Question 1

Exchange rates are 120 yen per dollar,0.8 euro per dollar,and 10 pesos per dollar.A bottle of beer in New York costs 6 dollars,1,200 yen in Tokyo,7.2 euro in Munich,and 50 pesos in Cancun.Where is the most expensive and the cheapest beer in that order?

Accepted Answer

A)  Cancun, New York
B)  New York, Tokyo
C)  Tokyo, Cancun
D)  Munich, New YorkE) B) and D)
F) None of the above

Question 2

Suppose that the dollar buys less cotton in Egypt than in the United States.Traders could make a profit by

Accepted Answer

A)  buying cotton in the United States and selling it in Egypt, which would tend to raise the price of cotton in the United States.
B)  buying cotton in the United States and selling it in Egypt, which would tend to raise the price of cotton in Egypt.
C)  buying cotton in Egypt and selling it in the United States, which would tend to raise the price of cotton in Egypt.
D)  buying cotton in Egypt and selling it in the United States, which would tend to raise the price of cotton in the United States.E) B) and C)
F) A) and D)

Question 3

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) B) and C)
F) A) and B)

Question 4

Bob traps lobsters in Maine and sells them to a restaurant in Egypt.Other things the same,these sales

Accepted Answer

A)  increase U.S.net exports and has no effect on Egyptian net exports.
B)  increase U.S.net exports and decrease Egyptian net exports.
C)  decrease U.S.net exports and have no effect on Egyptian net exports.
D)  decrease U.S.net exports and increase Egyptian net exports.E) All of the above
F) B) and D)

Question 5

During a hyperinflation the real domestic value of a country's currency

Accepted Answer

A)  falls and its nominal exchange rate depreciates.
B)  falls and its nominal exchange rate appreciates.
C)  rises and its nominal exchange rate depreciates.
D)  rises and its nominal exchange rate appreciates.E) None of the above
F) B) and C)

Question 6

A Japanese firm buys lumber 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) C) and D)
F) A) and B)

Question 7

Purchasing-power parity describes the forces that determine

Accepted Answer

A)  prices in the short run.
B)  prices in the long run.
C)  exchange rates in the short run.
D)  exchange rates in the long run.E) A) and B)
F) A) and C)

Question 8

Nominal exchange rates

Accepted Answer

A)  vary little over time.
B)  vary substantially over time.
C)  appreciate over time for most countries.
D)  depreciate over time for most countries.E) A) and B)
F) All of the above

Question 9

Suppose the Kenyan nominal exchange rate declines,and prices are unchanged in Kenya and abroad.Based on this information,the Kenyan real exchange rate

Accepted Answer

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

Question 10

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

Accepted Answer

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

Question 11

If inflation is higher in the United States over the next few months than in foreign countries and exchange rates are given in terms of how much foreign currency a dollar buys or how many foreign goods U.S.goods buy,then according to purchasing-power parity we should expect to see

Accepted Answer

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

Question 12

In the 1970s and 1980s the U.S.dollar depreciated against the German mark and appreciated against the Italian lira because the United States experienced more inflation than Germany but less inflation than Italy.

Accepted Answer

A) True 
 B)False

Question 13

When the United States imports more than it exports,it must also buy domestic assets from foreigners.

Accepted Answer

A) True 
 B)False

Question 14

Suppose that Bill,a resident of the U.S.,buys software from a company in Japan.Explain why and in what directions this changes U.S.net exports and U.S.net capital outflow.

Accepted Answer

The purchase of a foreign good by a U.S....

Question 15

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

Question 16

Domestic saving must equal investment in

Accepted Answer

A)  both closed and open economies.
B)  closed, but not open economies.
C)  open, but not closed economies.
D)  neither closed nor open economies.E) None of the above
F) B) and D)

Question 17

On behalf of your firm,you make frequent trips to Singapore.You notice that you always have to pay more dollars to get enough local currency to get your nails manicured than you have to pay to get manicured in the United States.This is

Accepted Answer

A)  inconsistent with purchasing-power parity, but might be explained by limited opportunities for arbitrage in manicuring across international borders.
B)  consistent with purchasing-power parity if prices in Hong Kong are rising more rapidly than prices in the United States.
C)  consistent with purchasing-power parity if prices in Hong Kong are rising less rapidly than prices in the United States.
D)  None of the above is correct.E) A) and D)
F) A) and C)

Question 18

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 d...

