Question 1

When Claudia, a U.S. citizen, purchases a handbag made in France, the purchase is

Accepted Answer

A) both a U.S. and French import. 
B) a U.S. export and a French import. 
C) a U.S. import and a French export. 
D) neither an export nor an import for either country. 
A) both a U.S. and French import. 
B) a U.S. export and a French import. 
C) a U.S. import and a French export. 
D) neither an export nor an import for either country.

Question 2

The theory of purchasing-power parity primarily explains

Accepted Answer

A) why trade deficits tend to move to zero over time. 
B) how foreign prices affect domestic prices. 
C) the determination of the real exchange rate. 
D) why a change in the real exchange rate changes a country's net exports. 
A) why trade deficits tend to move to zero over time. 
B) how foreign prices affect domestic prices. 
C) the determination of the real exchange rate. 
D) why a change in the real exchange rate changes a country's net exports.

Question 3

Other things the same, if the U.S. real exchange rate appreciates, U.S. net exports

Accepted Answer

A) increase and U.S. net capital outflow decreases. 
B) decrease and U.S. net capital outflow increases. 
C) and U.S. net capital outflow both increase. 
D) and U.S. net capital outflow both decrease. 
A) increase and U.S. net capital outflow decreases. 
B) decrease and U.S. net capital outflow increases. 
C) and U.S. net capital outflow both increase. 
D) and U.S. net capital outflow both decrease.

Question 4

If a U.S. dollar purchases 4 Argentinean pesos, and a gallon of milk costs $2 in the U.S. and 6 pesos in Argentina what is the real exchange rate?

Accepted Answer

A) 3 
B) 4/3 
C) 3/4 
D) 1/3 
A) 3 
B) 4/3 
C) 3/4 
D) 1/3

Question 5

International trade

Accepted Answer

A) raises the standard of living in all trading countries. 
B) lowers the standard of living in all trading countries. 
C) leaves the standard of living unchanged. 
D) raises the standard of living for importing countries and lowers it for exporting countries. 
A) raises the standard of living in all trading countries. 
B) lowers the standard of living in all trading countries. 
C) leaves the standard of living unchanged. 
D) raises the standard of living for importing countries and lowers it for exporting countries.

Question 6

In the United States, a cup of hot chocolate costs $5. In a foreign country, the same hot chocolate costs 6.5 units of that country's currency. If the exchange rate were 1.3 units of foreign currency per U.S. dollar, what is the real exchange rate?

Accepted Answer

A) 1/2 cup of that country's hot chocolate per cup of U.S. hot chocolate 
B) 1 cup of that country's hot chocolate per cup of U.S. hot chocolate 
C) 2 cups of that country's's hot chocolate per cup of U.S. hot chocolate 
D) None of the above is correct. 
A) 1/2 cup of that country's hot chocolate per cup of U.S. hot chocolate 
B) 1 cup of that country's hot chocolate per cup of U.S. hot chocolate 
C) 2 cups of that country's's hot chocolate per cup of U.S. hot chocolate 
D) None of the above is correct.

Question 7

If a country were to save more, but its domestic investment remained the same, then which of the following would rise

Accepted Answer

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

Question 8

Stacey, a U.S. citizen, buys a bond issued by an Italian pasta manufacturer.

Accepted Answer

A) This purchase is foreign direct investment. By itself it increases U.S. net capital outflow. 
B) This purchase is foreign direct investment. By itself it decreases U.S. net capital outflow. 
C) This purchase is foreign portfolio investment. By itself it increases U.S. net capital outflow. 
D) This purchase is foreign portfolio investment. By itself it decreases U.S. net capital outflow. 
A) This purchase is foreign direct investment. By itself it increases U.S. net capital outflow. 
B) This purchase is foreign direct investment. By itself it decreases U.S. net capital outflow. 
C) This purchase is foreign portfolio investment. By itself it increases U.S. net capital outflow. 
D) This purchase is foreign portfolio investment. By itself it decreases U.S. net capital outflow.

Question 9

One year a country has positive net exports. The next year it still has positive but larger net exports

Accepted Answer

A) its trade surplus fell. 
B) its trade surplus rose. 
C) its trade deficit fell. 
D) its trade deficit rose 
A) its trade surplus fell. 
B) its trade surplus rose. 
C) its trade deficit fell. 
D) its trade deficit rose

Question 10

If a country has $2.4 billion of net exports and purchases $4.8 billion of goods and services from foreign countries, then it has

Accepted Answer

A) $7.2 billion of exports and $4.8 billion of imports. 
B) $7.2 billion of imports and $4.8 billion of exports. 
C) $4.8 billion of exports and $2.4 billion of imports. 
D) $4.8 billion of imports and $2.4 billion of exports. 
A) $7.2 billion of exports and $4.8 billion of imports. 
B) $7.2 billion of imports and $4.8 billion of exports. 
C) $4.8 billion of exports and $2.4 billion of imports. 
D) $4.8 billion of imports and $2.4 billion of exports.

Question 11

According to purchasing-power parity, if a basket of goods costs $100 in the U.S. and the same basket costs 800 pesos in Argentina, then what is the nominal exchange rate?

Accepted Answer

A) 8 pesos per dollar 
B) 1 peso per dollar 
C) 1/8 peso per dollar 
D) none of the above is correct 
A) 8 pesos per dollar 
B) 1 peso per dollar 
C) 1/8 peso per dollar 
D) none of the above is correct

Question 12

If purchasing power parity holds, when a country's central bank increases the money supply, its

Accepted Answer

A) price level rises and its currency appreciates relative to other currencies in the world. 
B) price level rises and its currency depreciates relative to other currencies in the world. 
C) price level falls and its currency appreciates relative to other currencies in the world. 
D) price level falls and its currency depreciates relative to other currencies in the world. 
A) price level rises and its currency appreciates relative to other currencies in the world. 
B) price level rises and its currency depreciates relative to other currencies in the world. 
C) price level falls and its currency appreciates relative to other currencies in the world. 
D) price level falls and its currency depreciates relative to other currencies in the world.

