Question 1

You are planning a graduation trip to Nepal. Other things the same, if the dollar depreciates relative to the Nepalese rupee, then

Accepted Answer

A)  the dollar buys fewer rupees. Your purchases in Nepal will require fewer dollars.
B)  the dollar buys fewer rupees. Your purchases in Nepal will require more dollars.
C)  the dollar buys more rupees. Your purchases in Nepal will require fewer dollars.
D)  the dollar buys more rupees. Your purchases in Nepal will require more dollars. B

Question 2

A nation with a trade surplus will necessarily have domestic investment that is greater than domestic saving.

Accepted Answer

A) True 
 B)False  False

Question 3

From 2000-2006 net capital outflow as a percent of GDP became a

Accepted Answer

A)  larger positive number.
B)  smaller positive number.
C)  larger negative number.
D)  smaller negative number C

Question 4

If the exchange rate changes from 148 Kazakhstan tenge per dollar to 155 Kazakhstan tenge per dollar, the dollar has

Accepted Answer

A)  appreciated. Other things the same, it now takes fewer dollars to buy Kazakhstani goods.
B)  appreciated. Other things the same, it now takes more dollars to buy Kazakhstani goods.
C)  depreciated. Other things the same, it now takes fewer dollars to buy Kazakhstani goods.
D)  depreciated. Other things the same, it now takes more dollars to buy Kazakhstani goods.

Question 5

Suppose that purchases of Irish assets by foreigners exceed Irish purchases of foreign assets. Ireland has

Accepted Answer

A)  positive net capital outflow and a trade surplus.
B)  positive net capital outflow and a trade deficit.
C)  negative net capital outflow and a trade surplus.
D)  negative net capital outflow and a trade deficit.

Question 6

Peru has exports of $31.5 million and imports of $30 million. Peru

Accepted Answer

A)  sells more overseas then it buys from overseas; it has a trade deficit.
B)  sells more overseas then it buys from overseas; it has a trade surplus.
C)  buys more from overseas then it sells overseas; it has a trade deficit.
D)  buys more from overseas then it sells overseas; it has a trade surplus.

Question 7

A Big Mac in Japan costs 320 yen while it costs $3.60 in the U.S.. The nominal exchange rate is 80 yen per dollar. Which of the following would both make the real exchange rate move towards purchasing-power parity?

Accepted Answer

A)  the price of Big Macs in the U.S. falls, the nominal exchange rate falls
B)  the price of Big Macs in the U.S. falls, the nominal exchange rate rises
C)  the price of Big Macs in the U.S. rises, the nominal exchange rate falls
D)  the price of Big Macs in the U.S. rises, the nominal exchange rate rises

Question 8

If a country exports more than it imports, then it has

Accepted Answer

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

Question 9

If Saudi Arabia had positive net exports last year, then it

Accepted Answer

A)  sold more abroad than it purchased abroad and had a trade surplus.
B)  sold more abroad than it purchased abroad and had a trade deficit.
C)  bought more abroad than it sold abroad and had a trade surplus.
D)  bought more abroad than it sold abroad and had a trade deficit.

Question 10

Suppose that more British decide to vacation in the U.S. and that the British purchase more U.S. Treasury bonds. Ignoring how payments are made for these purchases,

Accepted Answer

A)  the first action by itself raises U.S. net exports, the second action by itself raises U.S. net capital outflow.
B)  the first action by itself raises U.S. net exports, the second action by itself lowers U.S. net capital outflow.
C)  the first action by itself lowers U.S. net exports, the second action by itself raises U.S. net capital outflow.
D)  the first action by itself lowers U.S. net exports, the second action by itself lowers U.S. net capital outflow.

Question 11

A U.S. corporation builds an amusement park in France. Its expenditures are U.S.

Accepted Answer

A)  foreign portfolio investment that increase U.S. net capital outflow.
B)  foreign portfolio investment that decrease U.S. net capital outflow.
C)  foreign direct investment that increase U.S. net capital outflow.
D)  foreign direct investment that decrease U.S. net capital outflow.

Question 12

When U.S. national saving rises, domestic investment also necessarily rises.

Accepted Answer

A) True 
 B)False

Question 13

In an open economy, gross domestic product equals $1,950 billion, government expenditure equals $280 billion, investment equals $500, and net capital outflow equals $280 billion. What is consumption expenditure?

Accepted Answer

A)  $280 billion
B)  $780 billion
C)  $890 billion
D)  $1,170 billion

Question 14

From 1970 to 1998 the U.S. dollar

Accepted Answer

A)  gained value compared to the Italian lira because inflation was higher in the U.S.
B)  gained value compared to the Italian lira because inflation was lower in the U.S.
C)  lost value compared to the Italian lira because inflation was higher in the U.S.
D)  lost value compared to the Italian lira because inflation was lower in the U.S.

