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Exam 31: Open-Economy Macroeconomics: Basic Concepts

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Question 101

True/False

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If a country's saving rises, then either its investment or its net capital outflow rises (or both).

A) True
B) False

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Question 102

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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?

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The real exchange rate = 8 x 4...

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Question 103

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The "law of one price" states that

From 2008 to 2012 both U.S. saving and U.S. investment fell.

A country recently had saving of 250 billion euro and domestic investment of 400 billion euro. What was the value of this country's net exports? Show your work.

Last year a country had exports of $85 billion, imports of $40 billion, and purchased $160 billion worth of foreign assets. What was the value of domestic assets purchased by foreigners?

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

If the exchange rate is 10 Argentine pesos per U.S. dollar and a slice of pizza in Buenos Aires costs 300 Argentine pesos, then how many U.S. dollars does it take to buy a slice of pizza in Rio?

How do the nominal exchange rate and the real exchange rate differ?

The nominal exchange rate is about 2 Aruban florin per dollar. If a basket of goods in the United States costs $50, how many florins must a basket of goods in Aruba cost for purchasing-power parity to hold?

If the price levels in the United States and in France are unchanged, but the nominal exchange rate (euro per U.S. dollar) falls, then the U.S. dollar

In an open economy, national saving can be less than investment.

The Norwegian government uses $500,000 of previously obtained U.S. dollars to buy $500,000 of police cars from a U.S. company. As a result of this exchange, by how much, if at all, and in which direction did: A. U.S. net exports change? B. U.S. net capital outflow change?

A country recently had a GDP of $1000 billion. Its consumption expenditures were $650 billion, its government spent $250 billion, and it had domestic investment of $150 billion. What was the value of this country's net capital outflow? Explain how you found your answer.