Question 1

A country must have a positive net outflow of capital if it has a trade deficit.

Accepted Answer

A) True 
 B)False

Question 2

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) None of the above

Question 3

If the U.S.price level is increasing by 3 percent annually and the Swiss price level is increasing by 2 percent annually,by about what percent would the price of a dollar in terms of Swiss francs need to change according to purchasing power parity?

Accepted Answer

A)   decrease by 5 percent
B)   decrease by 1 percent
C)   increase by 5 percent
D)   increase by 1 percentE) B) and D)
F) A) and C)

Question 4

Suppose that the real exchange rate between the United States and Kenya is defined in terms of baskets of goods.Other things the same,which of the following will increase the real exchange rate?

Accepted Answer

A)   a decrease in the quantity of Kenyan 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 Kenyan currency of Kenyan goods.
D)   None of the above is correct.E) All of the above
F) C) and D)

Question 5

Oceania buys $40 of wine from Escudia and Escudia buys $100 of wool from Oceania.Supposing this is the only trade that these countries do.What are the net exports of Oceania and Escudia in that order?

Accepted Answer

A)   $140 and $140
B)   $100 and $40
C)   $60 and -$60
D)   None of the above is correct.E) None of the above
F) B) and C)

Question 6

Suppose a Starbucks tall latte cost $4.00 in the United States and 3.20 euros in the Euro area.Also,suppose a McDonald's Big Mac costs $3.50 in the United States and 2.45 euros in Euro area.If the nominal exchange rate is .75 euros per dollar,the prices of which goods have prices that are consistent with purchasing power parity?

Accepted Answer

A)   Both the tall latte and the Big Mac.
B)   Neither the tall latte nor the Big Mac.
C)   The tall latte but not the Big Mac.
D)   The Big Mac but not the tall latte.E) A) and D)
F) A) and C)

Question 7

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 C)
F) None of the above

Question 8

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

Accepted Answer

A)   Disney builds a new amusement park near Barcelona,Spain.
B)   A U.S.citizen buys bonds issued by the British government.
C)   A Dutch hotel chain opens a new hotel in the United States.
D)   A citizen of Singapore buys a bond issued by a U.S.corporation.E) B) and D)
F) C) and D)

Question 9

The exchange rate is 1.5 Bosnian markas per U.S.dollar.The price of a refrigerator in Bosnia is 1,200 markas while in the U.S.it is $1,000.The real exchange rate is

Accepted Answer

A)   9/5
B)   5/4
C)   4/5
D)   None of the above are correct.E) A) and B)
F) C) and D)

Question 10

If a country's imports exceed its exports it has a trade surplus.

Accepted Answer

A) True 
 B)False

Question 11

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

Question 12

Greg,a U.S.citizen,opens an ice cream store in Bermuda.His expenditures are U.S.

Accepted Answer

A)   foreign portfolio investment that increase U.S.net capital outflow.
B)   foreign portfolio investment that decrease U.S.net capital outflow.
C)   foreign direct investment that increase U.S.net capital outflow.
D)   foreign direct investment that decrease U.S.net capital outflow.E) A) and D)
F) None of the above

Question 13

If a country has a trade surplus

Accepted Answer

A)   it has positive net exports and positive net capital outflow.
B)   it has positive net exports and negative net capital outflow.
C)   it has negative net exports and positive net capital outflow.
D)   it has negative net exports and negative net capital outflow.E) C) and D)
F) A) and B)

Question 14

When Ghana sells chocolate to the United States,U.S.net exports

Accepted Answer

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

Question 15

Other things the same,which of the following would both make Americans more willing to buy Italian goods?

Accepted Answer

A)   the nominal exchange rate falls,the price of goods in Italy falls
B)   the nominal exchange rate falls,the price of goods in Italy rises
C)   the nominal exchange rate rises,the price of goods in Italy falls
D)   the nominal exchange rate rises,the price of goods in Italy risesE) None of the above
F) C) and D)

Question 16

Other things the same,an increase in the real exchange rate raises U.S.net exports.

Accepted Answer

A) True 
 B)False

Question 17

A country has $20 billion of domestic investment and net capital outflow of $10 billion.What is saving?

Accepted Answer

A)   $10 billion
B)   $30 billion
C)   -$20 billion
D)   -$30 billionE) B) and C)
F) A) and D)

Question 18

Assuming all other things equal,what would happen to the U.S.dollar real exchange rate under each of the following circumstances?
a.The U.S.nominal exchange rate depreciates.
b.U.S.domestic prices increase.
c.Prices in the rest of the world rise.

Accepted Answer

a.The U.S.dollar real exchange...

Question 19

If a country has business opportunities that are relatively attractive to other countries,we would expect it to have

Accepted Answer

A)   both positive net exports and positive net capital outflow.
B)   both negative net exports and negative net capital outflow.
C)   positive net exports and negative net capital outflow.
D)   negative net exports and positive net capital outflow.E) A) and B)
F) A) and C)

Question 20

If the purchasing power of the dollar is always the same at home and abroad,then the nominal exchange rate defined as units of foreign currency per dollar decreases if the U.S.price level rises more than the price level in foreign countries.

