Question 1

Last summer when you went to Stockholm Sweden you exchanged $20 to get 16 kronas to buy a meal. This summer you exchanged $25 to get 18 kronas to buy the same meal. The nominal exchange rate

Accepted Answer

A)  rose. If purchasing-power parity holds, than prices in the Sweden rose faster than prices in the U.S.
B)  rose. If purchasing-power parity holds, than prices in the U.S. rose faster than prices in the Sweden.
C)  fell. If purchasing-power parity holds, than prices in the Sweden rose faster than prices in the U.S.
D)  fell. If purchasing-power parity holds, than prices in the U.S. rose faster than prices in the Sweden.E) A) and C)
F) A) and D)

Question 2

Suppose that the real exchange rate between the United States and Kenya is defined in terms of baskets of goods. Other things the same, which of the following will increase the real exchange rate (that is increase the number of baskets of Kenyan goods a basket of U.S. goods buys) ?

Accepted Answer

A)  an increase in the number of Kenyan shillings that can be purchased with a dollar
B)  an increase in the price of U.S. baskets of goods
C)  a decrease in the price in Kenyan shillings of Kenyan goods
D)  All of the above are correct.E) A) and D)
F) B) and D)

Question 3

Reductions in transportation costs help explain the increase in U.S. trade flows.

Accepted Answer

A) True 
 B)False

Question 4

A country's trade balance

Accepted Answer

A)  must be zero.
B)  must be greater than zero.
C)  is greater than zero only if exports are greater than imports.
D)  is greater than zero only if imports are greater than exports.E) B) and D)
F) A) and D)

Question 5

U.S.-based John Deere sells machinery to residents of South Africa who pay with South African currency (the rand) .

Accepted Answer

A)  This increases U.S. net capital outflow because the U.S. acquires foreign assets.
B)  This decreases U.S. net capital outflow because the U.S. acquires foreign assets.
C)  This increases U.S. net capital outflow because the U.S. sells capital goods.
D)  This decreases U.S. net capital outflow because the U.S. sells capital goods.E) B) and D)
F) B) and C)

Question 6

In Ireland, a pint of beer costs 3 euros. In Australia, a pint of beer costs 4 Australian dollars. If the exchange rate is .8 euros per Australian dollar, what is the real exchange rate?

Accepted Answer

A)  4/2.4 pints of Irish beer per pint of Australian beer
B)  3/3.2 pint of Irish beer per pint of Australian beer
C)  3.2/3 pints of Irish beer per pint of Australian beer
D)  2.4/4 pints of Irish beer per pint of Australian beerE) All of the above
F) A) and D)

Question 7

A Swiss company sells chocolates to a retailer in the United States. These sales by themselves

Accepted Answer

A)  decrease U.S. net export and Swiss net exports.
B)  decrease U.S. net exports and increase Swiss net exports.
C)  increase U.S. and Swiss net exports.
D)  increase U.S. net exports and decrease Swiss net exports.E) A) and B)
F) A) and C)

Question 8

If a dollar buys more rice in the China. than in the U.S., then

Accepted Answer

A)  the real exchange rate is greater than 1; a profit might be made by buying rice in the U.S. and selling it in China.
B)  the real exchange rate is greater than 1; a profit might be made by buying rice in China. and selling it in the U.S.
C)  the real exchange rate is less than 1; a profit might be made by buying rice in the U.S. and selling it in China.
D)  the real exchange rate is less than 1; a profit might be made by buying rice in China and selling it in the U.S.E) C) and D)
F) None of the above

Question 9

Other things the same, which of the following would both make Americans more willing to buy Italian goods?

Accepted Answer

A)  the nominal exchange rate falls, the price of goods in Italy falls
B)  the nominal exchange rate falls, the price of goods in Italy rises
C)  the nominal exchange rate rises, the price of goods in Italy falls
D)  the nominal exchange rate rises, the price of goods in Italy risesE) A) and D)
F) B) and C)

Question 10

List the factors that might influence a country's exports, imports, and trade balance.

Accepted Answer

a.the tastes of consumers for domestic a...

Question 11

A U.S. mutual fund buys stocks issued by a Columbian company. This purchase is an example of

Accepted Answer

A)  U.S. foreign direct investment. It increases Columbia's net capital outflow.
B)  U.S. foreign direct investment. It decreases Columbia's net capital outflow.
C)  U.S. foreign portfolio investment. It decreases Columbia's net capital outflow.
D)  U.S. foreign portfolio investment. It increases Columbia's net capital outflow.E) B) and C)
F) A) and D)

Question 12

By itself, when a Japanese bank purchases a bond issued by a U.S. coporation, U.S. net capital outflow rises.

Accepted Answer

A) True 
 B)False

Question 13

If the real exchange rate is less than 1, then the

Accepted Answer

A)  nominal exchange rate x U.S. price > foreign price. The dollars required to purchase a good in the U.S. would buy more then enough foreign currency to buy the same good overseas.
B)  nominal exchange rate x U.S. price > foreign price. The dollars required to purchase a good in the U.S. would not buy enough foregoing currency to buy the same good overseas.
C)  nominal exchange rate x U.S. price 
D)  nominal exchange rate x U.S. price < foreign price. The dollars required to purchase a good in the U.S. would not buy enough foreign currency to buy the same good overseas.E) None of the above
F) C) and D)

Question 14

If prices in Thailand rise less than prices in the United States, then according to the doctrine of purchasing-power parity the U.S. nominal exchange rate should rise.