Question 15

If the real exchange rate is greater than 1, then the

Accepted Answer

A)  nominal exchange rate x U.S. price > foreign price. The dollars required to purchase a good in the U.S. would buy more then enough foreign currency to buy the same good overseas.
B)  nominal exchange rate x U.S. price > foreign price. The dollars required to purchase a good in the U.S. would not buy enough foregoing currency to buy the same good overseas.
C)  nominal exchange rate x U.S. price 
D)  nominal exchange rate x U.S. price < foreign price. The dollars required to purchase a good in the U.S. would not buy enough foreign currency to buy the same good overseas.

Question 16

Other things the same, the real exchange rate between American and Chinese goods would be higher if

Accepted Answer

A)  prices of Chinese goods were higher, or the number of yuan a dollar purchased was higher.
B)  prices of Chinese goods were higher, or the number of yuan a dollar purchased was lower.
C)  prices of Chinese goods were lower, or the number of yuan a dollar purchased was higher.
D)  prices of Chinese goods were lower, or the number of yuan a dollar purchased was lower.

Question 17

If the price of a good in the U.S. is $10 and the unit of foreign currency is the stone, in which case is the real exchange rate 4/5?

Accepted Answer

A)  the foreign price is 4 stones and the exchange rate is 2 stones per dollar
B)  the foreign price is 5 stones and the exchange rate is 2.5 stones per dollar
C)  the foreign price is 4 stones and the exchange rate is 1/2 stones per dollar
D)  the foreign price is 5 stones and the exchange rate is 2/5 stones per dollar

Question 18

A U.S. citizen buys bonds issued by a construction equipment manufacturer in Poland. Her expenditures are U.S.

Accepted Answer

A)  foreign portfolio investment that increase U.S. net capital outflow.
B)  foreign portfolio investment that decrease U.S. net capital outflow.
C)  foreign direct investment that increase U.S. net capital outflow.
D)  foreign direct investment that decrease U.S. net capital outflow.

Question 19

Prices in both the U.S. and India rise, but prices in India increase by a larger percentage. According to purchasing-power parity the U.S. dollar

Accepted Answer

A)  gains value both in terms of the domestic goods and services it can buy and in terms of the Indian 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 Indian 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 Indian currency it can buy.
D)  loses value both in terms of the domestic goods and services it can buy and in terms of the Indian currency it can buy.

Question 20

The law of one price states that

Accepted Answer

A)  a good must sell at the price fixed by law.
B)  a good must sell at the same price at all locations.
C)  a good cannot sell for a price greater than the legal price ceiling.
D)  nominal exchange rates will not vary.

Exam 18: Open-Economy Macroeconomic Models

You are planning a graduation trip to Nepal. Other things the same, if the dollar depreciates relative to the Nepalese rupee, then

A nation with a trade surplus will necessarily have domestic investment that is greater than domestic saving.

From 2000-2006 net capital outflow as a percent of GDP became a

If the exchange rate changes from 148 Kazakhstan tenge per dollar to 155 Kazakhstan tenge per dollar, the dollar has

Suppose that purchases of Irish assets by foreigners exceed Irish purchases of foreign assets. Ireland has

Peru has exports of $31.5 million and imports of $30 million. Peru

A Big Mac in Japan costs 320 yen while it costs $3.60 in the U.S.. The nominal exchange rate is 80 yen per dollar. Which of the following would both make the real exchange rate move towards purchasing-power parity?

If a country exports more than it imports, then it has

If Saudi Arabia had positive net exports last year, then it

Suppose that more British decide to vacation in the U.S. and that the British purchase more U.S. Treasury bonds. Ignoring how payments are made for these purchases,

A U.S. corporation builds an amusement park in France. Its expenditures are U.S.

When U.S. national saving rises, domestic investment also necessarily rises.

In an open economy, gross domestic product equals $1,950 billion, government expenditure equals $280 billion, investment equals $500, and net capital outflow equals $280 billion. What is consumption expenditure?

From 1970 to 1998 the U.S. dollar

If the real exchange rate is greater than 1, then the

Other things the same, the real exchange rate between American and Chinese goods would be higher if

If the price of a good in the U.S. is $10 and the unit of foreign currency is the stone, in which case is the real exchange rate 4/5?

A U.S. citizen buys bonds issued by a construction equipment manufacturer in Poland. Her expenditures are U.S.

Prices in both the U.S. and India rise, but prices in India increase by a larger percentage. According to purchasing-power parity the U.S. dollar

The law of one price states that