Question 1

Net exports of a country are the value of

Accepted Answer

A) goods and services imported minus the value of goods and services exported. 
B) goods and services exported minus the value of goods and services imported. 
C) goods exported minus the value of goods imported. 
D) goods imported minus the value of goods exported. 
A) goods and services imported minus the value of goods and services exported. 
B) goods and services exported minus the value of goods and services imported. 
C) goods exported minus the value of goods imported. 
D) goods imported minus the value of goods exported.

Question 2

The nominal exchange rate is about 2 Aruban florin per dollar. If a basket of goods in the United States costs $40, how many florins must a basket of goods in Aruba cost for purchasing power parity to hold?

Accepted Answer

A) 20 florin 
B) 40 florin 
C) 60 florin 
D) 80 florin 
A) 20 florin 
B) 40 florin 
C) 60 florin 
D) 80 florin

Question 3

An appreciation of the U.S. real exchange rate induces U.S. consumers to buy

Accepted Answer

A) fewer domestic goods and fewer foreign goods. 
B) more domestic goods and fewer foreign goods. 
C) fewer domestic goods and more foreign goods. 
D) more domestic goods and more foreign goods. 
A) fewer domestic goods and fewer foreign goods. 
B) more domestic goods and fewer foreign goods. 
C) fewer domestic goods and more foreign goods. 
D) more domestic goods and more foreign goods.

Question 4

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

Accepted Answer

A) does not change. 
B) rises. 
C) declines. 
D) None of the above is necessarily correct. 
A) does not change. 
B) rises. 
C) declines. 
D) None of the above is necessarily correct.

Question 5

Use the (hypothetical) information in the following table to answer the following questions.Table 18-2
 $\begin{array}{|l|l|c|l|c}
\hline \text { Country } & \text { Currency } & \begin{array}{l}
\text { Currency per } \
\text { U.S. Dollar }
\end{array} & \begin{array}{l}
\text { U.S. Price } \
\text { Index }
\end{array} & \begin{array}{l}
\text { Country Price } \
\text { Index }
\end{array} \
\hline \text { Bolivia } & \text { boloviano } & 8.00 & 200 & 1600 \
\hline \text { Japan } & \text { yen } & 80.00 & 200 & 20,000 \
\hline \text { Morocco } & \text { dinar } & 10.00 & 200 & 2,000 \
\hline \text { Norwegian } & \text { kroner } & 6.5 & 200 & 1,500 \
\hline \text { Thailand } & \text { baht } & 40.00 & 200 & 7,000 \
\hline
\end{array}$

-Refer to Table 18-2. Which currency(ies) is(are) less valuable than predicted by the doctrine of purchasing-power parity?

Accepted Answer

A) boloviano and dinar 
B) yen and kroner 
C) baht and kroner 
D) baht 
A) boloviano and dinar 
B) yen and kroner 
C) baht and kroner 
D) baht

Question 6

A U.S. firm buys sardines from Morocco and pays for them with U.S. dollars. Other things the same, 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. 
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.

Question 7

A haircut costs 200 pesos in Mexico and $20 in the U.S. The exchange rate is 12.5 pesos per dollar. The real exchange rate is

Accepted Answer

A) less than one. Haircuts in Mexico are cheaper than in the U.S. 
B) less than one. Haircuts in Mexico are more expensive than in the U.S. 
C) greater than one. Haircuts in Mexico are cheaper than in the U.S. 
D) greater than one. Haircuts in Mexico are more expensive than in the U.S. 
A) less than one. Haircuts in Mexico are cheaper than in the U.S. 
B) less than one. Haircuts in Mexico are more expensive than in the U.S. 
C) greater than one. Haircuts in Mexico are cheaper than in the U.S. 
D) greater than one. Haircuts in Mexico are more expensive than in the U.S.

Question 8

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

Accepted Answer

A) $60 billion 
B) $35 billion 
C) $40 billion 
D) None of the above are correct. 
A) $60 billion 
B) $35 billion 
C) $40 billion 
D) None of the above are correct.

Question 9

Other things the same, an increase in domestic prices raises the real exchange rate.

Accepted Answer

A) True 
 B)False

Question 10

A nation's domestic investment is greater than its savings. Which of the following is correct?

Accepted Answer

A) This nation has a negative net capital outflow. 
B) This nation has a trade surplus. 
C) Purchases of foreign assets by domestic residents exceed purchases of domestic assets by foreigners. 
D) All of the above are correct. 
A) This nation has a negative net capital outflow. 
B) This nation has a trade surplus. 
C) Purchases of foreign assets by domestic residents exceed purchases of domestic assets by foreigners. 
D) All of the above are correct.

Question 11

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

Accepted Answer

A) gains value both in terms of the domestic goods and services it can buy and in terms of the foreign currency it can buy. 
B) gains value in terms of the domestic goods and services it can buy, but loses value in terms of the foreign currency it can buy. 
C) loses value in terms of the domestic goods and services it can buy, but gains value in terms of the foreign currency it can buy. 
D) loses value both in terms of the domestic goods and services it can buy and in terms of the foreign currency it can buy. 
A) gains value both in terms of the domestic goods and services it can buy and in terms of the foreign currency it can buy. 
B) gains value in terms of the domestic goods and services it can buy, but loses value in terms of the foreign currency it can buy. 
C) loses value in terms of the domestic goods and services it can buy, but gains value in terms of the foreign currency it can buy. 
D) loses value both in terms of the domestic goods and services it can buy and in terms of the foreign currency it can buy.