Question 13

Suppose the real exchange rate is .80 pounds of bananas in Guatemala per pound of bananas in the U.S. If a pound of bananas in the U.S. costs $.50, and the exchange rate is 8 Guatemalan Quetzals per dollar, what is the price of bananas in Guatemala?

Accepted Answer

A) 3.20 Quetzals per pound 
B) 4.00 Quetzals per pound 
C) 5.00 Quetzals per pound 
D) 6.40 Quetzals per pound 
A) 3.20 Quetzals per pound 
B) 4.00 Quetzals per pound 
C) 5.00 Quetzals per pound 
D) 6.40 Quetzals per pound

Question 14

Derive the relation between savings, domestic investment, and net capital outflow using the national income accounting identity.

Accepted Answer

Start from the national income accountin

Question 15

One year a country has negative net exports. The next year it still has negative net exports and imports have risen more than exports.

Accepted Answer

A) its trade surplus fell. 
B) its trade surplus rose. 
C) its trade deficit fell. 
D) its trade deficit rose 
A) its trade surplus fell. 
B) its trade surplus rose. 
C) its trade deficit fell. 
D) its trade deficit rose

Question 16

If the Canadian nominal exchange rate does not change, but prices rise faster in Canada than in all other countries, then the Canadian 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 17

Other things the same, if a country's domestic investment decreases, 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 18

If Germany purchased more goods and services abroad than it sold abroad last year, then it had

Accepted Answer

A) positive net exports which is a trade surplus. 
B) positive net exports which is a trade deficit. 
C) negative net exports which is a trade surplus. 
D) negative net exports which is a trade deficit. 
A) positive net exports which is a trade surplus. 
B) positive net exports which is a trade deficit. 
C) negative net exports which is a trade surplus. 
D) negative net exports which is a trade deficit.

Question 19

You are the CEO of a U.S. firm considering building a factory in Chile. If the dollar appreciates relative to the Chilean peso, then other things the same

Accepted Answer

A) it takes fewer dollars to build the factory. By itself building the factory increases U.S. net capital outflow. 
B) it takes fewer dollars to build the factory. By itself building the factory decreases U.S. net capital outflow. 
C) it takes more dollars to build the factory. By itself building the factory increases U.S. net capital outflow. 
D) it takes more dollars to build the factory. By itself building the factory decreases U.S. net capital outflow. 
A) it takes fewer dollars to build the factory. By itself building the factory increases U.S. net capital outflow. 
B) it takes fewer dollars to build the factory. By itself building the factory decreases U.S. net capital outflow. 
C) it takes more dollars to build the factory. By itself building the factory increases U.S. net capital outflow. 
D) it takes more dollars to build the factory. By itself building the factory decreases U.S. net capital outflow.

Question 20

Which of the following does purchasing-power parity imply?

Accepted Answer

A) the foreign price level times the nominal exchange rate (given as amount of foreign currency per dollar) equals the U.S. price level. 
B) The price of domestic goods relative to foreign goods cannot change. 
C) The nominal exchange rate is the ratio of foreign prices to U.S. prices. 
D) All of the above are correct. 
A) the foreign price level times the nominal exchange rate (given as amount of foreign currency per dollar) equals the U.S. price level. 
B) The price of domestic goods relative to foreign goods cannot change. 
C) The nominal exchange rate is the ratio of foreign prices to U.S. prices. 
D) All of the above are correct.

Exam 18: Open-Economy Macroeconomic Models

When Claudia, a U.S. citizen, purchases a handbag made in France, the purchase is

The theory of purchasing-power parity primarily explains

Other things the same, if the U.S. real exchange rate appreciates, U.S. net exports

If a U.S. dollar purchases 4 Argentinean pesos, and a gallon of milk costs $2 in the U.S. and 6 pesos in Argentina what is the real exchange rate?

International trade

In the United States, a cup of hot chocolate costs $5. In a foreign country, the same hot chocolate costs 6.5 units of that country's currency. If the exchange rate were 1.3 units of foreign currency per U.S. dollar, what is the real exchange rate?

If a country were to save more, but its domestic investment remained the same, then which of the following would rise

Stacey, a U.S. citizen, buys a bond issued by an Italian pasta manufacturer.

One year a country has positive net exports. The next year it still has positive but larger net exports

If a country has $2.4 billion of net exports and purchases $4.8 billion of goods and services from foreign countries, then it has

According to purchasing-power parity, if a basket of goods costs $100 in the U.S. and the same basket costs 800 pesos in Argentina, then what is the nominal exchange rate?

If purchasing power parity holds, when a country's central bank increases the money supply, its

Suppose the real exchange rate is .80 pounds of bananas in Guatemala per pound of bananas in the U.S. If a pound of bananas in the U.S. costs $.50, and the exchange rate is 8 Guatemalan Quetzals per dollar, what is the price of bananas in Guatemala?

Derive the relation between savings, domestic investment, and net capital outflow using the national income accounting identity.

One year a country has negative net exports. The next year it still has negative net exports and imports have risen more than exports.

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

Other things the same, if a country's domestic investment decreases, then

If Germany purchased more goods and services abroad than it sold abroad last year, then it had

You are the CEO of a U.S. firm considering building a factory in Chile. If the dollar appreciates relative to the Chilean peso, then other things the same

Which of the following does purchasing-power parity imply?

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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