2400 pesos in Argentina, and the exchange rate is 4 pesos per dollar, what is the real exchange rate?

Correct AnswerverifiedShow Answer

According to purchasing-power parity, when a country's central bank decreases the money supply, a unit of money

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Purchasing-power parity theory does not hold at all times because

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
The value of country...
View Answer

Correct Answer
verified

Correct Answer
verified
saving = GDP - consumption - government ...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified