Question 1

Purchasing-power parity describes the forces that determine

Accepted Answer

A) prices in the short run. 
B) prices in the long run. 
C) exchange rates in the short run. 
D) exchange rates in the long run. 
A) prices in the short run. 
B) prices in the long run. 
C) exchange rates in the short run. 
D) exchange rates in the long run.

Question 2

Bill, a U.S. citizen, pays a Spanish architect to design a metal casting factory. Which country's exports increase?

Accepted Answer

A) Spain's 
B) the U.S.'s 
C) Spain's and the U.S.'s 
D) neither Spain's nor the U.S.'s 
A) Spain's 
B) the U.S.'s 
C) Spain's and the U.S.'s 
D) neither Spain's nor the U.S.'s

Question 3

According to purchasing power parity, if the price of a basket of goods in the U.S. rose from $1,500 to $2,000 and the price of the same basket of goods rose from 600 units of some other country's currency to 1,000 units of that country's currency, then the

Accepted Answer

A) nominal exchange rate would appreciate. 
B) nominal exchange rate would depreciate. 
C) real exchange rate would appreciate. 
D) real exchange rate would depreciate. 
A) nominal exchange rate would appreciate. 
B) nominal exchange rate would depreciate. 
C) real exchange rate would appreciate. 
D) real exchange rate would depreciate.

Question 4

If a country has business opportunities that are relatively attractive to other countries, we would expect it to have

Accepted Answer

A) both positive net exports and positive net capital outflow. 
B) both negative net exports and negative net capital outflow. 
C) positive net exports and negative net capital outflow. 
D) negative net exports and positive net capital outflow. 
A) both positive net exports and positive net capital outflow. 
B) both negative net exports and negative net capital outflow. 
C) positive net exports and negative net capital outflow. 
D) negative net exports and positive net capital outflow.

Question 5

Which of the following is correct?

Accepted Answer

A) U.S. exports as a percentage of GDP have more than doubled since 1950. The U.S. currently has a trade surplus. 
B) U.S. exports as a percentage of GDP have more than doubled since 1950. The U.S. currently has a trade deficit. 
C) U.S. exports as a percentage of GDP have increased, but have not nearly doubled since 1950. The U.S. currently has a trade surplus. 
D) U.S. exports as a percentage of GDP have increased, but have not nearly doubled since 1950. The U.S. currently has a trade deficit. 
A) U.S. exports as a percentage of GDP have more than doubled since 1950. The U.S. currently has a trade surplus. 
B) U.S. exports as a percentage of GDP have more than doubled since 1950. The U.S. currently has a trade deficit. 
C) U.S. exports as a percentage of GDP have increased, but have not nearly doubled since 1950. The U.S. currently has a trade surplus. 
D) U.S. exports as a percentage of GDP have increased, but have not nearly doubled since 1950. The U.S. currently has a trade deficit.

Question 6

According to purchasing power parity, the nominal exchange rate between the U.S. and another country should equal the price level of foreign goods divided by the price level of U.S. goods.

Accepted Answer

A) True 
 B)False

Question 7

The nominal exchange rate is 2 Barbados dollars per U.S. dollar. If the price of a good in Barbados is 3 Barbados dollars and the price in the U.S. is 2 U.S. dollars, what is the real exchange rate to the nearest 100th?

Accepted Answer

A) 3 Barbados goods per U.S. good 
B) 1.33 Barbados goods per U.S. good 
C) .75 Barbados goods per U.S. good 
D) none of the above is correct 
A) 3 Barbados goods per U.S. good 
B) 1.33 Barbados goods per U.S. good 
C) .75 Barbados goods per U.S. good 
D) none of the above is correct

Question 8

Catherine, a citizen of Spain, decides to purchase bonds issued by Chile instead of ones issued by the United States even though the Chilean bonds have a higher risk of default. An economic reason for her decision might be that

Accepted Answer

A) she dislikes U.S. foreign policy. 
B) the Chilean bonds pay a higher rate of interest. 
C) the U.S. government is more stable than the Chilean government. 
D) None of the above provide an economic reason for buying the riskier bond. 
A) she dislikes U.S. foreign policy. 
B) the Chilean bonds pay a higher rate of interest. 
C) the U.S. government is more stable than the Chilean government. 
D) None of the above provide an economic reason for buying the riskier bond.

