Question 1

Other things the same, if the exchange rate changes from 30 Thai bhat per dollar to 25 Thai bhat per dollar, then the dollar has

Accepted Answer

A) appreciated and so buys more Thai goods. 
B) appreciated and so buys fewer Thai goods. 
C) depreciated and so buys more Thai goods. 
D) depreciated and so buys fewer Thai goods. 
A) appreciated and so buys more Thai goods. 
B) appreciated and so buys fewer Thai goods. 
C) depreciated and so buys more Thai goods. 
D) depreciated and so buys fewer Thai goods.

Question 2

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) more valuable than predicted by the doctrine of purchasing-power parity?

Accepted Answer

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

Question 3

An open economy's GDP is always given by

Accepted Answer

A) Y = C + I + G. 
B) Y = C + I + G + T. 
C) Y = C + I + G + S. 
D) Y = C + I + G + NX. 
A) Y = C + I + G. 
B) Y = C + I + G + T. 
C) Y = C + I + G + S. 
D) Y = C + I + G + NX.

Question 4

Bob, a Greek citizen, opens a restaurant in Chicago. His expenditures

Accepted Answer

A) increase U.S. net capital outflow and have no affect on Greek net capital outflow. 
B) increase U.S. net capital outflow and increase Greek net capital outflow. 
C) increase U.S. net capital outflow, but decrease Greek net capital outflow. 
D) decrease U.S. net capital outflow, but increase Greek net capital outflow. 
A) increase U.S. net capital outflow and have no affect on Greek net capital outflow. 
B) increase U.S. net capital outflow and increase Greek net capital outflow. 
C) increase U.S. net capital outflow, but decrease Greek net capital outflow. 
D) decrease U.S. net capital outflow, but increase Greek net capital outflow.

Question 5

How do we find the real exchange rate from the nominal exchange rate?

Accepted Answer

Real Exchange Rate =

Question 6

If the Kenyan nominal exchange rate declines, and prices are unchanged in Kenya and abroad, then the Kenyan 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 7

Juan lives in Ecuador and purchases a motorcycle manufactured in the United States. The motorcycle is

Accepted Answer

A) both a U.S. and Ecuadorian export. 
B) both a U.S. and Ecuadorian import. 
C) a U.S. import and an Ecuadorian export. 
D) a U.S. export and an Ecuadorian import. 
A) both a U.S. and Ecuadorian export. 
B) both a U.S. and Ecuadorian import. 
C) a U.S. import and an Ecuadorian export. 
D) a U.S. export and an Ecuadorian import.

Question 8

A depreciation 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 9

According to purchasing power parity, if over the course of a year the price level in the U.S. rises more than in Canada, then which of the following rises?

Accepted Answer

A) the U.S. real exchange rate, but not the U.S. nominal exchange rate 
B) the U.S. nominal exchange rate, but not the U.S. real exchange rate 
C) the U.S. nominal exchange rate and the U.S. real exchange rate 
D) neither the real exchange rate nor the nominal exchange rate 
A) the U.S. real exchange rate, but not the U.S. nominal exchange rate 
B) the U.S. nominal exchange rate, but not the U.S. real exchange rate 
C) the U.S. nominal exchange rate and the U.S. real exchange rate 
D) neither the real exchange rate nor the nominal exchange rate

Question 10

Purchasing-power parity says that the nominal exchange rate must equal the real exchange rate.

Accepted Answer

A) True 
 B)False

Question 11

It is possible for a country to have domestic investment that exceeds national saving.

Accepted Answer

A) True 
 B)False

Question 12

When Ghana sells chocolate to the United States, 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 13

According to the doctrine of purchasing-power parity, which of the following should depreciate if over the next year the inflation rate is higher in the U.S. than in the Euro area?

Accepted Answer

A) both the U.S. real exchange rate and the U.S. nominal exchange rate 
B) the U.S. real exchange rate, but not the U.S. nominal exchange rate 
C) the U.S. nominal exchange rate, but not the U.S. real exchange rate 
D) neither the U.S. nominal exchange rate nor the U.S. real exchange rate 
A) both the U.S. real exchange rate and the U.S. nominal exchange rate 
B) the U.S. real exchange rate, but not the U.S. nominal exchange rate 
C) the U.S. nominal exchange rate, but not the U.S. real exchange rate 
D) neither the U.S. nominal exchange rate nor the U.S. real exchange rate

Question 14

Suppose that money supply growth continues to be higher in Turkey than it is in the United States. What does purchasing-power parity imply will happen to the real and to the nominal exchange rate?

Accepted Answer

Higher money growth leads to higher pric

Question 15

If a McDonald's Big Mac cost $3.06 in the United States and 3.21 euros in the Euro area, then purchasing-power parity implies the nominal exchange rate is how many euros per dollar?

