Question 1

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) B) and D)
F) C) and D)

Question 2

If domestic residents of France purchase 1.2 trillion euros of foreign assets and foreigners purchase 1.5 trillion euros of French assets, then France's net capital outflow is

Accepted Answer

A)   -.3 trillion euros, so it must have a trade deficit.
B)   -.3 trillion euros, so it must have a trade surplus.
C)   .3 trillion euros, so it must have a trade deficit.
D)   .3 trillion euros, so it must have a trade surplus.E) None of the above
F) A) and D)

Question 3

When net capital outflow is negative, it means that on net the value of domestic assets purchased by foreigners exceeds the value of foreign assets purchased by domestic residents.

Accepted Answer

A) True 
 B)False

Question 4

A rational investor will always purchase the bond that pays the highest real interest rate.

Accepted Answer

A) True 
 B)False

Question 5

Net capital outflow

Accepted Answer

A)   is always greater than net exports.
B)   is always less than net exports.
C)   is always equal to net exports.
D)   could be any of the above.E) A) and B)
F) All of the above

Question 6

When Ghana sells chocolate to the United States, U.S. net exports

Accepted Answer

A)   increase, and U.S. net capital outflow increases.
B)   increase, and U.S. net capital outflow decreases.
C)   decrease, and U.S. net capital outflow increases.
D)   decrease, and U.S. net capital outflow decreases.E) None of the above
F) B) and C)

Question 7

Which of the following is an example of U.S. foreign portfolio investment?

Accepted Answer

A)   A U.S. legal office opens a branch office in Holland.
B)   Erica, a U.S. resident, buys bonds issued by the Swiss government.
C)   Both A and B are examples of U.S. portfolio investment.
D)   Neither A nor B are examples of U.S. portfolio investment.E) B) and D)
F) B) and C)

Question 8

In the United States, a three-pound can of coffee costs about $5. If the exchange rate is 0.8 euros per dollar and a three-pound can of coffee in Belgium costs 7 euros. What is the real exchange rate?

Accepted Answer

A)   7/4 cans of Belgian coffee per can of U.S. coffee
B)   5.6/5 cans of Belgian coffee per can of U.S. coffee
C)   5/5.6 cans of Belgian coffee per can of U.S. coffee
D)   4/7 cans of Belgian coffee per can of U.S. coffeeE) A) and C)
F) A) and D)

Question 9

According to purchasing-power parity, if it took 55 Indian rupees to buy a dollar today, but it took 58 to buy it a year ago, then the dollar has

Accepted Answer

A)   appreciated, indicating inflation was higher in the U.S. than in India.
B)   appreciated, indicating inflation was lower in the U.S. than in India.
C)   depreciated, indicating inflation was higher in the U.S. than in India.
D)   depreciated, indicating inflation was lower in the U.S. than in India.E) A) and C)
F) B) and C)

Question 10

Peru has exports of $31.5 million and imports of $30 million. Peru

Accepted Answer

A)   sells more overseas then it buys from overseas; it has a trade deficit.
B)   sells more overseas then it buys from overseas; it has a trade surplus.
C)   buys more from overseas then it sells overseas; it has a trade deficit.
D)   buys more from overseas then it sells overseas; it has a trade surplus.E) C) and D)
F) All of the above

Question 11

If France had positive net exports last year, then it

Accepted Answer

A)   sold more abroad than it purchased abroad and had a trade surplus.
B)   sold more abroad than it purchased abroad and had a trade deficit.
C)   bought more abroad than it sold abroad and had a trade surplus.
D)   bought more abroad than it sold abroad and had a trade deficit.E) A) and B)
F) B) and C)

Question 12

Suppose that money supply growth continues to be higher in Turkey than it is in the United States. 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 13

Which of the following is correct? Since 1950

Accepted Answer

A)   U.S. exports and U.S. imports each about doubled.
B)   U.S. exports and U.S. imports each about tripled.
C)   U.S. exports about doubled and U.S. imports about tripled.
D)   U.S. exports about tripled and U.S. imports about doubled.E) C) and D)
F) A) and B)

Question 14

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 than 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) A) and D)
F) B) and C)

Question 15

You are planning a graduation trip to Mexico. Other things the same, if the dollar appreciates relative to the peso, then

Accepted Answer

A)   the dollar buys fewer pesos. Your hotel room in Mexico will require fewer dollars.
B)   the dollar buys fewer pesos. Your hotel room in Mexico will require more dollars.
C)   the dollar buys more pesos. Your hotel room in Mexico will require fewer dollars.
D)   the dollar buys more pesos. Your hotel room in Mexico will require more dollars.E) A) and C)
F) A) and D)

Question 16

A country has $20 billion of domestic investment and net capital outflow of $10 billion. What is saving?

