Question 1

Paul, a U.S. citizen, builds a telescope factory in Israel. His expenditures

Accepted Answer

A)   increase U.S. and Israeli net capital outflow.
B)   increase U.S. net capital outflow, but decrease Israeli net capital outflow.
C)   decrease U.S. net capital outflow, but increase Israeli net capital outflow.
D)   None of the above is correct.E) A) and B)
F) B) and C)

Question 2

The increase in the trade deficit in the 1980's reflected a decrease in national saving that is associated with an increase in the government budget deficit.

Accepted Answer

A) True 
 B)False

Question 3

In Ireland, a pint of beer costs 3 euros. In Australia, a pint of beer costs 4 Australian dollars. If the exchange rate is .8 euros per Australian dollar, what is the real exchange rate?

Accepted Answer

A)   4/2.4 pints of Irish beer per pint of Australian beer
B)   3/3.2 pint of Irish beer per pint of Australian beer
C)   3.2/3 pints of Irish beer per pint of Australian beer
D)   2.4/4 pints of Irish beer per pint of Australian beerE) A) and D)
F) All of the above

Question 4

According to purchasing-power parity, if over the course of a year the price level in the U.S. rises more than in Canada, then which of the following rises?

Accepted Answer

A)   the U.S. real exchange rate, but not the U.S. nominal exchange rate
B)   the U.S. nominal exchange rate, but not the U.S. real exchange rate
C)   the U.S. nominal exchange rate and the U.S. real exchange rate
D)   neither the real exchange rate nor the nominal exchange rateE) None of the above
F) B) and C)

Question 5

A country has $40 billion of domestic investment and net capital outflows of -$20 billion. What is the country's saving?

Accepted Answer

A)   -$60 billion
B)   -$20 billion
C)   $20 billion
D)   $60 billionE) A) and D)
F) B) and C)

Question 6

If the real exchange rate for coal is 1.5, the price of coal in the U.S. is $50 per ton, and the price of coal in Britain is 20 British pounds per ton, what is the nominal exchange rate?

Accepted Answer

A)   15/4
B)   5/3
C)   3/5
D)   4/15E) B) and C)
F) All of the above

Question 7

The price level in Country A is 250. The price level in Country B is 300. If purchasing-power parity holds, what is the nominal value of Country A's currency in the market for foreign exchange with Country B? Show your work.

Accepted Answer

The answer of The price level in Country A is...

Question 8

Suppose a McDonalds Big Mac cost $4.40 in the United States and 3.30 euros in the euro area and 5.72 Australian dollars in Australia. If exchange rates are .75 euros per dollar and 1.3 Australian dollars per dollar, where does purchasing-power parity hold?

Accepted Answer

A)   both the euro area and Australia
B)   the euro area but not Australia
C)   Australia but not the euro area
D)   neither the euro area nor AustraliaE) A) and B)
F) A) and C)

Question 9

If a country had a trade deficit of $20 billion and then its exports rose by $7 billion and its imports fell by $10 billion, its net exports would now be

Accepted Answer

A)   $37 billion
B)   $3 billion
C)   -$3 billion
D)   -$37 billionE) B) and C)
F) A) and D)

Question 10

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) None of the above
F) All of the above

Question 11

U.S- based Dell sells computers to an Irish company that pays with previously obtained U.S. currency. This exchange

Accepted Answer

A)   increases U.S. net capital outflow because the U.S. acquires foreign-owned assets.
B)   decreases U.S. net capital outflow because the U.S. acquires foreign-owned assets.
C)   increases U.S. net capital outflow because the U.S. sells capital goods.
D)   decreases U.S. net capital outflow because the U.S. sells capital goods.E) A) and B)
F) C) and D)

Question 12

A U.S. mutual fund buys stock issued by a corporation in Colombia. A U.S. grocery store chain builds and manages a new warehouse in Honduras. Which ones) of these is foreign direct investment? Which ones) would be taken into account when computing U.S. net capital outflows?

Accepted Answer

The building of the ...

Question 13

According to purchasing-power parity, what is the relationship between changes in price levels between two countries and changes in nominal exchange rates?

Accepted Answer

Purchasing-power parity asserts that the...

Question 14

Net capital outflow is the purchase of domestic assets by foreign residents minus the purchase of foreign assets by domestic residents.

Accepted Answer

A) True 
 B)False

Question 15

The nominal exchange rate is 30 Thai bhat for one U.S. dollar. A sub sandwich combo deal in the U.S. costs $6 dollars in the U.S. and 120 bhat in Thailand. The real exchange rate is

Accepted Answer

A)   3/8
B)   2/3
C)   3/2
D)   8/3E) A) and B)
F) B) and D)

Question 16

A firm in China sells toys to a U.S. department store chain. Other things the same, these sales

Accepted Answer

A)   increase U.S. net exports and decrease Chinese net exports.
B)   decrease U.S. net exports and increase Chinese net exports.
C)   increase U.S. and Chinese net exports.
D)   decrease U.S. and Chinese net exports.E) A) and B)
F) A) and C)

Question 17

Goods that cost 1/5 of one dollar in the U.S. cost one kroner in Denmark, the real exchange rate would be computed as how many Danish goods per U.S. goods?