Question 9

Net capital outflow is the purchase of domestic assets by foreign residents minus the purchase of foreign assets by domestic residents.

Accepted Answer

A) True 
 B)False

Question 10

Other things the same, which of the following would both increase the U.S. real exchange rate with Israel?

Accepted Answer

A) prices in the U.S. were higher, or prices in Israel were higher. 
B) prices in the U.S were higher, or prices in Israel were lower. 
C) prices in the U.S. were lower, or prices in Israel were higher. 
D) prices in the U.S. were lower, or prices in Israel were lower. 
A) prices in the U.S. were higher, or prices in Israel were higher. 
B) prices in the U.S were higher, or prices in Israel were lower. 
C) prices in the U.S. were lower, or prices in Israel were higher. 
D) prices in the U.S. were lower, or prices in Israel were lower.

Question 11

If the U.S. has a trade deficit and the nominal exchange rate depreciates, then other things the same

Accepted Answer

A) the trade deficit rises and net capital outflow rises. 
B) the trade deficit rises and net capital outflow falls. 
C) the trade deficit falls and net capital outflows rise. 
D) the trade deficit falls and net capital outflows fall. 
A) the trade deficit rises and net capital outflow rises. 
B) the trade deficit rises and net capital outflow falls. 
C) the trade deficit falls and net capital outflows rise. 
D) the trade deficit falls and net capital outflows fall.

Question 12

If a country changes its corporate tax laws so that domestic businesses build and manage more business in other countries, then the net capital outflow of that country

Accepted Answer

A) and the net capital outflow of other countries rise. 
B) rises and the net capital outflow of other countries fall. 
C) falls and the net capital outflow of other countries rise. 
D) None of the above are correct. 
A) and the net capital outflow of other countries rise. 
B) rises and the net capital outflow of other countries fall. 
C) falls and the net capital outflow of other countries rise. 
D) None of the above are correct.

Question 13

If Thailand has a trade surplus, then

Accepted Answer

A) foreign countries purchase more Thai assets than Thailand purchases from them. This makes Thai saving greater than Thai domestic investment. 
B) foreign countries purchase more Thai assets than Thailand purchases from them. This makes Thai saving smaller then Thai domestic investment 
C) foreign countries purchase fewer Thai assets than Thailand purchases from them. This makes Thai saving greater than Thai domestic investment. 
D) foreign countries purchase fewer Thai assets than Thailand purchases from them. This makes Thai saving greater than Thai domestic investment 
A) foreign countries purchase more Thai assets than Thailand purchases from them. This makes Thai saving greater than Thai domestic investment. 
B) foreign countries purchase more Thai assets than Thailand purchases from them. This makes Thai saving smaller then Thai domestic investment 
C) foreign countries purchase fewer Thai assets than Thailand purchases from them. This makes Thai saving greater than Thai domestic investment. 
D) foreign countries purchase fewer Thai assets than Thailand purchases from them. This makes Thai saving greater than Thai domestic investment

Question 14

U.S- based Dell sells computers to an Irish company that pays with previously obtained U.S. currency. This exchange

Accepted Answer

A) increases U.S. net capital outflow because the U.S. acquires foreign-owned assets. 
B) decreases U.S. net capital outflow because the U.S. acquires foreign-owned assets. 
C) increases U.S. net capital outflow because the U.S. sells capital goods. 
D) decreases U.S. net capital outflow because the U.S. sells capital goods. 
A) increases U.S. net capital outflow because the U.S. acquires foreign-owned assets. 
B) decreases U.S. net capital outflow because the U.S. acquires foreign-owned assets. 
C) increases U.S. net capital outflow because the U.S. sells capital goods. 
D) decreases U.S. net capital outflow because the U.S. sells capital goods.