Accepted Answer

A)   $10 billion
B)   $30 billion
C)   -$20 billion
D)   -$30 billionE) A) and C)
F) A) and B)

Question 17

While on a study abroad program you see a McDonald's in Paris. A combo meal costs 8 euros. The same meal costs $6 in the U.S. and the exchange rate is .75 euros per dollar.
A. Find the real exchange rate. Show your work.
B. In terms of dollars where is the combo meal cheaper?

Accepted Answer

The real exchange rate = .75 x...

Question 18

You are planning a graduation trip to Mexico. Other things the same, if the dollar depreciates relative to the peso, then

Accepted Answer

A)   the dollar buys fewer pesos. Your hotel room in Mexico will require fewer dollars.
B)   the dollar buys fewer pesos. Your hotel room in Mexico will require more dollars.
C)   the dollar buys more pesos. Your hotel room in Mexico will require fewer dollars.
D)   the dollar buys more pesos. Your hotel room in Mexico will require more dollars.E) B) and C)
F) C) and D)

Question 19

You buy a new car built in Sweden. Other things the same, your purchase by itself

Accepted Answer

A)   raises both U.S. exports and U.S. net exports.
B)   raises U.S. exports and lowers U.S. net exports.
C)   raises both U.S. imports and U.S. net exports.
D)   raises U.S. imports and lowers U.S. net exports.E) C) and D)
F) B) and D)

Question 20

A country recently had GDP of $1,200 billion. Its consumption expenditures were $700 billion, its government spent $200 billion, and it had domestic investment of $175 billion. What was the value of this country's net capital outflow?
Show your work.

Accepted Answer

Y = C + I + G + NX
$1,200 bill...

Exam 18: Open-Economy Macroeconomics: Basic Concepts

A country recently had GDP of $1,200 billion. Its consumption expenditures were $700 billion, its government spent $200 billion, and it had domestic investment of $175 billion. What was the value of this country's net capital outflow? Show your work.

Correct AnswerverifiedY = C + I + G + NX$1,200 bill...View AnswerShow Answer

When net capital outflow is negative, it means that on net the value of domestic assets purchased by foreigners exceeds the value of foreign assets purchased by domestic residents.

Correct AnswerverifiedShow Answer

You are planning a graduation trip to Mexico. Other things the same, if the dollar depreciates relative to the peso, then

Correct AnswerverifiedShow Answer

If France had positive net exports last year, then it

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

While on a study abroad program you see a McDonald's in Paris. A combo meal costs 8 euros. The same meal costs $6 in the U.S. and the exchange rate is .75 euros per dollar. A. Find the real exchange rate. Show your work. B. In terms of dollars where is the combo meal cheaper?

Correct AnswerverifiedThe real exchange rate = .75 x...View AnswerShow Answer

Which of the following is correct? Since 1950

Correct AnswerverifiedShow Answer

Which of the following is an example of U.S. foreign portfolio investment?

Correct AnswerverifiedShow Answer

In the United States, a three-pound can of coffee costs about $5. If the exchange rate is 0.8 euros per dollar and a three-pound can of coffee in Belgium costs 7 euros. What is the real exchange rate?

Correct AnswerverifiedShow Answer

Peru has exports of $31.5 million and imports of $30 million. Peru

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

According to purchasing-power parity, if it took 55 Indian rupees to buy a dollar today, but it took 58 to buy it a year ago, then the dollar has

Correct AnswerverifiedShow Answer

You buy a new car built in Sweden. Other things the same, your purchase by itself

Correct AnswerverifiedShow Answer

If domestic residents of France purchase 1.2 trillion euros of foreign assets and foreigners purchase 1.5 trillion euros of French assets, then France's net capital outflow is

Correct AnswerverifiedShow Answer

When Ghana sells chocolate to the United States, U.S. net exports

Correct AnswerverifiedShow Answer

Suppose that money supply growth continues to be higher in Turkey than it is in the United States. 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

You are planning a graduation trip to Mexico. Other things the same, if the dollar appreciates relative to the peso, then

Correct AnswerverifiedShow Answer

A country has $20 billion of domestic investment and net capital outflow of $10 billion. What is saving?

Correct AnswerverifiedShow Answer

A rational investor will always purchase the bond that pays the highest real interest rate.

Correct AnswerverifiedShow Answer

Net capital outflow

Correct AnswerverifiedShow Answer

Correct Answer
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Y = C + I + G + NX
$1,200 bill...
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The real exchange rate = .75 x...
View Answer

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Higher money growth leads to higher pric...
View Answer

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