Question 1

How do we find the real exchange rate from the nominal exchange rate?

Accepted Answer

Real exchange rate = Nominal exchange rate × Domestic price index / Foreign price index

Question 2

What do net exports measure?

Accepted Answer

A)   income minus expenditure
B)   exports minus imports
C)   expenditure minus income
D)   imports minus exportsE) C) and D)
F) A) and D)

Question 3

A country with no imports necessarily has zero net exports.

Accepted Answer

A) True 
 B)False

Question 4

If Canada buys cameras from Japan, both Canadian net exports and Canadian net capital outflow decrease.

Accepted Answer

A) True 
 B)False  True

Question 5

For an economy as a whole, net exports must equal minus one times net capital outflow.

Accepted Answer

A) True 
 B)False

Question 6

About what percentage of GDP are Canadian imports?

Accepted Answer

A)   less than 13 percent
B)   about 14 percent
C)   about 37 percent
D)   about 67 percentE) B) and D)
F) B) and C)

Question 7

Which of the following would be Canadian foreign direct investment?

Accepted Answer

A)   A Polish company opens a shipbuilding plant in Halifax.
B)   A Bolivian bank buys Canadian corporate bonds.
C)   A Canadian bank buys Peruvian corporate bonds.
D)   A Canadian canning company opens a plant in Ecuador.E) A) and B)
F) A) and C)

Question 8

When Canada imports more than it exports, it must also buy domestic assets from foreigners.

Accepted Answer

A) True 
 B)False

Question 9

Suppose that a country exports $300 million of goods and services and imports $180 million of goods and services. What is the value of that country's net exports?

Accepted Answer

A)   $-120 million
B)   $120 million
C)   $300 million
D)   $380 millionE) A) and D)
F) All of the above

Question 10

According to purchasing-power parity, if prices in Canada increase by a larger percentage than prices in Algeria, how does the exchange rate change?

Accepted Answer

A)   The real exchange rate, defined as Algerian goods per unit of Canadian goods, rises.
B)   The real exchange rate, defined as Algerian goods per unit of Canadian goods, falls.
C)   The nominal exchange rate, defined as Algerian currency per dollar, rises.
D)   The nominal exchange rate, defined as Algerian currency per dollar, falls.E) A) and D)
F) B) and C)

Question 11

If the exchange rate changes from 130 yen per dollar to 150 yen per dollar, what has happened to the dollar?

Accepted Answer

A)   It has appreciated and so buys more Japanese goods.
B)   It has appreciated and so buys fewer Japanese goods.
C)   It has depreciated and so buys more Japanese goods.
D)   It has depreciated and so buys fewer Japanese goods.E) None of the above
F) A) and C)

Question 12

Suppose the real exchange rate is 1 litre of Canadian gasoline per 2 litres of U.S. gasoline, 1 litre of U.S. gasoline costs $0.45 U.S., and a litre of Canadian gas costs $1.30 Canadian. What is the nominal exchange rate?

Accepted Answer

A)   0.38 U.S. dollars per Canadian dollar
B)   0.45 U.S. dollars per Canadian dollar
C)   0.69 U.S. dollars per Canadian dollar
D)   1.30 U.S. dollars per Canadian dollarE) B) and C)
F) A) and D)

Question 13

If the Canadian real exchange rate appreciates, what will most likely happen?

Accepted Answer

A)   Net exports increase, and net capital outflow decreases.
B)   Net exports decrease, and net capital outflow increases.
C)   Net exports and net capital outflow both increase.
D)   Net exports and net capital outflow both decrease.E) A) and C)
F) B) and C)

Question 14

A citizen of Ethiopia uses previously obtained Canadian dollars to purchase lamb from Canada. What are the effects of this transaction?

Accepted Answer

A)   It increases Saudi net capital outflow and increases Canadian net exports.
B)   It increases Saudi net capital outflow and decreases Canadian net exports.
C)   It decreases Saudi net capital outflow and increases Canadian net exports.
D)   It decreases Saudi net capital outflow and decreases Canadian net exports.E) B) and C)
F) A) and D)

Question 15

Since 1999, what caused most of the change of Canadian net capital outflow as a percent of GDP?

Accepted Answer

A)   decrease in private investment
B)   increase in national saving
C)   decrease in U.S. investment
D)   decrease in national savingE) C) and D)
F) A) and C)

Question 16

For many questions in macroeconomics, international issues are peripheral.

