Question 1

The price of a basket of goods and services in the U.S. is $600. In Canada the same basket of goods costs 700 Canadian dollars. If the nominal exchange rate were 1.2 Canadian dollars per U.S. dollar, what would be the real exchange rate?

Accepted Answer

A)  700/600
B)  600/700
C)  700/720
D)  None of the above is correct.E) A) and D)
F) A) and C)

Question 2

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 3

A country recently had GDP of $1,200 billion. Its consumption expenditures were $700 billion, its government spent $200 billion, and it had domestic investment of $175 billion. What was the value of this country's net capital outflow? Show your work.

Accepted Answer

Y = C + I + G + NX
$1,200 bill...

Question 4

Which of the following does purchasing-power parity imply?

Accepted Answer

A)  The purchasing power of the dollar is the same in the U.S. as in foreign countries.
B)  The price of domestic goods relative to foreign goods cannot change.
C)  The nominal exchange rate is the ratio of U.S. prices to foreign prices.
D)  All of the above are correct.E) All of the above
F) A) and D)

Question 5

Suppose that the real return from operating factories in Canada rises relative to the real rate of return in the United States. Other things the same,

Accepted Answer

A)  this will increases U.S. net capital outflow and decrease Canadian net capital outflow.
B)  this will decreases U.S. net capital outflow and increase Canadian net capital outflow.
C)  this will only increase U.S. net capital outflow.
D)  this will only increase Canadian net capital outflow.E) A) and C)
F) All of the above

Question 6

A bushel of apples costs $15.00 in the U.S. The same apples cost 1,600 yen in Japan. If the exchange rate is 80 yen per dollar, is there a possibility for arbitrage? Explain and defend your answer. As part of your defense, find the real exchange rate.

Accepted Answer

There is a possibility for profit by buy...

Question 7

A U.S. company uses U.K. pounds it already owned to purchase bonds issued by a company in the U.K. Which of these countries has an increase in net capital outflow?

Accepted Answer

A)  The U.S. and the U.K.
B)  The U.S. but not the U.K.
C)  The U.K. but not the U.S.
D)  Neither the U.S. nor the U.K.E) A) and B)
F) All of the above

Question 8

If a country has negative net capital outflows, then its net exports are

Accepted Answer

A)  positive and its saving is larger than its domestic investment.
B)  positive and its saving is smaller than its domestic investment.
C)  negative and its saving is larger than its domestic investment.
D)  negative and its saving is smaller than its domestic investment.E) A) and D)
F) C) and D)

Question 9

On behalf of your firm, you make frequent trips to Tokyo. You notice that you always have to pay more dollars to get your hair cut than you pay in the U.S. This observation is

Accepted Answer

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

Question 10

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 11

After 1980 in the United States,

Accepted Answer

A)  national saving fell below investment and net capital outflow was a large positive number.
B)  national saving fell below investment and net capital outflow was a large negative number.
C)  investment fell below saving and net capital outflow was a large positive number.
D)  investment fell below saving, so net capital outflow was a large negative number.E) A) and D)
F) All of the above

Question 12

Other things the same, if a country has a trade deficit and saving rises,

Accepted Answer

A)  net capital outflow rises, so the trade deficit increases.
B)  net capital outflow rises, so the trade deficit decreases.
C)  net capital outflow falls, so the trade deficit increases.
D)  net capital outflow falls, so the trade deficit decreases.E) None of the above
F) All of the above

Question 13

Last year country A's residents purchased $700 billion of goods and services from and sold $500 billion of goods and services to residents of foreign countries. Its domestic investment was $1,100. What was country A's saving? Show your work.

Accepted Answer

net capital outflow = net expo...

Question 14

A Texas ranch sells beef to a U.S. company that sells it to a grocery chain in Japan. These sales

Accepted Answer

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

Question 15

A U.S. firm buys bonds issued by a technology center in India. This purchase is an example of U.S.

Accepted Answer

A)  foreign portfolio investment. By itself it is an increase in U.S. holdings of foreign bonds and increases U.S. net capital outflow.
B)  foreign portfolio investment. By itself it is an increase in U.S. holdings of foreign bonds and decreases U.S. net capital outflow.
C)  foreign direct investment. By itself it is an increase in U.S. holdings of foreign bonds and increases U.S. net capital outflow.
D)  foreign direct investment. By itself it is an increase in U.S. holdings of foreign bonds and decreases U.S. net capital outflow.E) None of the above
F) A) and D)

Question 16

If purchasing-power parity holds but then U.S. prices rise, which of the following move the exchange rate back towards purchasing-power parity?

