Question 1

A British pharmacy buys drugs from a Canadian company and pays for them with British pounds.What are the effects of this transaction?

Accepted Answer

A)  It increases British net exports and increases Canadian capital outflow. 
B)  It increases British net exports and decreases Canadian capital outflow. 
C)  It decreases British net exports and increases Canadian capital outflow. 
D)  It decreases British net exports and decreases Canadian capital outflow. 
A)  It increases British net exports and increases Canadian capital outflow. 
B)  It increases British net exports and decreases Canadian capital outflow. 
C)  It decreases British net exports and increases Canadian capital outflow. 
D)  It decreases British net exports and decreases Canadian capital outflow.

Question 2

If the purchasing power of the dollar is always the same at home and abroad,then the nominal exchange rate defined as foreign goods per unit of Canadian goods decreases if the Canadian price level rises more than the price level in foreign countries.

Accepted Answer

A) True 
 B)False

Question 3

If a country sells more goods and services abroad than it purchases abroad,it has positive net exports and a trade surplus.

Accepted Answer

A) True 
 B)False

Question 4

Can purchasing-power parity be used to explain the fact that the Canadian dollar depreciated by more than 50 percent against the German mark from 1970 to 2001,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 wo

Question 5

A country has $120 million of net exports and $150 million of saving.What is net capital outflow?

Accepted Answer

A)  -$30 million 
B)  $30 million 
C)  $120 million 
D)  $150 million 
A)  -$30 million 
B)  $30 million 
C)  $120 million 
D)  $150 million

Question 6

If the Canadian real interest rate exceeds the world real interest rate,what would Canadian savers most likely do?

Accepted Answer

A)  Canadian savers would prefer to buy foreign assets. 
B)  Canadian savers would prefer to wait until the real interest rate falls to equal the world interest rate. 
C)  Canadian savers would sell their Canadian assets and buy foreign assets instead. 
D)  Canadian savers would sell their foreign assets and buy Canadian assets instead. 
A)  Canadian savers would prefer to buy foreign assets. 
B)  Canadian savers would prefer to wait until the real interest rate falls to equal the world interest rate. 
C)  Canadian savers would sell their Canadian assets and buy foreign assets instead. 
D)  Canadian savers would sell their foreign assets and buy Canadian assets instead.

Question 7

Which of the following shows that any trade transaction must have a financial counterpart?

Accepted Answer

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

Question 8

Consider the following table,adapted from the Big Mac Index computed by The Economist magazine.The table shows prices of a Big Mac in local currencies and the current nominal exchange rate between the local currency and the Canadian dollar.
 
a.Compute the Big Mac prices in Canadian dollars for each country.
b.Compute the PPP exchange rate.
c.Compute the overvaluation or undervaluation of each country's currency with respect to the Canadian dollar.A currency is considered to be overvalued if the nominal exchange rate is less than the PPP exchange rate.Overvaluation is the percentage difference between the nominal and the PPP exchange rate,computed using the following formula: [(PPP exchange rate - Nominal exchange rate) / Nominal exchange rate]*100.

Accepted Answer

The answer of Consider the following table,adapted from the Big...

Question 9

If the exchange rate changes from 40 Thai baht per dollar to 25 Thai baht per dollar,what has happened to the dollar?

Accepted Answer

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

Question 10

Refer to Table 12-1.Assume that there are no transportation costs or trade restrictions.With which country can Canadian importers make a profit?

Accepted Answer

A)  Bolivia 
B)  Japan 
C)  Norway 
D)  Thailand 
A)  Bolivia 
B)  Japan 
C)  Norway 
D)  Thailand

Question 11

According to purchasing-power parity theory,the real exchange rate should equal the nominal exchange rate.

Accepted Answer

A) True 
 B)False

Question 12

According to purchasing-power parity theory,if the same fast-food hamburger costs $2.00 in Canada and 10 Tunisian dinars,what should the exchange rate be?

Accepted Answer

A)  1 / 5 Tunisian dinars per dollar 
B)  1 Tunisian dinar per dollar 
C)  5 Tunisian dinars per dollar 
D)  25 Tunisian dinars per dollar 
A)  1 / 5 Tunisian dinars per dollar 
B)  1 Tunisian dinar per dollar 
C)  5 Tunisian dinars per dollar 
D)  25 Tunisian dinars per dollar

Question 13

What is the formula for a closed economy's GDP?

Accepted Answer

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

Question 14

A rational investor will always purchase the bond that pays the highest real interest rate.

Accepted Answer

A) True 
 B)False

Question 15

Why are net exports and net capital outflow always equal?

Accepted Answer

Net exports and net capital outflow are

Question 16

Why is interest rate parity NOT a perfect theory of real interest rate determination in a small open economy?

Accepted Answer

A)  because of differences in prices 
B)  because of differences in tax treatments of returns earned on financial assets 
C)  because of Ricardian nonequivalence 
D)  because of perfect capital mobility 
A)  because of differences in prices 
B)  because of differences in tax treatments of returns earned on financial assets 
C)  because of Ricardian nonequivalence 
D)  because of perfect capital mobility

Question 17

If P = domestic prices,P* = foreign prices,and e is the nominal exchange rate,what is implied by purchasing-power parity?

Accepted Answer

A)  P = e / P* 
B)  1 = e / P* 
C)  e = P* / P 
D)  P / P*=1 
A)  P = e / P* 
B)  1 = e / P* 
C)  e = P* / P 
D)  P / P*=1

Question 18

If it took as many dollars to buy goods in Canada as it did to buy enough currency to buy the same goods in Kenya,the real exchange rate would be computed as how many Kenyan goods per Canadian goods?

