Question 1

A firm in India sells jackets to a Canadian department store chain. Which of the following correctly identifies the effects of this transaction?

Accepted Answer

A)  It increases Canadian and Indian net exports.
B)  It decreases Canadian and Indian net exports.
C)  It increases Canadian net exports and decreases Indian net exports.
D)  It decreases Canadian net exports and increases Indian net exports.E) A) and B)
F) C) and D)

Question 2

What does the law of one price state?

Accepted Answer

A)  A good cannot be sold at a black market price.
B)  A good must sell at the price fixed by law.
C)  A good must sell at the same price at all locations.
D)  A good cannot sell for a price greater than the legal price ceiling.E) None of the above
F) A) and B)

Question 3

Canadian exports make up less than 20 percent of GDP.

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

Question 5

Suppose that money supply growth continues to be higher in Turkey than it is in Canada. What does purchasing-power parity imply will happen to the real and to the nominal exchange rate?

Accepted Answer

Higher money growth leads to higher pric...

Question 6

If the world real interest rate exceeds the Canadian real interest rate, what would Canadian savers most likely do?

Accepted Answer

A)  Canadian savers would prefer to buy foreign assets.
B)  Canadian savers would prefer to buy Canadian assets.
C)  Canadian savers will prefer to wait until the two real interest rates are again equal.
D)  Canadian savers will sell their foreign assets and buy Canadian assets instead.E) B) and C)
F) A) and B)

Question 7

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

Accepted Answer

Real Exchange Rate =...

Question 8

Suppose the price level in Canada (P) and the nominal exchange rate (e) between the Canadian dollar and the foreign currency remain the same, while the price level abroad increases from P1* to P2*. Let the real exchange rate be X. What is the percentage change in the real exchange rate?

Accepted Answer

The percentage change in the real exchan...

Question 9

What is the logic behind the theory of purchasing-power parity?

Accepted Answer

The logic behind purchasing-power parity...

Question 10

Table 31-1
 
-Refer to Table 31-1. Which currency (ies)  is (are)  more valuable than predicted by the doctrine of purchasing-power parity?

Accepted Answer

A)  the boliviano and dinar
B)  the yen, kroner, and baht
C)  the yen and kroner
D)  the bahtE) C) and D)
F) A) and D)

Question 11

Suppose a lobster supper in Nova Scotia costs fewer dollars than a lobster supper in Moscow. Explain why this is inconsistent with purchasing-power parity and explain why the inconsistency may exist.

Accepted Answer

According to purchasing-power parity, a ...

Question 12

Sue, a Canadian citizen, buys stock in a French chain of boutiques. Her purchase counts as which of the following?

Accepted Answer

A)  investment for Sue and Canadian foreign direct investment
B)  investment for Sue and Canadian foreign portfolio investment
C)  saving for Sue and Canadian foreign direct investment
D)  saving for Sue and Canadian foreign portfolio investmentE) B) and C)
F) A) and B)

Question 13

Which of the following would be Canadian foreign direct investment?

Accepted Answer

A)  Your Canadian-based mutual fund buys stock in Eastern European companies.
B)  A Canadian citizen opens a guitar store in Hong Kong.
C)  A Swiss bank buys a Canadian government bond.
D)  A German tractor factory opens a plant in Victoria, B.C.E) A) and B)
F) B) and C)

Question 14

Which of the following best describes Canadian net capital outflow and net exports since 1999?

Accepted Answer

A)  Net capital outflow has been positive, and net exports have been negative.
B)  Net capital outflow has been positive, and net exports have been positive.
C)  Net capital outflow has been negative, and net exports have been negative.
D)  Net capital outflow has been negative and net exports have been positive.E) B) and D)
F) None of the above

Question 15

Which of the following best describes net capital outflow in Canada from 1961 to about 1998?

Accepted Answer

A)  small but always positive
B)  small and sometimes negative and sometimes positive
C)  large and positive
D)  large and negative in all but three yearsE) B) and C)
F) A) and D)

Question 16

Which of the following would a depreciation of the Canadian real exchange rate induce Canadian consumers to buy?

Accepted Answer

A)  fewer domestic goods and fewer foreign goods
B)  more domestic goods and fewer foreign goods
C)  fewer domestic goods and more foreign goods
D)  more domestic goods and more foreign goodsE) None of the above
F) B) and C)

Question 17

According to purchasing-power parity theory, the real exchange rate should equal the nominal exchange rate.