Accepted Answer

A)  foreign prices rise or the U.S. nominal exchange rate rises
B)  foreign prices rise or the U.S. nominal exchange rate falls
C)  foreign prices fall or the U.S. nominal exchange rate rises
D)  foreign prices fall or the U.S. nominal exchange rate fallsE) A) and D)
F) A) and C)

Question 17

In an open economy national saving equals domestic investment plus net capital outflow.

Accepted Answer

A) True 
 B)False

Question 18

While on a study abroad program you see a McDonald's in Paris. A combo meal costs 8 euros. The same meal costs $6 in the U.S. and the exchange rate is .75 euros per dollar.
A. Find the real exchange rate. Show your work.
B. In terms of dollars where is the combo meal cheaper?

Accepted Answer

The real exchange rate = .75 x...

Question 19

Which of the following is correct?

Accepted Answer

A)  NCO + C = NX
B)  NCO = NX
C)  NX - NCO = S
D)  NX + NCO = CE) A) and C)
F) C) and D)

Question 20

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) B) and C)

Exam 31: Open-Economy Macroeconomics: Basic Concepts

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

Other things the same, if a country has a trade deficit and saving rises,

Correct AnswerverifiedShow Answer

A U.S. company uses U.K. pounds it already owned to purchase bonds issued by a company in the U.K. Which of these countries has an increase in net capital outflow?

Correct AnswerverifiedShow Answer

A Texas ranch sells beef to a U.S. company that sells it to a grocery chain in Japan. These sales

Correct AnswerverifiedShow Answer

Last year country A's residents purchased $700 billion of goods and services from and sold $500 billion of goods and services to residents of foreign countries. Its domestic investment was $1,100. What was country A's saving? Show your work.

Correct Answerverifiednet capital outflow = net expo...View AnswerShow Answer

While on a study abroad program you see a McDonald's in Paris. A combo meal costs 8 euros. The same meal costs $6 in the U.S. and the exchange rate is .75 euros per dollar. A. Find the real exchange rate. Show your work. B. In terms of dollars where is the combo meal cheaper?

Correct AnswerverifiedThe real exchange rate = .75 x...View AnswerShow Answer

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

A U.S. firm buys bonds issued by a technology center in India. This purchase is an example of U.S.

Correct AnswerverifiedShow Answer

Which of the following is correct?

Correct AnswerverifiedShow Answer

If a country has negative net capital outflows, then its net exports are

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

If purchasing-power parity holds but then U.S. prices rise, which of the following move the exchange rate back towards purchasing-power parity?

Correct AnswerverifiedShow Answer

After 1980 in the United States,

Correct AnswerverifiedShow Answer

The price of a basket of goods and services in the U.S. is $600. In Canada the same basket of goods costs 700 Canadian dollars. If the nominal exchange rate were 1.2 Canadian dollars per U.S. dollar, what would be the real exchange rate?

Correct AnswerverifiedShow Answer

Which of the following does purchasing-power parity imply?

Correct AnswerverifiedShow Answer

Suppose that the real return from operating factories in Canada rises relative to the real rate of return in the United States. Other things the same,

Correct AnswerverifiedShow Answer

On behalf of your firm, you make frequent trips to Tokyo. You notice that you always have to pay more dollars to get your hair cut than you pay in the U.S. This observation is

Correct AnswerverifiedShow Answer

A bushel of apples costs $15.00 in the U.S. The same apples cost 1,600 yen in Japan. If the exchange rate is 80 yen per dollar, is there a possibility for arbitrage? Explain and defend your answer. As part of your defense, find the real exchange rate.

Correct AnswerverifiedThere is a possibility for profit by buy...View AnswerShow Answer

In an open economy national saving equals domestic investment plus net capital outflow.

Correct AnswerverifiedShow Answer

A country recently had GDP of $1,200 billion. Its consumption expenditures were $700 billion, its government spent $200 billion, and it had domestic investment of $175 billion. What was the value of this country's net capital outflow? Show your work.

Correct AnswerverifiedY = C + I + G + NX$1,200 bill...View AnswerShow Answer

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The purchase of a foreign good by a U.S....
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net capital outflow = net expo...
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The real exchange rate = .75 x...
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Money growth, and so...
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There is a possibility for profit by buy...
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Y = C + I + G + NX
$1,200 bill...
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