Question 1

A U.S.firm buys wool from Australia with U.S.currency.The Australian firm then uses this money to buy electric shears from a U.S.firm.Which of the following increases?

Accepted Answer

A)   Australian net capital outflow and Australian net exports
B)   only Australian net exports
C)   only Australian net capital outflow
D)   neither Australian net exports nor Australian capital outflowE) C) and D)
F) A) and D)

Question 2

In an open economy,gross domestic product equals $1,650 billion,government expenditure equals $250 billion,and savings equals $550 billion.What is consumption expenditure?

Accepted Answer

A)   $250 billion
B)   $300 billion
C)   $550 billion
D)   $850 billionE) None of the above
F) A) and B)

Question 3

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

Question 4

Other things the same,an increase in the U.S.real exchange rate makes U.S.goods more expensive relative to foreign goods.

Accepted Answer

A) True 
 B)False

Question 5

Suppose that the nominal exchange rate is .80 euro per dollar,that the price of a basket of goods in the U.S.is $500 and the price of a basket of goods in Germany is 400 Euro.Suppose that these values change to .90 euro per dollar,$600,and 600 euro.Then the real exchange rate would

Accepted Answer

A)   appreciate which by itself would make U.S.net exports fall.
B)   appreciate which by itself would make U.S.net exports rise.
C)   depreciate which by itself would make U.S.net exports fall.
D)   depreciate which by itself would make U.S.net exports rise.E) C) and D)
F) All of the above

Question 6

An Italian company builds and operates a pasta factory in the United States.This is an example of Italian

Accepted Answer

A)   foreign direct investment that increases Italian net capital outflow.
B)   foreign direct investment that decreases Italian net capital outflow.
C)   foreign portfolio investment that increases Italian net capital outflow.
D)   foreign portfolio investment that decreases Italian net capital outflow.E) A) and B)
F) A) and C)

Question 7

In the U.S.a television costs $400.In South Africa the same television costs 3000 rand (the currency of South Africa).The nominal exchange rate is 8 rand per dollar.
A.Find the real exchange rate.Show your work.
B.In terms of dollars where is the television cheapest?

Accepted Answer

The real exchange rate = 8 x 4...

Question 8

Which of the following could be a consequence of a depreciation of the U.S.real exchange rate?

Accepted Answer

A)   John,a French citizen,decides that Iowa pork has become too expensive and cancels his order.
B)   Nick,a U.S.citizen,decides that the trip to Nepal he's been thinking about is now made affordable by the depreciation.
C)   Roberta,a U.S.citizen,decides to import fewer windshield wipers for her auto parts company.
D)   All of the above are correct.E) A) and B)
F) None of the above

Question 9

Suppose a country's net capital outflow does not change,but its investment rises by $250 billion.

Accepted Answer

A)   Its saving must have risen by $250 billion so its net exports have risen.
B)   Its saving must have risen by $250 billion,but its net exports are unchanged.
C)   Its saving must have fallen by $250 billion,so its net exports have fallen.
D)   Its saving must have fallen by $250 billion,but its net exports are unchanged.E) None of the above
F) A) and C)

Question 10

Suppose that real interest rates in the U.S.rise relative to real interest rates in other countries.This increase would make foreigners

Accepted Answer

A)   more willing to purchase U.S.bonds,so U.S.net capital outflow would fall.
B)   more willing to purchase U.S.bonds,so U.S.net capital outflow would rise.
C)   less willing to purchase U.S.bonds,so U.S.net capital outflow would fall.
D)   less willing to purchase U.S.bonds,so U.S.net capital outflow would rise.E) A) and B)
F) B) and D)

Question 11

You hold currency from a foreign country.If that country has a higher rate of inflation than the United States,then over time the foreign currency will buy

Accepted Answer

A)   more goods in that country and buy more dollars.
B)   more goods in that country but buy fewer dollars.
C)   fewer goods in that country but buy more dollars.
D)   fewer goods in that country and buy fewer dollars.E) None of the above
F) C) and D)

Question 12

If saving is less than domestic investment,then

Accepted Answer

A)   there is a trade deficit and Y > C + I + G.
B)   there is a trade deficit and Y 
C)   there is a trade surplus and Y > C + I + G.
D)   there is a trade surplus and Y < C + I + G.E) B) and C)
F) A) and D)

Question 13

Assuming purchasing power parity holds and that over a period of five years the dollar had appreciated relative to the currency of Country X,what would explain the appreciation of the dollar?

Accepted Answer

Money growth,and so ...

Question 14

Consider an identical basket of goods in both the U.S.and India.For a given nominal exchange rate,in which case is it certain that the U.S.real exchange rate with India falls?

Accepted Answer

A)   the price of the basket of goods rises in the U.S.and India.
B)   the price of the basket of goods rises in the U.S.and falls in India.
C)   the price of the basket of goods falls in the U.S.and rises in India.
D)   the price of the basket of goods falls in both India and the U.S..E) B) and C)
F) C) and D)

Question 15

John,a U.S.citizen,opens up a Sports bar in Tokyo.This is an example of U.S.

