Question 1

When a company from Germany builds an automobile factory in the United States, the German firm has engaged in foreign direct investment.

Accepted Answer

A) True 
 B)False

Question 2

A firm in China sells toys to a U.S. department store chain. Other things the same, these sales

Accepted Answer

A) increase U.S. net exports and decrease Chinese net exports. 
B) decrease U.S. net exports and increase Chinese net exports. 
C) increase U.S. and Chinese net exports. 
D) decrease U.S. and Chinese net exports. 
A) increase U.S. net exports and decrease Chinese net exports. 
B) decrease U.S. net exports and increase Chinese net exports. 
C) increase U.S. and Chinese net exports. 
D) decrease U.S. and Chinese net exports.

Question 3

If it took as many dollars to buy goods in the United States as it did to buy enough currency to buy the same goods in India, the real exchange rate would be computed as how many Indian goods per U.S. goods?

Accepted Answer

A) one 
B) the number of dollars needed to buy U.S. goods divided by the number of rupees needed to buy Indian goods 
C) the number of rupees needed to buy Indian goods divided by the number of dollars needed to buy U.S. goods 
D) None of the above is correct. 
A) one 
B) the number of dollars needed to buy U.S. goods divided by the number of rupees needed to buy Indian goods 
C) the number of rupees needed to buy Indian goods divided by the number of dollars needed to buy U.S. goods 
D) None of the above is correct.

Question 4

If purchasing-power parity holds, a dollar will buy

Accepted Answer

A) one unit of each foreign currency. 
B) foreign currency equal to the U.S. price level divided by the foreign country's price level. 
C) enough foreign currency to buy as many goods as it does in the United States. 
D) None of the above is implied by purchasing-power parity. 
A) one unit of each foreign currency. 
B) foreign currency equal to the U.S. price level divided by the foreign country's price level. 
C) enough foreign currency to buy as many goods as it does in the United States. 
D) None of the above is implied by purchasing-power parity.

Question 5

The nominal exchange rate is .80 euros per U.S. dollar and a basket of goods in France costs 1,000 euros while the same basket costs $800 in the U.S. The nominal exchange rate is 1.2 Australian dollars per U.S. dollar and a basket of goods in Australia costs 960 Australian dollars while the same basket costs $800 in the U.S.. Which country has purchasing-power parity with the U.S.?

Accepted Answer

A) both France and Australia 
B) France but not Australia 
C) Australia but not France 
D) neither France nor Australia 
A) both France and Australia 
B) France but not Australia 
C) Australia but not France 
D) neither France nor Australia

Question 6

Over the past five decades, the U.S. economy has become

Accepted Answer

A) more closed. 
B) more open. 
C) less trade-oriented. 
D) more self-sufficient. 
A) more closed. 
B) more open. 
C) less trade-oriented. 
D) more self-sufficient.

Question 7

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 8

Paul, a U.S. citizen, builds a telescope factory in Israel. His expenditures

Accepted Answer

A) increase U.S. and Israeli net capital outflow. 
B) increase U.S. net capital outflow, but decrease Israeli net capital outflow. 
C) decrease U.S. net capital outflow, but increase Israeli net capital outflow. 
D) None of the above is correct. 
A) increase U.S. and Israeli net capital outflow. 
B) increase U.S. net capital outflow, but decrease Israeli net capital outflow. 
C) decrease U.S. net capital outflow, but increase Israeli net capital outflow. 
D) None of the above is correct.

Question 9

A British grocery chain uses previously obtained U.S. dollars to purchase apples from the United States. This transaction

Accepted Answer

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

Question 10

According to purchasing power parity, when a country's central bank decreases 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 11

A Ukrainian firm sells diesel locomotives to a U.S. railroad. Other things the same, these sales

Accepted Answer

A) increase U.S. net exports and decrease Ukrainian net exports. 
B) decrease U.S. net exports and increase Ukrainian net exports. 
C) increase U.S. and Ukrainian net exports. 
D) decrease U.S. and Ukrainian net exports. 
A) increase U.S. net exports and decrease Ukrainian net exports. 
B) decrease U.S. net exports and increase Ukrainian net exports. 
C) increase U.S. and Ukrainian net exports. 
D) decrease U.S. and Ukrainian net exports.

Question 12

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

Accepted Answer

A) True 
 B)False

Question 13

If a U.S. firm buys Chinese toys using previously obtained Chinese currency, then both U.S. net exports and U.S. net capital outflow decrease.

Accepted Answer

A) True 
 B)False

Question 14

According to purchasing power parity, if it took 1,100 Korean Won to buy a dollar this year, but it took 1,000 to buy it last year, then the dollar has

Accepted Answer

A) appreciated, indicating inflation was higher in the U.S. than in Korea. 
B) appreciated indicating inflation was lower in the U.S. than in Korea. 
C) depreciated indicating inflation was higher in the U.S. than in Korea. 
D) depreciated indicating inflation was lower in the U.S. than in Korea. 
A) appreciated, indicating inflation was higher in the U.S. than in Korea. 
B) appreciated indicating inflation was lower in the U.S. than in Korea. 
C) depreciated indicating inflation was higher in the U.S. than in Korea. 
D) depreciated indicating inflation was lower in the U.S. than in Korea.