Accepted Answer

A) True 
 B)False

Question 15

Suppose that foreign citizens decide to purchase more U.S. pharmaceuticals and U.S. citizens decide to buy more stock in foreign corporations. Other things the same, these actions

Accepted Answer

A)  raise both U.S. net exports and U.S. net capital outflows.
B)  raise U.S. net exports and lower U.S. net capital outflows.
C)  lower both U.S. net exports and U.S. net capital outflows.
D)  lower U.S. net exports and raise U.S. net capital outflows.E) A) and D)
F) None of the above

Question 16

Which of the following equations is correct?

Accepted Answer

A)  S = I + C
B)  S = I - NX
C)  S = I + NCO
D)  S = NX - NCO.E) A) and D)
F) A) and C)

Question 17

Suppose that the nominal exchange rate is 80 yen 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 Japan is 50,000 yen. Suppose that these values change to 100 yen per dollar, $600, and 70,000 yen. 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) A) and B)
F) All of the above

Question 18

If the American company Stryker builds and operates a new factory in France,

Accepted Answer

A)  it engages in foreign direct investment. By itself this action lowers U.S. net capital outflow.
B)  it engages in foreign direct investment. By itself this action raises U.S. net capital outflow.
C)  it engages in foreign portfolio investment. By itself this action lowers U.S. net capital outflow.
D)  it engages in foreign portfolio investment. By itself this action raises U.S. net capital outflow.E) A) and B)
F) B) and D)

Question 19

From 1970 to 1998 the U.S. dollar

Accepted Answer

A)  gained value compared to the German mark because inflation was higher in the U.S.
B)  gained value compared to the German mark because inflation was lower in the U.S.
C)  lost value compared to the German mark because inflation was higher in the U.S.
D)  lost value compared to the German mark because inflation was lower in the U.S.E) A) and B)
F) All of the above

Question 20

During some year a country had exports of $50 billion, imports of $70 billion, and domestic investment of $100 billion. What was its saving during the year?

Accepted Answer

A)  $80 billion
B)  $100 billion
C)  $120 billion
D)  $150 billionE) A) and D)
F) B) and C)

Exam 18: Open-Economy Macroeconomic Models

A country's trade balance

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A U.S. mutual fund buys stocks issued by a Columbian company. This purchase is an example of

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Suppose that the real exchange rate between the United States and Kenya is defined in terms of baskets of goods. Other things the same, which of the following will increase the real exchange rate (that is increase the number of baskets of Kenyan goods a basket of U.S. goods buys) ?

Correct AnswerverifiedShow Answer

Reductions in transportation costs help explain the increase in U.S. trade flows.

Correct AnswerverifiedShow Answer

During some year a country had exports of $50 billion, imports of $70 billion, and domestic investment of $100 billion. What was its saving during the year?

Correct AnswerverifiedShow Answer

By itself, when a Japanese bank purchases a bond issued by a U.S. coporation, U.S. net capital outflow rises.

Correct AnswerverifiedShow Answer

If prices in Thailand rise less than prices in the United States, then according to the doctrine of purchasing-power parity the U.S. nominal exchange rate should rise.

Correct AnswerverifiedShow Answer

If the American company Stryker builds and operates a new factory in France,

Correct AnswerverifiedShow Answer

Suppose that the nominal exchange rate is 80 yen 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 Japan is 50,000 yen. Suppose that these values change to 100 yen per dollar, $600, and 70,000 yen. Then the real exchange rate would

Correct AnswerverifiedShow Answer

Last summer when you went to Stockholm Sweden you exchanged $20 to get 16 kronas to buy a meal. This summer you exchanged $25 to get 18 kronas to buy the same meal. The nominal exchange rate

Correct AnswerverifiedShow Answer

If a dollar buys more rice in the China. than in the U.S., then

Correct AnswerverifiedShow Answer

List the factors that might influence a country's exports, imports, and trade balance.

Correct Answerverifieda.the tastes of consumers for domestic a...View AnswerShow Answer

From 1970 to 1998 the U.S. dollar

Correct AnswerverifiedShow Answer

U.S.-based John Deere sells machinery to residents of South Africa who pay with South African currency (the rand) .

Correct AnswerverifiedShow Answer

Suppose that foreign citizens decide to purchase more U.S. pharmaceuticals and U.S. citizens decide to buy more stock in foreign corporations. Other things the same, these actions

Correct AnswerverifiedShow Answer

If the real exchange rate is less than 1, then the

Correct AnswerverifiedShow Answer

Other things the same, which of the following would both make Americans more willing to buy Italian goods?

Correct AnswerverifiedShow Answer

A Swiss company sells chocolates to a retailer in the United States. These sales by themselves

Correct AnswerverifiedShow Answer

Which of the following equations is correct?

Correct AnswerverifiedShow Answer

In Ireland, a pint of beer costs 3 euros. In Australia, a pint of beer costs 4 Australian dollars. If the exchange rate is .8 euros per Australian dollar, what is the real exchange rate?

Correct AnswerverifiedShow Answer

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a.the tastes of consumers for domestic a...
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