Accepted Answer

A) True 
 B)False

Question 17

Suppose that the dollar buys less cotton in Canada than in Egypt. How could traders make a profit?

Accepted Answer

A)   by buying cotton in Canada and selling it in Egypt, which would tend to raise the price of cotton in Canada
B)   by buying cotton in Canada and selling it in Egypt, which would tend to raise the price of cotton in Egypt
C)   by buying cotton in Egypt and selling it in Canada, which would tend to raise the price of cotton in Egypt
D)   by buying cotton in Egypt and selling it in Canada, which would tend to raise the price of cotton in CanadaE) B) and D)
F) B) and C)

Question 18

According to purchasing-power parity, if prices in Canada increase by a smaller percentage than prices in Algeria, how does the exchange rate change?

Accepted Answer

A)   The real exchange rate, defined as Algerian goods per unit of Canadian goods, rises.
B)   The real exchange rate, defined as Algerian goods per unit of Canadian goods, falls.
C)   The nominal exchange rate, defined as Algerian currency per dollar, rises.
D)   The nominal exchange rate, defined as Algerian currency per dollar, falls.E) A) and C)
F) B) and D)

Question 19

If a Swiss chocolate maker opens a factory in Canada. What is this an example of?

Accepted Answer

A)   Swiss exports
B)   Swiss imports
C)   Swiss foreign portfolio investment
D)   Swiss foreign direct investmentE) All of the above
F) A) and C) D

Question 20

If the Canadian real exchange rate appreciates, what will most likely happen?

Accepted Answer

A)   Exports increase and imports decrease.
B)   Exports decrease and imports increase.
C)   Exports and imports both increase.
D)   Exports and imports both decrease.E) B) and C)
F) A) and D)

Exam 12: Open-Economy Macroeconomics: Basic Concepts

How do we find the real exchange rate from the nominal exchange rate?

Correct AnswerverifiedReal exchange rate = Nominal exchange rate × Domestic price index / Foreign price index

What do net exports measure?

Correct AnswerverifiedShow Answer

A country with no imports necessarily has zero net exports.

Correct AnswerverifiedShow Answer

If Canada buys cameras from Japan, both Canadian net exports and Canadian net capital outflow decrease.

Correct AnswerverifiedTrue

For an economy as a whole, net exports must equal minus one times net capital outflow.

Correct AnswerverifiedShow Answer

About what percentage of GDP are Canadian imports?

Correct AnswerverifiedShow Answer

Which of the following would be Canadian foreign direct investment?

Correct AnswerverifiedShow Answer

When Canada imports more than it exports, it must also buy domestic assets from foreigners.

Correct AnswerverifiedShow Answer

Suppose that a country exports $300 million of goods and services and imports $180 million of goods and services. What is the value of that country's net exports?

Correct AnswerverifiedShow Answer

According to purchasing-power parity, if prices in Canada increase by a larger percentage than prices in Algeria, how does the exchange rate change?

Correct AnswerverifiedShow Answer

If the exchange rate changes from 130 yen per dollar to 150 yen per dollar, what has happened to the dollar?

Correct AnswerverifiedShow Answer

Suppose the real exchange rate is 1 litre of Canadian gasoline per 2 litres of U.S. gasoline, 1 litre of U.S. gasoline costs $0.45 U.S., and a litre of Canadian gas costs $1.30 Canadian. What is the nominal exchange rate?

Correct AnswerverifiedShow Answer

If the Canadian real exchange rate appreciates, what will most likely happen?

Correct AnswerverifiedShow Answer

A citizen of Ethiopia uses previously obtained Canadian dollars to purchase lamb from Canada. What are the effects of this transaction?

Correct AnswerverifiedShow Answer

Since 1999, what caused most of the change of Canadian net capital outflow as a percent of GDP?

Correct AnswerverifiedShow Answer

For many questions in macroeconomics, international issues are peripheral.

Correct AnswerverifiedShow Answer

Suppose that the dollar buys less cotton in Canada than in Egypt. How could traders make a profit?

Correct AnswerverifiedShow Answer

According to purchasing-power parity, if prices in Canada increase by a smaller percentage than prices in Algeria, how does the exchange rate change?

Correct AnswerverifiedShow Answer

If a Swiss chocolate maker opens a factory in Canada. What is this an example of?

Correct AnswerverifiedD

If the Canadian real exchange rate appreciates, what will most likely happen?

Correct AnswerverifiedShow Answer

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Real exchange rate = Nominal exchange rate × Domestic price index / Foreign price index

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True

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D

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