Question 15

Which of the following is correct?

Accepted Answer

A) NCO + C = NX 
B) NCO = NX 
C) NX - NCO = C 
D) NX + NCO = C 
A) NCO + C = NX 
B) NCO = NX 
C) NX - NCO = C 
D) NX + NCO = C

Question 16

A ton of scrap iron sells for $150 in the U.S. and 1400 yuan in China. The nominal exchange rate is 6.7 yuan per dollar.

Accepted Answer

A) A profit could be made by buying scrap iron in China and selling it in the U.S. This would tend to drive down the price of U.S. scrap iron. 
B) A profit could be made by buying scrap iron in China and selling it in the U.S. This would tend to drive down the price of Chinese scrap iron. 
C) A profit could be made by buying scrap iron in the U.S. and selling it in China. This would tend to drive down the price of U.S. scrap iron. 
D) A profit could be made by buying scrap iron in the U.S. and selling it in China. This would tend to drive down the price of Chinese scrap iron. 
A) A profit could be made by buying scrap iron in China and selling it in the U.S. This would tend to drive down the price of U.S. scrap iron. 
B) A profit could be made by buying scrap iron in China and selling it in the U.S. This would tend to drive down the price of Chinese scrap iron. 
C) A profit could be made by buying scrap iron in the U.S. and selling it in China. This would tend to drive down the price of U.S. scrap iron. 
D) A profit could be made by buying scrap iron in the U.S. and selling it in China. This would tend to drive down the price of Chinese scrap iron.

Question 17

A nation has a positive net capital outflow. Which of the following is correct?

Accepted Answer

A) Purchases of foreign assets by domestic residents exceed purchases of domestic assets by foreigners 
B) It has positive net exports. 
C) Its savings exceeds its domestic investment. 
D) All of the above are correct. 
A) Purchases of foreign assets by domestic residents exceed purchases of domestic assets by foreigners 
B) It has positive net exports. 
C) Its savings exceeds its domestic investment. 
D) All of the above are correct.

Question 18

A U.S. firm buys bonds issued by a technology center in India. This purchase is an example of U.S.

Accepted Answer

A) foreign portfolio investment. By itself it is an increase in U.S. holdings of foreign bonds and increases U.S. net capital outflow. 
B) foreign portfolio investment. By itself it is an increase in U.S. holdings of foreign bonds and decreases U.S. net capital outflow. 
C) foreign direct investment. By itself it is an increase in U.S. holdings of foreign bonds and increases U.S. net capital outflow. 
D) foreign direct investment. By itself it is an increase in U.S. holdings of foreign bonds and decreases U.S. net capital outflow. 
A) foreign portfolio investment. By itself it is an increase in U.S. holdings of foreign bonds and increases U.S. net capital outflow. 
B) foreign portfolio investment. By itself it is an increase in U.S. holdings of foreign bonds and decreases U.S. net capital outflow. 
C) foreign direct investment. By itself it is an increase in U.S. holdings of foreign bonds and increases U.S. net capital outflow. 
D) foreign direct investment. By itself it is an increase in U.S. holdings of foreign bonds and decreases U.S. net capital outflow.

Question 19

In which period was most of the change in U.S. net capital outflow due to an increase in investment in the U.S.?

Accepted Answer

A) 1980-1987 
B) 1991-2000 
C) 2000-2006 
D) None of the above are correct. 
A) 1980-1987 
B) 1991-2000 
C) 2000-2006 
D) None of the above are correct.

Question 20

If Japan's national saving exceeds its domestic investment, then Japan has

Accepted Answer

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

Exam 18: Open-Economy Macroeconomic Models

When a company from Germany builds an automobile factory in the United States, the German firm has engaged in foreign direct investment.

A firm in China sells toys to a U.S. department store chain. Other things the same, these sales

If it took as many dollars to buy goods in the United States as it did to buy enough currency to buy the same goods in India, the real exchange rate would be computed as how many Indian goods per U.S. goods?

If purchasing-power parity holds, a dollar will buy

Over the past five decades, the U.S. economy has become

In which of the following situations must national saving rise?

Paul, a U.S. citizen, builds a telescope factory in Israel. His expenditures

A British grocery chain uses previously obtained U.S. dollars to purchase apples from the United States. This transaction

According to purchasing power parity, when a country's central bank decreases the money supply, a unit of money

A Ukrainian firm sells diesel locomotives to a U.S. railroad. Other things the same, these sales

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

If a U.S. firm buys Chinese toys using previously obtained Chinese currency, then both U.S. net exports and U.S. net capital outflow decrease.

According to purchasing power parity, if it took 1,100 Korean Won to buy a dollar this year, but it took 1,000 to buy it last year, then the dollar has

Which of the following is correct?

A ton of scrap iron sells for $150 in the U.S. and 1400 yuan in China. The nominal exchange rate is 6.7 yuan per dollar.

A nation has a positive net capital outflow. Which of the following is correct?

A U.S. firm buys bonds issued by a technology center in India. This purchase is an example of U.S.

In which period was most of the change in U.S. net capital outflow due to an increase in investment in the U.S.?

If Japan's national saving exceeds its domestic investment, then Japan has

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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