Question 1

If purchasing-power parity holds, then the value of the

Accepted Answer

A)  real exchange rate is equal to one.
B)  nominal exchange rate is equal to one.
C)  real exchange rate is equal to the nominal exchange rate.
D)  real exchange rate is equal to the difference in inflation rates between the two countries.E) All of the above
F) None of the above

Question 2

A Mexican firm exchanges Pesos for U.S. dollars and then uses these dollars to purchase corn from the U.S. This transaction

Accepted Answer

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

Question 3

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.E) A) and C)
F) A) and B)

Question 4

It costs $80 for a dental appointment in the U.S. It costs 600 Egyptian pounds for the same appointment in Egypt. The nominal exchange rate is 7 pounds per dollar. The real exchange rate is

Accepted Answer

A)  less than one. Dental appointments in Egypt are cheaper than in the U.S.
B)  less than one. Dental appointments in Egypt are more expensive than in the U.S.
C)  greater than one. Dental appointments in Egypt are cheaper than in the U.S.
D)  greater than one. Dental appointments in Egypt are more expensive than in the U.S.E) B) and D)
F) A) and B)

Question 5

Suppose that the nominal exchange rate is .80 euro per dollar, that the price of a basket of goods in the U.S. is $500 and the price of a basket of goods in Germany is 400 Euro. Suppose that these values change to .90 euro per dollar, $600, and 600 euro. Then the real exchange rate would

Accepted Answer

A)  appreciate which by itself would make U.S. net exports fall.
B)  appreciate which by itself would make U.S. net exports rise.
C)  depreciate which by itself would make U.S. net exports fall.
D)  depreciate which by itself would make U.S. net exports rise.E) A) and B)
F) A) and C)

Question 6

If business opportunities in a country become relatively less attractive relative to those of other countries, then

Accepted Answer

A)  both its net exports and net capital outflows fall.
B)  both its net exports and net capital outflows rise.
C)  its net exports fall and its net capital outflows fall.
D)  its net exports rise and its net capital outflows fallE) A) and C)
F) A) and B)

Question 7

If US goods cost one dollar for each euro German goods costs, the real exchange rate would be computed as how many German goods per U.S. goods?

Accepted Answer

A)  one
B)  the price of the U.S. goods
C)  the amount of euros that can be bought with one U.S. dollar
D)  None of the above is correct.E) None of the above
F) A) and B)

Question 8

A country has $1.5 billion dollars of domestic investment and net exports of $2 billion. What is its saving?

Accepted Answer

A)  -$.5 billion
B)  $5 billion
C)  $1.5 billion
D)  $3.5 billionE) B) and D)
F) B) and C)

Question 9

Suppose that because of legal and financial reforms in the country of Belats, foreigners find business opportunities there more attractive. We would expect the more attractive opportunities would cause Belats'

Accepted Answer

A)  net exports and net capital outflows to increase.
B)  net exports to increase and its net capital outflows to decrease.
C)  net exports and net capital outflow to decrease.
D)  net exports to decrease and its net capital outflow to increase.E) None of the above
F) A) and B)

Question 10

If the exchange rate is 70 Bangladesh taka per dollar and a bushel of rice costs 200 taka in Bangladesh and $3 in the United States, then the real exchange rate is

Accepted Answer

A)  greater than one and arbitrageurs could profit by buying rice in the United States and selling it in Bangladesh.
B)  greater than one and arbitrageurs could profit by buying rice in Bangladesh and selling it in the United States.
C)  less than one and arbitrageurs could profit by buying rice in the United States and selling it in Bangladesh.
D)  less than one and arbitrageurs could profit by buying rice in Bangladesh and selling it in the United States.E) A) and D)
F) B) and C)

Question 11

Which of the following is an example of U.S. foreign direct investment?

Accepted Answer

A)  A U.S. based mutual fund buys stock in Eastern European companies.
B)  A U.S. citizen builds and operates a coffee shop in the Netherlands.
C)  A Swiss bank buys a U.S. government bond.
D)  A German tractor factory opens a plant in Waterloo, Iowa.E) A) and C)
F) A) and B)

Question 12

A U.S. based company sells semiconductors to an Italian firm. The U.S. company uses all of the revenues from this sale to purchase automobiles from Italian firms. These transactions

Accepted Answer

A)  increase both U.S. net exports and U.S. net capital outflow.
B)  decrease both U.S. net exports and U.S. net capital outflow.
C)  increase U.S. net exports and do not affect U.S. net capital outflow.
D)  None of the above is correct.E) B) and C)
F) A) and B)

Question 13

If the real exchange rate is 5/4 pounds of Chilean beef per pound of U.S. beef, a pound of U.S. beef costs $2 and the nominal exchange rate is 500 Chilean pesos per dollar, then Chilean beef costs

Accepted Answer

A)  1,250 pesos per pound.
B)  800 pesos per pound
C)  250 pesos per pound.
D)  None of the above is correct.E) B) and D)
F) A) and B)