Question 12

A country with negative net exports has a trade surplus.

Accepted Answer

A) True 
 B)False

Question 13

If a country has a trade surplus then

Accepted Answer

A) S > I and Y > C + I + G. B) S > I and Y C + I + G. D) S < I and Y < C + I + G. A) S > I and Y > C + I + G. B) S > I and Y C + I + G. D) S < I and Y < C + I + G.

Question 14

Why are net exports and net capital outflow always equal?

Accepted Answer

Net exports and net capital outflow are

Question 15

Other things the same, the real exchange rate between U.S. and Belgian goods would be higher if

Accepted Answer

A) prices in the U.S. were higher, or the number of euro the dollar purchased were higher. 
B) prices in the U.S. were higher, or the number of euro the dollar purchased were lower. 
C) prices in the U.S. were lower, or the number of euro the dollar purchased were higher. 
D) prices in the U.S. were lower, or the number of euro the dollar purchased were lower. 
A) prices in the U.S. were higher, or the number of euro the dollar purchased were higher. 
B) prices in the U.S. were higher, or the number of euro the dollar purchased were lower. 
C) prices in the U.S. were lower, or the number of euro the dollar purchased were higher. 
D) prices in the U.S. were lower, or the number of euro the dollar purchased were lower.

Question 16

If purchasing power parity holds, the price level in the U.S. is 120, and the price level in Canada is 140, which of the following is true?

Accepted Answer

A) the real exchange rate is 120/140. 
B) the real exchange rate is 140/120. 
C) the nominal exchange rate is 120/140 
D) the nominal exchange rate is 140/120 
A) the real exchange rate is 120/140. 
B) the real exchange rate is 140/120. 
C) the nominal exchange rate is 120/140 
D) the nominal exchange rate is 140/120

Question 17

The real exchange rate is the nominal exchange rate, defined as foreign currency per dollar, times

Accepted Answer

A) U.S. prices minus foreign prices. 
B) prices in the United States divided by foreign prices. 
C) foreign prices divided by U.S. prices. 
D) None of the above is correct. 
A) U.S. prices minus foreign prices. 
B) prices in the United States divided by foreign prices. 
C) foreign prices divided by U.S. prices. 
D) None of the above is correct.

Question 18

A Starbucks Grande Latte costs $3.75 in the U.S. and 28 yuan in China. The nominal exchange rate is 6.75 yuan per dollar. The real exchange rate is

Accepted Answer

A) 1.106. If purchasing power partiy held the nominal exchange rate would be higher. 
B) 1.106. If purchasing power parity held the nominal exchange rate would be lower. 
C) .904. If purchasing power partiy held the nominal exchange rate would be higher. 
D) .904. If purchasing power parity held the nominal exchange rate would be lower. 
A) 1.106. If purchasing power partiy held the nominal exchange rate would be higher. 
B) 1.106. If purchasing power parity held the nominal exchange rate would be lower. 
C) .904. If purchasing power partiy held the nominal exchange rate would be higher. 
D) .904. If purchasing power parity held the nominal exchange rate would be lower.

Question 19

A Japanese flour mill buys wheat from the United States and pays for it with pesos. Other things the same, Japanese

Accepted Answer

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

Question 20

If the U.S. real exchange rate appreciates, U.S. exports to Europe

Accepted Answer

A) and European exports to the U.S. both rise. 
B) and European exports to the U.S. both fall. 
C) rise, and European exports to the U.S. fall. 
D) fall, and European exports to the U.S. rise. 
A) and European exports to the U.S. both rise. 
B) and European exports to the U.S. both fall. 
C) rise, and European exports to the U.S. fall. 
D) fall, and European exports to the U.S. rise.

Exam 18: Open-Economy Macroeconomic Models

Net exports of a country are the value of

The nominal exchange rate is about 2 Aruban florin per dollar. If a basket of goods in the United States costs $40, how many florins must a basket of goods in Aruba cost for purchasing power parity to hold?

An appreciation of the U.S. real exchange rate induces U.S. consumers to buy

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

A U.S. firm buys sardines from Morocco and pays for them with U.S. dollars. Other things the same, U.S. net exports

A haircut costs 200 pesos in Mexico and $20 in the U.S. The exchange rate is 12.5 pesos per dollar. The real exchange rate is

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

Other things the same, an increase in domestic prices raises the real exchange rate.

A nation's domestic investment is greater than its savings. Which of the following is correct?

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

A country with negative net exports has a trade surplus.

If a country has a trade surplus then

Why are net exports and net capital outflow always equal?

Other things the same, the real exchange rate between U.S. and Belgian goods would be higher if

If purchasing power parity holds, the price level in the U.S. is 120, and the price level in Canada is 140, which of the following is true?

The real exchange rate is the nominal exchange rate, defined as foreign currency per dollar, times

A Starbucks Grande Latte costs $3.75 in the U.S. and 28 yuan in China. The nominal exchange rate is 6.75 yuan per dollar. The real exchange rate is

A Japanese flour mill buys wheat from the United States and pays for it with pesos. Other things the same, Japanese

If the U.S. real exchange rate appreciates, U.S. exports to Europe

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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