Accepted Answer

A)   five
B)   the amount of kroner that can be bought with twenty U.S. cents
C)   the amount of kroner that can be bought with 5 dollars
D)   None of the above is correct.E) A) and D)
F) None of the above

Question 18

Other things the same, which of the following would both make foreigners more willing to engage in U.S. portfolio investment?

Accepted Answer

A)   U.S. interest rates rise, the default risk of U.S. assets rise
B)   U.S. interest rates rise, the default risk of U.S. assets fall
C)   U.S. interest rates fall, the default risk of U.S. assets rise
D)   U.S. interest rates fall, the default risk of U.S. assets fallE) A) and C)
F) A) and D)

Question 19

List the factors that might influence a country's exports, imports, and trade balance.

Accepted Answer

a. the tastes of consumers for domestic ...

Question 20

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

Exam 18: Open-Economy Macroeconomics: Basic Concepts

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

Correct AnswerverifiedShow Answer

A firm in China sells toys to a U.S. department store chain. Other things the same, these sales

Correct AnswerverifiedShow Answer

The price level in Country A is 250. The price level in Country B is 300. If purchasing-power parity holds, what is the nominal value of Country A's currency in the market for foreign exchange with Country B? Show your work.

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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.

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In Ireland, a pint of beer costs 3 euros. In Australia, a pint of beer costs 4 Australian dollars. If the exchange rate is .8 euros per Australian dollar, what is the real exchange rate?

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List the factors that might influence a country's exports, imports, and trade balance.

Correct Answerverifieda. the tastes of consumers for domestic ...View AnswerShow Answer

Paul, a U.S. citizen, builds a telescope factory in Israel. His expenditures

Correct AnswerverifiedShow Answer

Goods that cost 1/5 of one dollar in the U.S. cost one kroner in Denmark, the real exchange rate would be computed as how many Danish goods per U.S. goods?

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A U.S. mutual fund buys stock issued by a corporation in Colombia. A U.S. grocery store chain builds and manages a new warehouse in Honduras. Which ones) of these is foreign direct investment? Which ones) would be taken into account when computing U.S. net capital outflows?

Correct AnswerverifiedThe building of the ...View AnswerShow Answer

If a country had a trade deficit of $20 billion and then its exports rose by $7 billion and its imports fell by $10 billion, its net exports would now be

Correct AnswerverifiedShow Answer

According to purchasing-power parity, if over the course of a year the price level in the U.S. rises more than in Canada, then which of the following rises?

Correct AnswerverifiedShow Answer

The nominal exchange rate is 30 Thai bhat for one U.S. dollar. A sub sandwich combo deal in the U.S. costs $6 dollars in the U.S. and 120 bhat in Thailand. The real exchange rate is

Correct AnswerverifiedShow Answer

U.S- based Dell sells computers to an Irish company that pays with previously obtained U.S. currency. This exchange

Correct AnswerverifiedShow Answer

Net capital outflow is the purchase of domestic assets by foreign residents minus the purchase of foreign assets by domestic residents.

Correct AnswerverifiedShow Answer

According to purchasing-power parity, what is the relationship between changes in price levels between two countries and changes in nominal exchange rates?

Correct AnswerverifiedPurchasing-power parity asserts that the...View AnswerShow Answer

A country has $40 billion of domestic investment and net capital outflows of -$20 billion. What is the country's saving?

Correct AnswerverifiedShow Answer

Suppose a McDonalds Big Mac cost $4.40 in the United States and 3.30 euros in the euro area and 5.72 Australian dollars in Australia. If exchange rates are .75 euros per dollar and 1.3 Australian dollars per dollar, where does purchasing-power parity hold?

Correct AnswerverifiedShow Answer

Other things the same, which of the following would both make foreigners more willing to engage in U.S. portfolio investment?

Correct AnswerverifiedShow Answer

If the real exchange rate for coal is 1.5, the price of coal in the U.S. is $50 per ton, and the price of coal in Britain is 20 British pounds per ton, what is the nominal exchange rate?

Correct AnswerverifiedShow Answer

The increase in the trade deficit in the 1980's reflected a decrease in national saving that is associated with an increase in the government budget deficit.

Correct AnswerverifiedShow Answer

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a. the tastes of consumers for domestic ...
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The building of the ...
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Purchasing-power parity asserts that the...
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