Question 1

In which of the following situations must national saving rise?

Accepted Answer

A) Both domestic investment and net capital outflow increase. 
B) Domestic investment increases and net capital outflow decreases. 
C) Domestic investment decreases and net capital outflow increases. 
D) Both domestic investment and net capital outflow decrease. 
A) Both domestic investment and net capital outflow increase. 
B) Domestic investment increases and net capital outflow decreases. 
C) Domestic investment decreases and net capital outflow increases. 
D) Both domestic investment and net capital outflow decrease.

Question 2

Net capital outflow is defined as the purchase of

Accepted Answer

A) foreign assets by domestic residents minus the purchase of domestic assets by foreign residents. 
B) foreign assets by domestic residents minus the purchase of foreign goods and services by domestic residents. 
C) domestic assets by foreign residents minus the purchase of domestic goods and services by foreign residents. 
D) domestic assets by foreign residents minus the purchase of foreign assets by domestic residents. 
A) foreign assets by domestic residents minus the purchase of domestic assets by foreign residents. 
B) foreign assets by domestic residents minus the purchase of foreign goods and services by domestic residents. 
C) domestic assets by foreign residents minus the purchase of domestic goods and services by foreign residents. 
D) domestic assets by foreign residents minus the purchase of foreign assets by domestic residents.

Question 3

The theory of purchasing-power parity states that a unit of a country's currency should be able to buy the same quantity of goods in foreign countries as it does in the domestic economy.

Accepted Answer

A) True 
 B)False

Question 4

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

Accepted Answer

A) True 
 B)False

Question 5

If a Starbucks tall latte costs $3.20 in the United States and 3 euros in the Euro area, then purchasing-power parity implies the nominal exchange rate is how many euros per dollar?

Accepted Answer

A) .938 If the exchange rate is less than this, it costs more dollars to buy a tall latte in the U.S. than in the Euro area. 
B) .938 If the exchange rate is less than this, it costs fewer dollars to buy a tall latte in the U.S. then in the Euro area. 
C) 1.067 If the exchange rate is less than this, it costs more dollars to buy a tall latte in the U.S. than in the Euro area. 
D) 1.067 If the exchange rate is less than this, it costs fewer dollars to buy a tall latte in the U.S. than in the Euro area. 
A) .938 If the exchange rate is less than this, it costs more dollars to buy a tall latte in the U.S. than in the Euro area. 
B) .938 If the exchange rate is less than this, it costs fewer dollars to buy a tall latte in the U.S. then in the Euro area. 
C) 1.067 If the exchange rate is less than this, it costs more dollars to buy a tall latte in the U.S. than in the Euro area. 
D) 1.067 If the exchange rate is less than this, it costs fewer dollars to buy a tall latte in the U.S. than in the Euro area.

Question 6

A Big Mac in Japan costs 400 yen while it costs $4.50 in the U.S.. The nominal exchange rate is 100 yen per dollar. Which of the following would both make the real exchange rate move towards purchasing-power parity?

Accepted Answer

A) the price of Big Macs in the U.S. falls, the nominal exchange rate falls 
B) the price of Big Macs in the U.S. falls, the nominal exchange rate rises 
C) the price of Big Macs in the U.S. rises, the nominal exchange rate falls 
D) the price of Big Macs in the U.S. rises, the nominal exchange rate rises 
A) the price of Big Macs in the U.S. falls, the nominal exchange rate falls 
B) the price of Big Macs in the U.S. falls, the nominal exchange rate rises 
C) the price of Big Macs in the U.S. rises, the nominal exchange rate falls 
D) the price of Big Macs in the U.S. rises, the nominal exchange rate rises

Question 7

Goods that cost one dollar in the U.S. cost one euro in France, the real exchange rate would be computed as how many French goods per U.S. goods?

Accepted Answer

A) one 
B) the price of the U.S. goods 
C) the number of euros that can be bought with one U.S. dollar 
D) None of the above is correct. 
A) one 
B) the price of the U.S. goods 
C) the number of euros that can be bought with one U.S. dollar 
D) None of the above is correct.

Question 8

Net capital outflow equals the difference between a country's

Accepted Answer

A) income and expenditure. 
B) investment and saving. 
C) purchases of foreign goods and services and sales of goods and services abroad. 
D) purchases of foreign assets and sales of domestic assets abroad. 
A) income and expenditure. 
B) investment and saving. 
C) purchases of foreign goods and services and sales of goods and services abroad. 
D) purchases of foreign assets and sales of domestic assets abroad.

Question 9

If the Mexican nominal exchange rate does not change, but prices rise faster in Mexico than in all other countries, then the Mexican real exchange rate

Accepted Answer

A) does not change. 
B) rises. 
C) declines. 
D) There is not enough information to answer the question 
A) does not change. 
B) rises. 
C) declines. 
D) There is not enough information to answer the question

Question 10

A country imports $20 billion worth of goods and services and exports $15 billion worth of goods and services. What is its net capital outflow?