Accepted Answer

A)  one 
B)  the number of dollars needed to buy Canadian goods divided by the number of shillings needed to buy Kenyan goods 
C)  the number of shillings needed to buy Kenyan goods divided by the number of dollars needed to buy Canadian goods 
D)  a number equal to the nominal exchange rate 
A)  one 
B)  the number of dollars needed to buy Canadian goods divided by the number of shillings needed to buy Kenyan goods 
C)  the number of shillings needed to buy Kenyan goods divided by the number of dollars needed to buy Canadian goods 
D)  a number equal to the nominal exchange rate

Question 19

Suppose that money-supply growth continues to be higher in Turkey than it is in Canada.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 20

List the factors that might influence a country's exports,imports,and trade balance.

Accepted Answer

a.the tastes of consumers for domestic a

A British pharmacy buys drugs from a Canadian company and pays for them with British pounds.What are the effects of this transaction?

If the purchasing power of the dollar is always the same at home and abroad,then the nominal exchange rate defined as foreign goods per unit of Canadian goods decreases if the Canadian price level rises more than the price level in foreign countries.

If a country sells more goods and services abroad than it purchases abroad,it has positive net exports and a trade surplus.

Can purchasing-power parity be used to explain the fact that the Canadian dollar depreciated by more than 50 percent against the German mark from 1970 to 2001,but appreciated by more than 100 percent against the Italian lira during the same period? Defend your answer.

A country has $120 million of net exports and $150 million of saving.What is net capital outflow?

If the Canadian real interest rate exceeds the world real interest rate,what would Canadian savers most likely do?

Which of the following shows that any trade transaction must have a financial counterpart?

If the exchange rate changes from 40 Thai baht per dollar to 25 Thai baht per dollar,what has happened to the dollar?

Refer to Table 12-1.Assume that there are no transportation costs or trade restrictions.With which country can Canadian importers make a profit?

According to purchasing-power parity theory,the real exchange rate should equal the nominal exchange rate.

According to purchasing-power parity theory,if the same fast-food hamburger costs $2.00 in Canada and 10 Tunisian dinars,what should the exchange rate be?

What is the formula for a closed economy's GDP?

A rational investor will always purchase the bond that pays the highest real interest rate.

Why are net exports and net capital outflow always equal?

Why is interest rate parity NOT a perfect theory of real interest rate determination in a small open economy?

If P = domestic prices,P* = foreign prices,and e is the nominal exchange rate,what is implied by purchasing-power parity?

If it took as many dollars to buy goods in Canada as it did to buy enough currency to buy the same goods in Kenya,the real exchange rate would be computed as how many Kenyan goods per Canadian goods?

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

List the factors that might influence a country's exports,imports,and trade balance.

Ten Principles of Economics

Thinking Like an Economist

Interdependence and the Gains From Trade

The Market Forces of Supply and Demand

Measuring a Nations Income

Measuring the Cost of Living

Production and Growth

Saving, investment, and the Financial System

Unemployment and Its Natural Rate

The Monetary System

Money Growth and Inflation

A Macroeconomic Theory of the Small Open Economy

Aggregate Demand and Aggregate Supply

The Influence of Monetary and Fiscal Policy on Aggregate Demand

The Short-Run Tradeoff Between Inflation and Unemployment

Five Debates Over Macroeconomic Policy

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Exam 12: Open-Economy Macroeconomics: Basic Concepts

A British pharmacy buys drugs from a Canadian company and pays for them with British pounds.What are the effects of this transaction?

If the purchasing power of the dollar is always the same at home and abroad,then the nominal exchange rate defined as foreign goods per unit of Canadian goods decreases if the Canadian price level rises more than the price level in foreign countries.

If a country sells more goods and services abroad than it purchases abroad,it has positive net exports and a trade surplus.

Can purchasing-power parity be used to explain the fact that the Canadian dollar depreciated by more than 50 percent against the German mark from 1970 to 2001,but appreciated by more than 100 percent against the Italian lira during the same period? Defend your answer.

A country has $120 million of net exports and $150 million of saving.What is net capital outflow?

If the Canadian real interest rate exceeds the world real interest rate,what would Canadian savers most likely do?

Which of the following shows that any trade transaction must have a financial counterpart?

If the exchange rate changes from 40 Thai baht per dollar to 25 Thai baht per dollar,what has happened to the dollar?

Refer to Table 12-1.Assume that there are no transportation costs or trade restrictions.With which country can Canadian importers make a profit?

According to purchasing-power parity theory,the real exchange rate should equal the nominal exchange rate.

According to purchasing-power parity theory,if the same fast-food hamburger costs $2.00 in Canada and 10 Tunisian dinars,what should the exchange rate be?

What is the formula for a closed economy's GDP?

A rational investor will always purchase the bond that pays the highest real interest rate.

Why are net exports and net capital outflow always equal?

Why is interest rate parity NOT a perfect theory of real interest rate determination in a small open economy?

If P = domestic prices,P* = foreign prices,and e is the nominal exchange rate,what is implied by purchasing-power parity?

If it took as many dollars to buy goods in Canada as it did to buy enough currency to buy the same goods in Kenya,the real exchange rate would be computed as how many Kenyan goods per Canadian goods?

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

List the factors that might influence a country's exports,imports,and trade balance.

Ten Principles of Economics

Thinking Like an Economist

Interdependence and the Gains From Trade

The Market Forces of Supply and Demand

Measuring a Nations Income

Measuring the Cost of Living

Production and Growth

Saving, investment, and the Financial System

Unemployment and Its Natural Rate

The Monetary System

Money Growth and Inflation

A Macroeconomic Theory of the Small Open Economy

Aggregate Demand and Aggregate Supply

The Influence of Monetary and Fiscal Policy on Aggregate Demand

The Short-Run Tradeoff Between Inflation and Unemployment

Five Debates Over Macroeconomic Policy

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