Question 14

If there is a trade deficit, then

Accepted Answer

A)  saving is greater than domestic investment and Y > C + I + G.
B)  saving is greater than domestic investment and Y 
C)  saving is less than domestic investment and Y > C +I + G.
D)  saving is less than domestic investment and Y < C + I + G.E) A) and B)
F) A) and C)

Question 15

After 1980 in the United States,

Accepted Answer

A)  national saving fell below investment and net capital outflow was a large positive number.
B)  national saving fell below investment and net capital outflow was a large negative number.
C)  investment fell below saving and net capital outflow was a large positive number.
D)  investment fell below saving, so net capital outflow was a large negative number.E) A) and D)
F) C) and D)

Question 16

Other things the same, if the exchange rate changes from .30 Kuwaiti dinar per dollar to .35 Kuwaiti dinar per dollar, then the dollar has

Accepted Answer

A)  appreciated and so buys more Kuwaiti goods.
B)  appreciated and so buys fewer Kuwaiti goods.
C)  depreciated and so buys more Kuwaiti goods.
D)  depreciated and so buys fewer Kuwaiti goods.E) B) and C)
F) A) and D)

Question 17

If U.S. residents purchase $500 billion of foreign assets and foreigners purchase $1300 billion of U.S. assets,

Accepted Answer

A)  U.S. net capital outflow is $800 billion; capital is flowing into the U.S.
B)  U.S. net capital outflow is $800 billion; capital is flowing out of the U.S.
C)  U.S. net capital outflow is -$800 billion; capital is flowing into the U.S.
D)  U.S. net capital outflow is -$800 billion; capital is flowing out of the U.S.E) B) and D)
F) B) and C)

Question 18

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

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 rateE) B) and C)
F) A) and C)

Question 19

Other things the same, if a country has a trade deficit and saving rises,

Accepted Answer

A)  net capital outflow rises, so the trade deficit increases.
B)  net capital outflow rises, so the trade deficit decreases.
C)  net capital outflow falls, so the trade deficit increases.
D)  net capital outflow falls, so the trade deficit decreases.E) B) and D)
F) None of the above

Question 20

Firms in Saudi Arabia sell oil to the U.S. Other things the same, these oil sales

Accepted Answer

A)  increase Saudi net exports and net capital outflow.
B)  decrease Saudi net exports and net capital outflow.
C)  increase Saudi net exports and decrease Saudi net capital outflow.
D)  decrease Saudi net exports and increase Saudi net capital outflow.E) B) and D)
F) C) and D)

Exam 18: Open-Economy Macroeconomic Models

Firms in Saudi Arabia sell oil to the U.S. Other things the same, these oil sales

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Other things the same, if the exchange rate changes from .30 Kuwaiti dinar per dollar to .35 Kuwaiti dinar per dollar, then the dollar has

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If there is a trade deficit, then

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A country has $1.5 billion dollars of domestic investment and net exports of $2 billion. What is its saving?

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

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It costs $80 for a dental appointment in the U.S. It costs 600 Egyptian pounds for the same appointment in Egypt. The nominal exchange rate is 7 pounds per dollar. The real exchange rate is

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Other things the same, if a country has a trade deficit and saving rises,

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Suppose that because of legal and financial reforms in the country of Belats, foreigners find business opportunities there more attractive. We would expect the more attractive opportunities would cause Belats'

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Suppose that the nominal exchange rate is .80 euro per dollar, that the price of a basket of goods in the U.S. is $500 and the price of a basket of goods in Germany is 400 Euro. Suppose that these values change to .90 euro per dollar, $600, and 600 euro. Then the real exchange rate would

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If U.S. residents purchase $500 billion of foreign assets and foreigners purchase $1300 billion of U.S. assets,

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A U.S. based company sells semiconductors to an Italian firm. The U.S. company uses all of the revenues from this sale to purchase automobiles from Italian firms. These transactions

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If business opportunities in a country become relatively less attractive relative to those of other countries, then

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A Mexican firm exchanges Pesos for U.S. dollars and then uses these dollars to purchase corn from the U.S. This transaction

Correct AnswerverifiedShow Answer

After 1980 in the United States,

Correct AnswerverifiedShow Answer

If the real exchange rate is 5/4 pounds of Chilean beef per pound of U.S. beef, a pound of U.S. beef costs $2 and the nominal exchange rate is 500 Chilean pesos per dollar, then Chilean beef costs

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Which of the following does purchasing-power parity imply?

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If the exchange rate is 70 Bangladesh taka per dollar and a bushel of rice costs 200 taka in Bangladesh and $3 in the United States, then the real exchange rate is

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If purchasing-power parity holds, then the value of the

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If US goods cost one dollar for each euro German goods costs, the real exchange rate would be computed as how many German goods per U.S. goods?

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Which of the following is an example of U.S. foreign direct investment?

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