Accepted Answer

A) 1.05 If the value is less than this, it costs more dollars to buy a Big Mac in the U.S. than in the Euro area. 
B) 1.05 If the value is less than this, it costs fewer dollars to buy a Big Mac in the U.S. then in the Euro area. 
C) .95 If the value is less than this, it costs more dollars to buy a Big Mac in the U.S. than in the Euro area. 
D) .95 If the value is less than this, it costs fewer dollars to buy a Big Mac in the U.S. than in the Euro area. 
A) 1.05 If the value is less than this, it costs more dollars to buy a Big Mac in the U.S. than in the Euro area. 
B) 1.05 If the value is less than this, it costs fewer dollars to buy a Big Mac in the U.S. then in the Euro area. 
C) .95 If the value is less than this, it costs more dollars to buy a Big Mac in the U.S. than in the Euro area. 
D) .95 If the value is less than this, it costs fewer dollars to buy a Big Mac in the U.S. than in the Euro area.

Question 16

Suppose that a country has $120 billion of national saving, and $80 billion of domestic investment. Is this possible? Where did the other $40 billion of national savings go?

Accepted Answer

This is possible for an open economy. Th

Question 17

Other things the same, a country could move from having a trade surplus to having a trade deficit if either

Accepted Answer

A) saving rose or domestic investment rose. 
B) saving rose or domestic investment fell. 
C) saving fell or domestic investment rose. 
D) saving fell or domestic investment fell. 
A) saving rose or domestic investment rose. 
B) saving rose or domestic investment fell. 
C) saving fell or domestic investment rose. 
D) saving fell or domestic investment fell.

Question 18

Sheri, a U.S. citizen, builds and operates a bookstore in Spain. This action is an example of

Accepted Answer

A) investment for Sheri and U.S. foreign direct investment. 
B) investment for Sheri and U.S. foreign portfolio investment. 
C) U.S. foreign direct investment and U.S. domestic investment. 
D) U.S. foreign portfolio investment and U.S. domestic investment. 
A) investment for Sheri and U.S. foreign direct investment. 
B) investment for Sheri and U.S. foreign portfolio investment. 
C) U.S. foreign direct investment and U.S. domestic investment. 
D) U.S. foreign portfolio investment and U.S. domestic investment.

Question 19

Suppose a Starbucks tall latte cost $4.00 in the United States and 3.20 euros in the Euro area. Also, suppose a McDonald's Big Mac costs $3.50 in the United States and 2.45 euros in Euro area. If the nominal exchange rate is .80 euros per dollar, which goods have prices that are consistent with purchasing power parity?

Accepted Answer

A) Both the tall latte and the Big Mac. 
B) Neither the tall latte nor the Big Mac. 
C) The tall latte but not the Big Mac. 
D) The Big Mac but not the tall latte. 
A) Both the tall latte and the Big Mac. 
B) Neither the tall latte nor the Big Mac. 
C) The tall latte but not the Big Mac. 
D) The Big Mac but not the tall latte.

Question 20

Can purchasing-power parity be used to explain the fact that the U.S. dollar has depreciated by more than 50 percent against the German mark between 1970 and 1998, but appreciated by more than 100 percent against the Italian lira during the same period? Defend your answer.

Accepted Answer

The theory of purchasing-power parity su

Exam 18: Open-Economy Macroeconomic Models

Other things the same, if the exchange rate changes from 30 Thai bhat per dollar to 25 Thai bhat per dollar, then the dollar has

An open economy's GDP is always given by

Bob, a Greek citizen, opens a restaurant in Chicago. His expenditures

How do we find the real exchange rate from the nominal exchange rate?

If the Kenyan nominal exchange rate declines, and prices are unchanged in Kenya and abroad, then the Kenyan real exchange rate

Juan lives in Ecuador and purchases a motorcycle manufactured in the United States. The motorcycle is

A depreciation of the U.S. real exchange rate induces U.S. consumers to buy

According to purchasing power parity, if over the course of a year the price level in the U.S. rises more than in Canada, then which of the following rises?

Purchasing-power parity says that the nominal exchange rate must equal the real exchange rate.

It is possible for a country to have domestic investment that exceeds national saving.

When Ghana sells chocolate to the United States, U.S. net exports

According to the doctrine of purchasing-power parity, which of the following should depreciate if over the next year the inflation rate is higher in the U.S. than in the Euro area?

Suppose that money supply growth continues to be higher in Turkey than it is in the United States. What does purchasing-power parity imply will happen to the real and to the nominal exchange rate?

If a McDonald's Big Mac cost $3.06 in the United States and 3.21 euros in the Euro area, then purchasing-power parity implies the nominal exchange rate is how many euros per dollar?

Suppose that a country has $120 billion of national saving, and $80 billion of domestic investment. Is this possible? Where did the other $40 billion of national savings go?

Other things the same, a country could move from having a trade surplus to having a trade deficit if either

Sheri, a U.S. citizen, builds and operates a bookstore in Spain. This action is an example of

Can purchasing-power parity be used to explain the fact that the U.S. dollar has depreciated by more than 50 percent against the German mark between 1970 and 1998, but appreciated by more than 100 percent against the Italian lira during the same period? Defend your answer.

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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