Question 15

According to purchasing-power parity, what is the relationship between changes in price levels between two countries and changes in nominal exchange rates?

Accepted Answer

Purchasing-power parity asserts that the

Question 16

In the 1970s and 1980s the U.S. dollar depreciated against the German mark and appreciated against the Italian lira because U.S. inflation was lower than in Germany but higher than in Italy.

Accepted Answer

A) True 
 B)False

Question 17

If a dollar buys more potatoes in the U.S. than in France, then

Accepted Answer

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

Question 18

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

Accepted Answer

A) $30 billion 
B) $5 billion 
C) -$5 billion 
D) -$25 billion 
A) $30 billion 
B) $5 billion 
C) -$5 billion 
D) -$25 billion

Question 19

Domestic saving must equal domestic investment in

Accepted Answer

A) both closed and open economies. 
B) closed, but not open economies. 
C) open, but not closed economies. 
D) neither closed nor open economies. 
A) both closed and open economies. 
B) closed, but not open economies. 
C) open, but not closed economies. 
D) neither closed nor open economies.

Question 20

If the exchange rate is .70 euro per dollar, the price of an MP3 player in Paris is 150 euros and the price of an MP3 player in the U.S. is $150, then what is the real exchange rate?

Accepted Answer

A) 1/.70 French MP3 players per U.S. MP3 player 
B) 1 French MP3 players per U.S. MP3 player 
C) .70 French MP3 players per U.S. MP3 player. 
D) None of the above are correct. 
A) 1/.70 French MP3 players per U.S. MP3 player 
B) 1 French MP3 players per U.S. MP3 player 
C) .70 French MP3 players per U.S. MP3 player. 
D) None of the above are correct.

Exam 18: Open-Economy Macroeconomic Models

Purchasing-power parity describes the forces that determine

Bill, a U.S. citizen, pays a Spanish architect to design a metal casting factory. Which country's exports increase?

According to purchasing power parity, if the price of a basket of goods in the U.S. rose from $1,500 to $2,000 and the price of the same basket of goods rose from 600 units of some other country's currency to 1,000 units of that country's currency, then the

If a country has business opportunities that are relatively attractive to other countries, we would expect it to have

Which of the following is correct?

According to purchasing power parity, the nominal exchange rate between the U.S. and another country should equal the price level of foreign goods divided by the price level of U.S. goods.

The nominal exchange rate is 2 Barbados dollars per U.S. dollar. If the price of a good in Barbados is 3 Barbados dollars and the price in the U.S. is 2 U.S. dollars, what is the real exchange rate to the nearest 100th?

Catherine, a citizen of Spain, decides to purchase bonds issued by Chile instead of ones issued by the United States even though the Chilean bonds have a higher risk of default. An economic reason for her decision might be that

Net capital outflow is the purchase of domestic assets by foreign residents minus the purchase of foreign assets by domestic residents.

Other things the same, which of the following would both increase the U.S. real exchange rate with Israel?

If the U.S. has a trade deficit and the nominal exchange rate depreciates, then other things the same

If a country changes its corporate tax laws so that domestic businesses build and manage more business in other countries, then the net capital outflow of that country

If Thailand has a trade surplus, then

U.S- based Dell sells computers to an Irish company that pays with previously obtained U.S. currency. This exchange

According to purchasing-power parity, what is the relationship between changes in price levels between two countries and changes in nominal exchange rates?

In the 1970s and 1980s the U.S. dollar depreciated against the German mark and appreciated against the Italian lira because U.S. inflation was lower than in Germany but higher than in Italy.

If a dollar buys more potatoes in the U.S. than in France, then

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

Domestic saving must equal domestic investment in

If the exchange rate is .70 euro per dollar, the price of an MP3 player in Paris is 150 euros and the price of an MP3 player in the U.S. is $150, then what is 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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