Question 1

A U.S.mutual fund buys stocks issued by a Columbian company.This purchase is an example of

Accepted Answer

A)  U.S.foreign direct investment.It increases Columbia's net capital outflow. 
B)  U.S.foreign direct investment.It decreases Columbia's net capital outflow. 
C)  U.S.foreign portfolio investment.It decreases Columbia's net capital outflow. 
D)  U.S.foreign portfolio investment.It increases Columbia's net capital outflow.

Question 2

According to the theory of purchasing-power parity,the real exchange rate defined as foreign goods per unit of U.S.goods will equal the exchange rate defined as units of foreign currency per dollar times the domestic price level divided by the foreign price level.

Accepted Answer

A) True 
 B)False

Question 3

A country has $30 billion of domestic investment and net capital outflows of -$20 billion.What is the country's saving?

Accepted Answer

A)  -$50 billion 
B)  -$10 billion 
C)  $10 billion 
D)  $50 billion

Question 4

The country of Freedonia has a GDP of $2,100,consumption of $1,200,and government purchases of $400.This implies that it has

Accepted Answer

A)  domestic investment of $500. 
B)  domestic investment plus net capital outflow of $500. 
C)  domestic investment minus net capital outflow of $500. 
D)  None of the above is correct.

Question 5

Suppose that a country imports $75 million of goods and services and exports $100 million of goods and services.What is the value of net exports?

Accepted Answer

A)  $175 million 
B)  $75 million 
C)  $25 million 
D)  -$25 million

Question 6

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

Accepted Answer

A)  P = e/P* 
B)  1 = e/P* 
C)  e = P*/P 
D)  None of the above is correct.

Question 7

If Germany purchased more abroad than it sold abroad last year,then it had

Accepted Answer

A)  positive net exports which is a trade surplus. 
B)  positive net exports which is a trade deficit. 
C)  negative net exports which is a trade surplus. 
D)  negative net exports which is a trade deficit.

Question 8

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

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.

Question 9

An MP3 player in Singapore costs 200 Singaporean dollars.In the U.S.it costs 100 US dollars.Which of the following is correct?

Accepted Answer

A)  if the nominal exchange rate is 2.0 Singaporean dollars per U.S.dollar,purchasing power parity holds. 
B)  if the nominal exchange rate is 1 Singaporean dollars per U.S.dollar,purchasing power parity holds. 
C)  if the nominal exchange rate is .50 Singaporean dollars per U.S.dollar,purchasing power parity holds. 
D)  purchasing power parity does not hold at any of the above exchange rates.

Question 10

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

Question 11

Which of the following does purchasing-power parity imply?

Accepted Answer

A)  The purchasing power of the dollar is the same in the U.S.as in foreign countries. 
B)  The price of domestic goods relative to foreign goods cannot change. 
C)  The nominal exchange rate is the ratio of U.S.prices to foreign prices. 
D)  All of the above are correct.

Question 12

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.

Question 13

If a country has a trade deficit

Accepted Answer

A)  it has positive net exports and positive net capital outflow. 
B)  it has positive net exports and negative net capital outflow. 
C)  it has negative net exports and positive net capital outflow. 
D)  it has negative net exports and negative net capital outflow.

Question 14

A firm in India hires a U.S.firm to provide economic forecasts.By itself this transaction

Accepted Answer

A)  increases U.S.exports and so increases the U.S.trade balance. 
B)  increases U.S.exports and so decreases the U.S.trade balance. 
C)  increases U.S.imports and so increases the U.S.trade balance. 
D)  increases U.S.imports and so decreases the U.S.trade balance.

Question 15

From 1970 to 1998 the U.S.dollar

Accepted Answer

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

Question 16

The exchange rate is 1.5 Bosnian markas per U.S.dollar.The price of a refrigerator in Bosnia is 1,200 markas while in the U.S.it is $1,000.The real exchange rate is

Accepted Answer

A)  9/5 
B)  5/4 
C)  4/5 
D)  None of the above are correct.

Question 17

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.

Question 18

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.

Question 19

In the United States,a three-pound can of coffee costs about $5.If the exchange rate is about 0.6 euros per dollar and a three-pound can of coffee in Belgium costs about 4 euros.What is the real exchange rate?

Accepted Answer

A)  5/4 cans of Belgian coffee per can of U.S.coffee 
B)  4/3 cans of Belgian coffee per can of U.S.coffee 
C)  4/5 cans of Belgian coffee per can of U.S.coffee 
D)  3/4 cans of Belgian coffee per can of U.S.coffee

Question 20

In an open economy,national savings can be less than investment.

Accepted Answer