Accepted Answer

A) True 
 B)False

Exam 31: Open-Economy Macroeconomic Models

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

Correct Answer
verified

A country has $20 billion of domestic investment and net capital outflow of $10 billion.What is saving?

Correct Answer
verified

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

Correct Answer
verified

When Ghana sells chocolate to the United States,U.S.net exports

Correct Answer
verified

Oceania buys $40 of wine from Escudia and Escudia buys $100 of wool from Oceania.Supposing this is the only trade that these countries do.What are the net exports of Oceania and Escudia in that order?

Correct Answer
verified

Assuming all other things equal,what would happen to the U.S.dollar real exchange rate under each of the following circumstances? a.The U.S.nominal exchange rate depreciates. b.U.S.domestic prices increase. c.Prices in the rest of the world rise.

Correct Answer
verified
a.The U.S.dollar real exchange...
View Answer

If a country has a trade surplus

Correct Answer
verified

A country must have a positive net outflow of capital if it has a trade deficit.

Correct Answer
verified

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

Correct Answer
verified

The exchange rate is 1.5 Bosnian markas per U.S.dollar.The price of a refrigerator in Bosnia is 1,200 markas while in the U.S.it is $1,000.The real exchange rate is

Correct Answer
verified

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

Correct Answer
verified

Correct Answer
verified

Greg,a U.S.citizen,opens an ice cream store in Bermuda.His expenditures are U.S.

Correct Answer
verified

If a country's imports exceed its exports it has a trade surplus.

Correct Answer
verified

If a country has business opportunities that are relatively attractive to other countries,we would expect it to have

Correct Answer
verified

If the purchasing power of the dollar is always the same at home and abroad,then the nominal exchange rate defined as units of foreign currency per dollar decreases if the U.S.price level rises more than the price level in foreign countries.

Correct Answer
verified

Other things the same,which of the following would both make Americans more willing to buy Italian goods?

Correct Answer
verified

Suppose that the real exchange rate between the United States and Kenya is defined in terms of baskets of goods.Other things the same,which of the following will increase the real exchange rate?

Correct Answer
verified

Other things the same,an increase in the real exchange rate raises U.S.net exports.

Correct Answer
verified

If the U.S.price level is increasing by 3 percent annually and the Swiss price level is increasing by 2 percent annually,by about what percent would the price of a dollar in terms of Swiss francs need to change according to purchasing power parity?

Correct Answer
verified

Exam 31: Open-Economy Macroeconomic Models

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

Correct AnswerverifiedShow Answer

A country has $20 billion of domestic investment and net capital outflow of $10 billion.What is saving?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

When Ghana sells chocolate to the United States,U.S.net exports

Correct AnswerverifiedShow Answer

Oceania buys $40 of wine from Escudia and Escudia buys $100 of wool from Oceania.Supposing this is the only trade that these countries do.What are the net exports of Oceania and Escudia in that order?

Correct AnswerverifiedShow Answer

Assuming all other things equal,what would happen to the U.S.dollar real exchange rate under each of the following circumstances? a.The U.S.nominal exchange rate depreciates. b.U.S.domestic prices increase. c.Prices in the rest of the world rise.

Correct Answerverifieda.The U.S.dollar real exchange...View AnswerShow Answer

If a country has a trade surplus

Correct AnswerverifiedShow Answer

A country must have a positive net outflow of capital if it has a trade deficit.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

The exchange rate is 1.5 Bosnian markas per U.S.dollar.The price of a refrigerator in Bosnia is 1,200 markas while in the U.S.it is $1,000.The real exchange rate is

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Greg,a U.S.citizen,opens an ice cream store in Bermuda.His expenditures are U.S.

Correct AnswerverifiedShow Answer

If a country's imports exceed its exports it has a trade surplus.

Correct AnswerverifiedShow Answer

If a country has business opportunities that are relatively attractive to other countries,we would expect it to have

Correct AnswerverifiedShow Answer

If the purchasing power of the dollar is always the same at home and abroad,then the nominal exchange rate defined as units of foreign currency per dollar decreases if the U.S.price level rises more than the price level in foreign countries.

Correct AnswerverifiedShow Answer

Other things the same,which of the following would both make Americans more willing to buy Italian goods?

Correct AnswerverifiedShow Answer

Suppose that the real exchange rate between the United States and Kenya is defined in terms of baskets of goods.Other things the same,which of the following will increase the real exchange rate?

Correct AnswerverifiedShow Answer

Other things the same,an increase in the real exchange rate raises U.S.net exports.

Correct AnswerverifiedShow Answer

If the U.S.price level is increasing by 3 percent annually and the Swiss price level is increasing by 2 percent annually,by about what percent would the price of a dollar in terms of Swiss francs need to change according to purchasing power parity?

Correct AnswerverifiedShow Answer

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a.The U.S.dollar real exchange...
View Answer

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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