Accepted Answer

A)   exports.
B)   imports.
C)   foreign portfolio investment.
D)   foreign direct investment.E) A) and B)
F) A) and C)

Question 16

Prices in both the U.S.and China rise,but prices in China increase by a smaller percentage.According to purchasing-power parity the U.S.dollar

Accepted Answer

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

Question 17

The real exchange rate is the nominal exchange rate,defined as foreign currency per dollar,times

Accepted Answer

A)   U.S.prices minus foreign prices.
B)   prices in the United States divided by foreign prices.
C)   foreign prices divided by U.S.prices.
D)   None of the above is correct.E) None of the above
F) B) and D)

Question 18

The country of Freedonia has a GDP of $2,100,consumption of $1,200,and government purchases of $400.This implies that it has

Accepted Answer

A)   domestic investment of $500.
B)   domestic investment plus net capital outflow of $500.
C)   domestic investment minus net capital outflow of $500.
D)   None of the above is correct.E) A) and C)
F) B) and D)

Question 19

If a country's exports were 500 billion pesos and its imports were 300 billion pesos,what would its trade balance be?

Accepted Answer

a 200 bill...

Question 20

If the U.S.purchases more assets from foreign countries then foreign countries purchase from it,the U.S.has a positive net capital outflow.

Accepted Answer

A) True 
 B)False

Exam 31: Open-Economy Macroeconomic Models

Assuming purchasing power parity holds and that over a period of five years the dollar had appreciated relative to the currency of Country X,what would explain the appreciation of the dollar?

Correct AnswerverifiedMoney growth,and so ...View AnswerShow Answer

Suppose that the nominal exchange rate is .80 euro per dollar,that the price of a basket of goods in the U.S.is $500 and the price of a basket of goods in Germany is 400 Euro.Suppose that these values change to .90 euro per dollar,$600,and 600 euro.Then the real exchange rate would

Correct AnswerverifiedShow Answer

Suppose that real interest rates in the U.S.rise relative to real interest rates in other countries.This increase would make foreigners

Correct AnswerverifiedShow Answer

In an open economy,gross domestic product equals $1,650 billion,government expenditure equals $250 billion,and savings equals $550 billion.What is consumption expenditure?

Correct AnswerverifiedShow Answer

In the U.S.a television costs $400.In South Africa the same television costs 3000 rand (the currency of South Africa).The nominal exchange rate is 8 rand per dollar. A.Find the real exchange rate.Show your work. B.In terms of dollars where is the television cheapest?

Correct AnswerverifiedThe real exchange rate = 8 x 4...View AnswerShow Answer

The country of Freedonia has a GDP of $2,100,consumption of $1,200,and government purchases of $400.This implies that it has

Correct AnswerverifiedShow Answer

Consider an identical basket of goods in both the U.S.and India.For a given nominal exchange rate,in which case is it certain that the U.S.real exchange rate with India falls?

Correct AnswerverifiedShow Answer

The real exchange rate is the nominal exchange rate,defined as foreign currency per dollar,times

Correct AnswerverifiedShow Answer

If the U.S.purchases more assets from foreign countries then foreign countries purchase from it,the U.S.has a positive net capital outflow.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

An Italian company builds and operates a pasta factory in the United States.This is an example of Italian

Correct AnswerverifiedShow Answer

You hold currency from a foreign country.If that country has a higher rate of inflation than the United States,then over time the foreign currency will buy

Correct AnswerverifiedShow Answer

Other things the same,an increase in the U.S.real exchange rate makes U.S.goods more expensive relative to foreign goods.

Correct AnswerverifiedShow Answer

If saving is less than domestic investment,then

Correct AnswerverifiedShow Answer

If a country's exports were 500 billion pesos and its imports were 300 billion pesos,what would its trade balance be?

Correct Answerverifieda 200 bill...View AnswerShow Answer

Prices in both the U.S.and China rise,but prices in China increase by a smaller percentage.According to purchasing-power parity the U.S.dollar

Correct AnswerverifiedShow Answer

Suppose a country's net capital outflow does not change,but its investment rises by $250 billion.

Correct AnswerverifiedShow Answer

John,a U.S.citizen,opens up a Sports bar in Tokyo.This is an example of U.S.

Correct AnswerverifiedShow Answer

A U.S.firm buys wool from Australia with U.S.currency.The Australian firm then uses this money to buy electric shears from a U.S.firm.Which of the following increases?

Correct AnswerverifiedShow Answer

Which of the following could be a consequence of a depreciation of the U.S.real exchange rate?

Correct AnswerverifiedShow Answer

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Money growth,and so ...
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The real exchange rate = 8 x 4...
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a 200 bill...
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