Accepted Answer

A) ​$5 billion, so its residents' purchases of foreign assests exceed foreigners' purchases of domestic assets 
B) $5 billion, so foreigners' purchases of domestic assets exceed its resident's purchases of foreign assets 
C) ​-$5 billion, so its residents' purchases of foreign assests exceed foreigners' purchases of domestic assets 
D) -$5 billion, so foreigners' purchases of domestic assets exceed its residents' purchases of foreign assets 
A) ​$5 billion, so its residents' purchases of foreign assests exceed foreigners' purchases of domestic assets 
B) $5 billion, so foreigners' purchases of domestic assets exceed its resident's purchases of foreign assets 
C) ​-$5 billion, so its residents' purchases of foreign assests exceed foreigners' purchases of domestic assets 
D) -$5 billion, so foreigners' purchases of domestic assets exceed its residents' purchases of foreign assets

Question 11

If a country's trade surplus falls, its net capital outflow rises.

Accepted Answer

A) True 
 B)False

Question 12

A U.S. mutual fund uses $1 million to buy yen from a Japanese bank. It then uses these yen to buy stocks in a Japanese electronics firm. The Japanese electronic firm then exchanges the $1 million dollars of yen for dollars from a U.S. bank. It uses these dollars to buy equipment manufactured by a company located in the U.S.
As a result of these exchanges, by how much, if at all, and in which direction does:
A. U.S. net exports change?
B. U.S. net capital outflow change?

Accepted Answer

A. U.S. net exports

Question 13

The price level in Country A is 250. The price level in Country B is 300. If purchasing-power parity holds, what is the nominal value of Country A's currency in the market for foreign exchange with Country B? Show your work.

Accepted Answer

The answer of The price level in Country A is...

Question 14

If purchasing-power parity holds, the price level in the U.S. is 250, and the price level in Japan is 260, which of the following is true?

Accepted Answer

A) the real exchange rate is 250/260 
B) the real exchange rate is 260/250 
C) the nominal exchange rate is 250/260 
D) the nominal exchange rate is 260/250 
A) the real exchange rate is 250/260 
B) the real exchange rate is 260/250 
C) the nominal exchange rate is 250/260 
D) the nominal exchange rate is 260/250

Question 15

If a dollar buys less coffee in the U.S. than in Kenya, then

Accepted Answer

A) the real exchange rate is greater than 1; a profit might be made by buying coffee in Kenya and selling it in the U.S. 
B) the real exchange rate is greater than 1; a profit might be made by buying coffee in the U.S. and selling it in Kenya. 
C) the real exchange rate is less than 1; a profit might be made by buying coffee in Kenya and selling it in the U.S. 
D) the real exchange rate is less than 1; a profit might be made by buying coffee in the U.S. and selling it in Kenya. 
A) the real exchange rate is greater than 1; a profit might be made by buying coffee in Kenya and selling it in the U.S. 
B) the real exchange rate is greater than 1; a profit might be made by buying coffee in the U.S. and selling it in Kenya. 
C) the real exchange rate is less than 1; a profit might be made by buying coffee in Kenya and selling it in the U.S. 
D) the real exchange rate is less than 1; a profit might be made by buying coffee in the U.S. and selling it in Kenya.

Question 16

If U.S. residents purchase $450 billion of foreign assets and foreigners purchase $575 billion of U.S. assets, then the U.S. has net capital outflows of -$125 billion and a trade deficit of $125 billion.

Accepted Answer

A) True 
 B)False

Question 17

Exchange rates are 100 yen per dollar, 0.8 euro per dollar, and 12 pesos per dollar. A bottle of beer in New York costs 6 dollars, 500 yen in Tokyo, 6 euro in Munich, and 84 pesos in Cancun. Where is the most expensive and the cheapest beer, in that order?

Accepted Answer

A) Cancun, New York 
B) Munich, Tokyo 
C) Tokyo, Munich 
D) New York, Cancun 
A) Cancun, New York 
B) Munich, Tokyo 
C) Tokyo, Munich 
D) New York, Cancun

Question 18

According to purchasing-power parity, if prices in the United States increase by a larger percentage than prices in the United Kingdom, then the

Accepted Answer

A) real exchange rate rises. 
B) nominal exchange rate rises. 
C) real exchange rate falls. 
D) nominal exchange rate falls. 
A) real exchange rate rises. 
B) nominal exchange rate rises. 
C) real exchange rate falls. 
D) nominal exchange rate falls.