Question 19

Use the (hypothetical)  information in the following table to answer the following questions.
Table 31-1
 
-Refer to Table 31-1.Which currency(ies) is(are) less valuable than predicted by the doctrine of purchasing-power parity?

Accepted Answer

A)  boloviano and dinar
B)  yen and kroner
C)  baht and kroner
D)  bahtE) A) and D)
F) A) and C)

Question 20

Suppose a Starbucks tall-latte cost $4.00 in the United States and 5.00 euros in the euro area and $2.50 Australian dollars in Australia.Nominal exchange rates are .80 euros per dollar and 1.6 Australian dollars per U.S.dollar.Where does purchasing power parity hold according to the Big Mac index?

Accepted Answer

A)  Both the euro area and Australia.
B)  Neither the euro area or Australia.
C)  The eruo area but not Australia.
D)  Australia but not the euro area.E) A) and B)
F) A) and C)

Exam 31: Open-Economy Macroeconomics: Basic Concepts

When the United States imports more than it exports,it must also buy domestic assets from foreigners.

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

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Suppose that the dollar buys less cotton in Egypt than in the United States.Traders could make a profit by

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Domestic saving must equal investment in

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A Japanese firm buys lumber from the United States and pays for it with yen.Other things the same,Japanese

Correct AnswerverifiedShow Answer

In the 1970s and 1980s the U.S.dollar depreciated against the German mark and appreciated against the Italian lira because the United States experienced more inflation than Germany but less inflation than Italy.

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On behalf of your firm,you make frequent trips to Singapore.You notice that you always have to pay more dollars to get enough local currency to get your nails manicured than you have to pay to get manicured in the United States.This is

Correct AnswerverifiedShow Answer

Use the (hypothetical) information in the following table to answer the following questions. Table 31-1 -Refer to Table 31-1.Which currency(ies) is(are) less valuable than predicted by the doctrine of purchasing-power parity?

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Purchasing-power parity describes the forces that determine

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Suppose that Bill,a resident of the U.S.,buys software from a company in Japan.Explain why and in what directions this changes U.S.net exports and U.S.net capital outflow.

Correct AnswerverifiedThe purchase of a foreign good by a U.S....View AnswerShow Answer

Suppose the Kenyan nominal exchange rate declines,and prices are unchanged in Kenya and abroad.Based on this information,the Kenyan real exchange rate

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Exchange rates are 120 yen per dollar,0.8 euro per dollar,and 10 pesos per dollar.A bottle of beer in New York costs 6 dollars,1,200 yen in Tokyo,7.2 euro in Munich,and 50 pesos in Cancun.Where is the most expensive and the cheapest beer in that order?

Correct AnswerverifiedShow Answer

Bob traps lobsters in Maine and sells them to a restaurant in Egypt.Other things the same,these sales

Correct AnswerverifiedShow Answer

Nominal exchange rates

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When making investment decisions,investors

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 d...View AnswerShow Answer

Suppose a Starbucks tall-latte cost $4.00 in the United States and 5.00 euros in the euro area and $2.50 Australian dollars in Australia.Nominal exchange rates are .80 euros per dollar and 1.6 Australian dollars per U.S.dollar.Where does purchasing power parity hold according to the Big Mac index?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

If inflation is higher in the United States over the next few months than in foreign countries and exchange rates are given in terms of how much foreign currency a dollar buys or how many foreign goods U.S.goods buy,then according to purchasing-power parity we should expect to see

Correct AnswerverifiedShow Answer

During a hyperinflation the real domestic value of a country's currency

Correct AnswerverifiedShow Answer

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The purchase of a foreign good by a U.S....
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According to purchasing-power parity,a d...
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