Question 1

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

Accepted Answer

A) True 
 B)False

Question 2

Both foreign direct investment and foreign portfolio investment by U.S. residents increase U.S. net capital outflow.

Accepted Answer

A) True 
 B)False

Question 3

From 2007 to 2009 the U.S. trade deficit fell as U.S. investment fell.

Accepted Answer

A) True 
 B)False

Question 4

Nominal exchange rates

Accepted Answer

A) vary little over time. 
B) vary substantially over time. 
C) appreciate over time for most countries. 
D) depreciate over time for most countries. 
A) vary little over time. 
B) vary substantially over time. 
C) appreciate over time for most countries. 
D) depreciate over time for most countries.

Question 5

A U.S. firm buys cement mixers from China and pays for them with U.S. dollars.

Accepted Answer

A) The purchase of the cement mixers increases U.S. net exports and the payment with dollars increases U.S. net capital outflow. 
B) The purchase of cement mixers increases U.S. net exports and the payment with dollars decreases U.S. net capital outflow. 
C) The purchase of cement mixers decreases U.S. net exports and the payment with dollars increases U.S. net capital outflow. 
D) The purchase of cement mixers decreases U.S. net exports and the payment with dollars decreases U.S. net capital outflow. 
A) The purchase of the cement mixers increases U.S. net exports and the payment with dollars increases U.S. net capital outflow. 
B) The purchase of cement mixers increases U.S. net exports and the payment with dollars decreases U.S. net capital outflow. 
C) The purchase of cement mixers decreases U.S. net exports and the payment with dollars increases U.S. net capital outflow. 
D) The purchase of cement mixers decreases U.S. net exports and the payment with dollars decreases U.S. net capital outflow.

Question 6

According to purchasing power parity, if the same basket of goods costs $100 in the U.S. and 50 pounds in Britain, then what is the nominal exchange rate?

Accepted Answer

A) 2 pounds per dollar 
B) 1 pound per dollar 
C) 1/2 pound per dollar 
D) None of the above is correct 
A) 2 pounds per dollar 
B) 1 pound per dollar 
C) 1/2 pound per dollar 
D) None of the above is correct

Question 7

All saving in the U.S. economy shows up as

Accepted Answer

A) investment in the U.S. economy. 
B) U.S. net capital outflow. 
C) either investment in the U.S. economy or U.S. net capital outflow. 
D) None of the above is correct. 
A) investment in the U.S. economy. 
B) U.S. net capital outflow. 
C) either investment in the U.S. economy or U.S. net capital outflow. 
D) None of the above is correct.

Question 8

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 domestically.

Accepted Answer

A) True 
 B)False

Question 9

Julie and John are American residents. Julie buys stock issued by a Japanese company. John opens a sporting goods store in Mexico. Whose purchase, by itself, increases the U.S.'s net capital outflow?

Accepted Answer

A) Julie's 
B) John's 
C) both Julie's and John's 
D) neither Julie's nor John's 
A) Julie's 
B) John's 
C) both Julie's and John's 
D) neither Julie's nor John's

Question 10

If the U.S. real exchange rate is greater than 1, then there is the possiblity of arbitraging by buying foreign goods to sell in the U.S.

Accepted Answer

A) True 
 B)False

Question 11

Which of the following equations is correct?

Accepted Answer

A) Y = C + I + G + NCO 
B) NX = NCO 
C) NCO = S - I 
D) All of the above are correct. 
A) Y = C + I + G + NCO 
B) NX = NCO 
C) NCO = S - I 
D) All of the above are correct.

Question 12

Table 18-1
  
-Refer to Table 18-1. What are Bolivia's exports?

Accepted Answer

A) $60 billion 
B) $35 billion 
C) $10 billion 
D) None of the above are correct. 
A) $60 billion 
B) $35 billion 
C) $10 billion 
D) None of the above are correct.

Question 13

A Peruvian firm purchases construction equipment made in the U.S. and pays for it with Peruvian currency. This transaction

Accepted Answer

A) increases U.S. net exports, and increases Peruvian net capital outflow. 
B) increases U.S. net exports, and decreases Peruvian net capital outflow. 
C) decreases U.S. net exports, and increases Peruvian net capital outflow. 
D) decreases U.S. net exports, and decreases Peruvian net capital outflow. 
A) increases U.S. net exports, and increases Peruvian net capital outflow. 
B) increases U.S. net exports, and decreases Peruvian net capital outflow. 
C) decreases U.S. net exports, and increases Peruvian net capital outflow. 
D) decreases U.S. net exports, and decreases Peruvian net capital outflow.

Question 14

The price of a basket of goods and services in the U.S. is $600. In Canada the same basket of goods costs 700 Canadian dollars. If the nominal exchange rate were 1.2 Canadian dollars per U.S. dollar, what would be the real exchange rate?

Accepted Answer

A) 700/600 
B) 600/700 
C) 700/720 
D) None of the above is correct. 
A) 700/600 
B) 600/700 
C) 700/720 
D) None of the above is correct.