Accepted Answer

A) True 
 B)False

Question 18

If the exchange rate changes from 40 Thai baht per dollar to 35 Thai baht per dollar, what has happened to the dollar?

Accepted Answer

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

Question 19

A country has $150 million of net exports and $190 million of saving. What is net capital outflow?

Accepted Answer

A)  $40 million
B)  -$40 million
C)  $150 million
D)  $190 millionE) B) and C)
F) A) and C)

Question 20

If the purchasing power of the dollar is always the same at home and abroad, then the nominal exchange rate defined as foreign goods per unit of Canadian goods decreases if the Canadian price level rises more than the price level in foreign countries.

Accepted Answer

A) True 
 B)False

Exam 12: Open-Economy Macroeconomics: Basic Concepts

What does the law of one price state?

Correct AnswerverifiedShow Answer

If the exchange rate changes from 40 Thai baht per dollar to 35 Thai baht per dollar, what has happened to the dollar?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Table 31-1 -Refer to Table 31-1. Which currency (ies) is (are) more valuable than predicted by the doctrine of purchasing-power parity?

Correct AnswerverifiedShow Answer

A country has $150 million of net exports and $190 million of saving. What is net capital outflow?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedReal Exchange Rate =...View AnswerShow Answer

Sue, a Canadian citizen, buys stock in a French chain of boutiques. Her purchase counts as which of the following?

Correct AnswerverifiedShow Answer

Suppose a lobster supper in Nova Scotia costs fewer dollars than a lobster supper in Moscow. Explain why this is inconsistent with purchasing-power parity and explain why the inconsistency may exist.

Correct AnswerverifiedAccording to purchasing-power parity, a ...View AnswerShow Answer

What is the logic behind the theory of purchasing-power parity?

Correct AnswerverifiedThe logic behind purchasing-power parity...View AnswerShow Answer

Which of the following best describes Canadian net capital outflow and net exports since 1999?

Correct AnswerverifiedShow Answer

Suppose the price level in Canada (P) and the nominal exchange rate (e) between the Canadian dollar and the foreign currency remain the same, while the price level abroad increases from P1* to P2*. Let the real exchange rate be X. What is the percentage change in the real exchange rate?

Correct AnswerverifiedThe percentage change in the real exchan...View AnswerShow Answer

Canadian exports make up less than 20 percent of GDP.

Correct AnswerverifiedShow Answer

If the world real interest rate exceeds the Canadian real interest rate, what would Canadian savers most likely do?

Correct AnswerverifiedShow Answer

Which of the following would be Canadian foreign direct investment?

Correct AnswerverifiedShow Answer

According to purchasing-power parity theory, the real exchange rate should equal the nominal exchange rate.

Correct AnswerverifiedShow Answer

Which of the following would a depreciation of the Canadian real exchange rate induce Canadian consumers to buy?

Correct AnswerverifiedShow Answer

Which of the following best describes net capital outflow in Canada from 1961 to about 1998?

Correct AnswerverifiedShow Answer

Suppose that money supply growth continues to be higher in Turkey than it is in Canada. What does purchasing-power parity imply will happen to the real and to the nominal exchange rate?

Correct AnswerverifiedHigher money growth leads to higher pric...View AnswerShow Answer

A firm in India sells jackets to a Canadian department store chain. Which of the following correctly identifies the effects of this transaction?

Correct AnswerverifiedShow Answer

If the purchasing power of the dollar is always the same at home and abroad, then the nominal exchange rate defined as foreign goods per unit of Canadian goods decreases if the Canadian price level rises more than the price level in foreign countries.

Correct AnswerverifiedShow Answer

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Real Exchange Rate =...
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Correct Answer
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According to purchasing-power parity, a ...
View Answer

Correct Answer
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The logic behind purchasing-power parity...
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Correct Answer
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Suppose the price level in Canada (P) and the nominal exchange rate (e) between the Canadian dollar and the foreign currency remain the same, while the price level abroad increases from P₁* to P₂*. Let the real exchange rate be X. What is the percentage change in the real exchange rate?

Correct Answer
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The percentage change in the real exchan...
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Higher money growth leads to higher pric...
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Correct Answer
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Correct Answer
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