Question 19

A utilities company in the Netherlands buys wind generators made by a U.S. company. It pays from them with previously obtained dollars. By itself, this exchange

Accepted Answer

A) increases both U.S. net exports and U.S. net capital outflow. 
B) decreases both U.S. net exports and U.S. net capital outflow. 
C) increases U.S. net exports and does not affect U.S. net capital outflow. 
D) None of the above is correct. 
A) increases both U.S. net exports and U.S. net capital outflow. 
B) decreases both U.S. net exports and U.S. net capital outflow. 
C) increases U.S. net exports and does not affect U.S. net capital outflow. 
D) None of the above is correct.

Question 20

If sales of Saudi Arabian oil to the rest of the world increase and Saudis use the proceeds to buy foreign goods, which of the following increases?

Accepted Answer

A) Saudi Arabian net exports but not Saudi Arabian net capital outflow 
B) Saudi Arabian net capital outflow but not Saudi Arabian net exports 
C) both Saudi Arabian net exports and net capital outflow 
D) neither Saudi Arabian net exports nor net capital outflow 
A) Saudi Arabian net exports but not Saudi Arabian net capital outflow 
B) Saudi Arabian net capital outflow but not Saudi Arabian net exports 
C) both Saudi Arabian net exports and net capital outflow 
D) neither Saudi Arabian net exports nor net capital outflow

Exam 31: Open-Economy Macroeconomics: Basic Concepts

In which of the following situations must national saving rise?

Net capital outflow is defined as the purchase of

The theory of purchasing-power parity states that a unit of a country's currency should be able to buy the same quantity of goods in foreign countries as it does in the domestic economy.

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

If a Starbucks tall latte costs $3.20 in the United States and 3 euros in the Euro area, then purchasing-power parity implies the nominal exchange rate is how many euros per dollar?

A Big Mac in Japan costs 400 yen while it costs $4.50 in the U.S.. The nominal exchange rate is 100 yen per dollar. Which of the following would both make the real exchange rate move towards purchasing-power parity?

Goods that cost one dollar in the U.S. cost one euro in France, the real exchange rate would be computed as how many French goods per U.S. goods?

Net capital outflow equals the difference between a country's

If the Mexican nominal exchange rate does not change, but prices rise faster in Mexico than in all other countries, then the Mexican real exchange rate

A country imports $20 billion worth of goods and services and exports $15 billion worth of goods and services. What is its net capital outflow?

If a country's trade surplus falls, its net capital outflow rises.

The price level in Country A is 250. The price level in Country B is 300. If purchasing-power parity holds, what is the nominal value of Country A's currency in the market for foreign exchange with Country B? Show your work.

If purchasing-power parity holds, the price level in the U.S. is 250, and the price level in Japan is 260, which of the following is true?

If a dollar buys less coffee in the U.S. than in Kenya, then

If U.S. residents purchase $450 billion of foreign assets and foreigners purchase $575 billion of U.S. assets, then the U.S. has net capital outflows of -$125 billion and a trade deficit of $125 billion.

Exchange rates are 100 yen per dollar, 0.8 euro per dollar, and 12 pesos per dollar. A bottle of beer in New York costs 6 dollars, 500 yen in Tokyo, 6 euro in Munich, and 84 pesos in Cancun. Where is the most expensive and the cheapest beer, in that order?

According to purchasing-power parity, if prices in the United States increase by a larger percentage than prices in the United Kingdom, then the

A utilities company in the Netherlands buys wind generators made by a U.S. company. It pays from them with previously obtained dollars. By itself, this exchange

If sales of Saudi Arabian oil to the rest of the world increase and Saudis use the proceeds to buy foreign goods, which of the following increases?

Ten Principles of Economics

Thinking Like an Economist

Interdependence and the Gains From Trade

The Market Forces of Supply and Demand

Elasticity and Its Application

Supply, Demand, and Government Policies

Consumers, Producers, and the Efficiency of Markets

Applications: the Costs of Taxation

Application: International Trade

Externalities

Public Goods and Common Resources

The Design of the Tax System

The Costs of Production

Firms in Competitive Markets

Monopoly

Monopolistic Competition

Oligopoly

The Markets for the Factors of Production

Earnings and Discrimination

Income Inequality and Poverty

The Theory of Consumer Choice

Frontiers in Microeconomics

Measuring a Nation S Income

Measuring the Cost of Living

Production and Growth

Saving, Investment, and the Financial System

Tools of Finance

Unemployment and Its Natural Rate

The Monetary System

Money Growth and Inflation

A Macroeconomic Theory of the Open Economy

Aggregate Demand and Aggregate Supply

The Influence of Monetary and Fiscal Policy on Aggregate Demand

The Short-Run Tradeoff Between Inflation and Unemployment

Six Debates Over Macroeconomic Policy

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