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Exam 31: Open-Economy Macroeconomics: Basic Concepts

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Question 61

True/False

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Reduced barriers to trade help explain an increase in U.S. exports and imports relative to GDP since 1950.

A) True
B) False

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Question 62

Multiple Choice

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A country's trade balance will fall if either

A) investment or saving rise.
B) investment falls or saving rises.
C) saving falls or investment rises.
D) investment or saving fall.

E) B) and C)
F) All of the above

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Question 63

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Other things the same, if U.S. net capital outflow rises, so does U.S. saving.

Which of the following equations is correct?

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

A U.S. grocery store chain bought $800,000 worth of Kenyan currency from a bank in Kenya. It then used these funds to buy $800,000 worth of coffee from Kenyan coffee growers. As a result of this exchange, by how much and in which direction did: A. U.S. net exports change? B. U.S. net capital outflow change?

A pound of steak costs $10 in the U.S. and 56.25 riyals (the currency of Saudi Arabia) in Saudi Arabia. If the real exchange rate is 2/3, what is the nominal exchange rate? Show your work.

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

Suppose that a U.S. dollar buys more gold in Australia than it buys in Russia. What does purchasing-power parity imply should happen?

The purchase of U.S. government bonds by Japanese is an example of

Last year a country had $700 billion of saving and $900 of investment. This year it had $1000 billion of saving and $800 billion of investment. By how much did net capital outflow change? By how much did net exports change? How is it possible for a country to have saving that is greater than investment?

The large trade deficits in the U.S. during the 1990's were primarily associated with a rise in domestic investment spending rather than a rise in the budget deficit.

If the exchange rate is 80 yen per dollar, then a hotel room in Tokyo that costs 25,000 yen costs $200.

A company in Panama pays a U.S. architect to design a factory building. By itself this transaction

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

A certain cell phone sells for 2400 yuan in China and for $300 in the U.S. The nominal exchange rate is 6.5 yuan per dollar. A. Find the real exchange rate. Show your work. B. In terms of dollars where is the cell phone cheaper?

If a nation produces less than it spends what do we know about: A. its net exports? B. its net capital outflow? C. its saving in relation to its domestic investment?

The dollar is said to appreciate against the euro if the exchange rate

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

Under what circumstances does purchasing-power parity explain how exchange rates are determined, and why is it not completely accurate?