Question 15

An increase in U.S. sales of movies to other countries raises U.S.

Accepted Answer

A) exports and so raises the U.S. trade balance. 
B) exports and so reduces the U.S. trade balance. 
C) imports and so raises the U.S. trade balance. 
D) imports and so reduces the U.S. trade balance. 
A) exports and so raises the U.S. trade balance. 
B) exports and so reduces the U.S. trade balance. 
C) imports and so raises the U.S. trade balance. 
D) imports and so reduces the U.S. trade balance.

Question 16

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

Accepted Answer

A) Joan, a U.S. citizen, buys bonds issued by a Swedish corporation. 
B) Russell, a U.S. citizen, opens a dairy in Italy. 
C) Both A and B are examples of U.S. portfolio investment. 
D) Neither A nor B are examples of U.S. portfolio investment. 
A) Joan, a U.S. citizen, buys bonds issued by a Swedish corporation. 
B) Russell, a U.S. citizen, opens a dairy in Italy. 
C) Both A and B are examples of U.S. portfolio investment. 
D) Neither A nor B are examples of U.S. portfolio investment.

Question 17

Suppose a lobster supper in Maine costs fewer dollars than a Lobster supper in Paris, France. 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 18

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

Accepted Answer

A) the real exchange defined as Polish goods per unit of U.S. goods rises. 
B) the real exchange defined as Polish goods per unit of U.S. goods falls. 
C) the nominal exchange rate defined as Polish currency per dollar rises. 
D) the nominal exchange rate defined as Polish currency per dollar falls. 
A) the real exchange defined as Polish goods per unit of U.S. goods rises. 
B) the real exchange defined as Polish goods per unit of U.S. goods falls. 
C) the nominal exchange rate defined as Polish currency per dollar rises. 
D) the nominal exchange rate defined as Polish currency per dollar falls.

Question 19

Other things the same, if a country saves more, then

Accepted Answer

A) net capital outflow rises, so net exports rise. 
B) net capital outflow rises, so net exports fall. 
C) net capital outflow falls, so net exports rise. 
D) net capital outflow falls, so net exports fall. 
A) net capital outflow rises, so net exports rise. 
B) net capital outflow rises, so net exports fall. 
C) net capital outflow falls, so net exports rise. 
D) net capital outflow falls, so net exports fall.

Question 20

If the number of Japanese yen a dollar buys falls, but neither country's price level changes, then the real exchange rate

Accepted Answer

A) depreciates which causes U.S. net exports to increase. 
B) depreciates which causes U.S. net exports to decrease. 
C) appreciates which causes U.S. net exports to increase. 
D) appreciates, which causes U.S. net exports to decrease. 
A) depreciates which causes U.S. net exports to increase. 
B) depreciates which causes U.S. net exports to decrease. 
C) appreciates which causes U.S. net exports to increase. 
D) appreciates, which causes U.S. net exports to decrease.

Exam 18: Open-Economy Macroeconomic Models

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

Both foreign direct investment and foreign portfolio investment by U.S. residents increase U.S. net capital outflow.

From 2007 to 2009 the U.S. trade deficit fell as U.S. investment fell.

Nominal exchange rates

A U.S. firm buys cement mixers from China and pays for them with U.S. dollars.

According to purchasing power parity, if the same basket of goods costs $100 in the U.S. and 50 pounds in Britain, then what is the nominal exchange rate?

All saving in the U.S. economy shows up as

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 domestically.

Julie and John are American residents. Julie buys stock issued by a Japanese company. John opens a sporting goods store in Mexico. Whose purchase, by itself, increases the U.S.'s net capital outflow?

If the U.S. real exchange rate is greater than 1, then there is the possiblity of arbitraging by buying foreign goods to sell in the U.S.

Which of the following equations is correct?

Table 18-1 -Refer to Table 18-1. What are Bolivia's exports?

A Peruvian firm purchases construction equipment made in the U.S. and pays for it with Peruvian currency. This transaction

The price of a basket of goods and services in the U.S. is $600. In Canada the same basket of goods costs 700 Canadian dollars. If the nominal exchange rate were 1.2 Canadian dollars per U.S. dollar, what would be the real exchange rate?

An increase in U.S. sales of movies to other countries raises U.S.

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

Suppose a lobster supper in Maine costs fewer dollars than a Lobster supper in Paris, France. Explain why this is inconsistent with purchasing-power parity and explain why the inconsistency may exist.

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

Other things the same, if a country saves more, then

If the number of Japanese yen a dollar buys falls, but neither country's price level changes, then the real exchange rate

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

Application: The Costs of Taxation

Application: International Trade

Measuring a Nations Income

Measuring the Cost of Living

Production and Growth

Saving, Investment, and the Financial System

The Basic Tools of Finance

Unemployment

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 Trade-Off Between Inflation and Unemployment

Six Debates Over Macroeconomic Policy

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