Question 1

Julie and John are American residents. Julie buys stock issued by a Japanese company. John opens a sporting goods store in Mexico. Whose purchase, by itself, increases the U.S.'s net capital outflow?

Accepted Answer

A)   Julie's
B)   John's
C)   both Julie's and John's
D)   neither Julie's nor John'sE) None of the above
F) B) and C)

Question 2

A U.S. citizen buys bonds issued by an automobile manufacturer in Japan. Her expenditures are U.S.

Accepted Answer

A)   foreign direct investment that increase U.S. net capital outflow.
B)   foreign direct investment that decrease U.S. net capital outflow.
C)   foreign portfolio investment that increase U.S. net capital outflow.
D)   foreign portfolio investment that decrease U.S. net capital outflow.E) All of the above
F) A) and B)

Question 3

Purchasing-power parity theory does not hold at all times because

Accepted Answer

A)   many goods are not easily transported.
B)   the same goods produced in different countries may be imperfect substitutes for each other.
C)   Both a and b are correct.
D)   prices are different across countries.E) A) and D)
F) B) and C)

Question 4

If it took as many dollars to buy goods in the United States as it did to buy enough currency to buy the same goods in India, the real exchange rate would be computed as how many Indian goods per U.S. goods?

Accepted Answer

A)   one
B)   the number of dollars needed to buy U.S. goods divided by the number of rupees needed to buy Indian goods
C)   the number of rupees needed to buy Indian goods divided by the number of dollars needed to buy U.S. goods
D)   None of the above is correct.E) C) and D)
F) B) and D)

Question 5

According to purchasing-power parity, what is the relationship between changes in price levels between two countries and changes in nominal exchange rates?

Accepted Answer

Purchasing-power parity asserts that the...

Question 6

If prices in the U.S. rise faster than prices in the United Kingdom, then according to the doctrine of purchasing-power parity the U.S. nominal exchange rate should fall.

Accepted Answer

A) True 
 B)False

Question 7

When net capital outflow is negative, it means that on net the value of domestic assets purchased by foreigners exceeds the value of foreign assets purchased by domestic residents.

Accepted Answer

A) True 
 B)False

Question 8

A Turkish firm excahnges lira (Turkish currency) for dollars. It then uses these dollars to purchase computers from the U.S. These actions decrease U.S. net capital outflow and increase U.S. net exports.

Accepted Answer

A) True 
 B)False

Question 9

The increase in international trade in the United States is partly due to

Accepted Answer

A)   improvements in transportation.
B)   advances in telecommunications.
C)   increased trade of goods with a high value per pound.
D)   All of the above are correct.E) A) and D)
F) A) and C)

Question 10

If the exchange rate were 5 Egyptian pounds per U.S. dollar, a watch that costs $25 US dollars would cost

Accepted Answer

A)   125 Egyptian pounds
B)   50 Egyptian pounds
C)   5 Egyptian pounds
D)   None of the above is correct.E) A) and C)
F) A) and B)

Question 11

Jill, a U.S. citizen, uses some euros to purchase a bond issued by a French vineyard. This exchange

Accepted Answer

A)   decreases U.S. net capital outflow.
B)   increases U.S. net capital outflow by more than the value of the bond.
C)   increases U.S. net capital outflow by the value of the bond.
D)   does not change U.S. net capital outflow.E) A) and C)
F) B) and D)

Question 12

An American hardware chain sells dollars to obtain Indian rupees. It then uses the rupees to buy electrical generators manufactured by an Indian firm. This exchange

Accepted Answer

A)   increases U.S. net capital outflow because Indians obtain U.S. assets.
B)   decreases U.S. net capital outflow because Indians obtain U.S. assets.
C)   increases U.S. net capital outflow because the U.S. buys capital goods.
D)   decreases U.S. net capital outflow because the U.S. buys capital goods.E) B) and C)
F) A) and D)

Question 13

Suppose that the real exchange rate between the United States and Vietnam is defined in terms of baskets of goods. Other things the same, which of the following will increase the real exchange rate (that is increase the number of baskets of Vietnamese goods a basket of U.S. goods buys) ?

Accepted Answer

A)   an increase in the quantity of Vietnamese currency that can be purchased with a dollar
B)   an increase in the price of U.S. baskets of goods
C)   a decrease in the price in Vietnamese currency of Vietnamese goods
D)   All of the above are correct.E) A) and D)
F) C) and D)

Question 14

If U.S. exports are $150 billion and U.S. imports are $100 billion, which of the following is correct?

Accepted Answer

A)   The U.S. has a trade surplus of $100 billion.
B)   The U.S. has a trade surplus of $50 billion.
C)   The U.S. has a trade deficit of $100 billion.
D)   The U.S. has a trade deficit of $50 billion.E) B) and C)
F) A) and B)

Question 15

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.E) None of the above
F) A) and D)

Question 16

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

Question 17

If prices in Thailand rise less than prices in the United States, then according to the doctrine of purchasing-power parity the U.S. nominal exchange rate should rise.

Accepted Answer

A) True 
 B)False

Question 18

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

Question 19

Tom and Anthony are both U.S. citizens. Tom buys construction machinery from a company in Canada to use for his U.S construction company. Anthony opens a cafe in Portugal. Whose action is an example of U.S. foreign direct investment

Accepted Answer

A)   Tom's but not Anthony's.
B)   Anthony's but not Tom's.
C)   Anthony's and Tom's.
D)   Neither Anthony's nor Tom's.E) A) and C)
F) A) and B)

Question 20

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.E) A) and C)
F) A) and D)

Exam 13: Open-Economy Macroeconomic Models

When net capital outflow is negative, it means that on net the value of domestic assets purchased by foreigners exceeds the value of foreign assets purchased by domestic residents.

Correct AnswerverifiedShow Answer

A Turkish firm excahnges lira (Turkish currency) for dollars. It then uses these dollars to purchase computers from the U.S. These actions decrease U.S. net capital outflow and increase U.S. net exports.

Correct AnswerverifiedShow Answer

If it took as many dollars to buy goods in the United States as it did to buy enough currency to buy the same goods in India, the real exchange rate would be computed as how many Indian goods per U.S. goods?

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

Correct AnswerverifiedShow Answer

If prices in Thailand rise less than prices in the United States, then according to the doctrine of purchasing-power parity the U.S. nominal exchange rate should rise.

Correct AnswerverifiedShow Answer

A U.S. citizen buys bonds issued by an automobile manufacturer in Japan. Her expenditures are U.S.

Correct AnswerverifiedShow Answer

Purchasing-power parity theory does not hold at all times because

Correct AnswerverifiedShow Answer

Tom and Anthony are both U.S. citizens. Tom buys construction machinery from a company in Canada to use for his U.S construction company. Anthony opens a cafe in Portugal. Whose action is an example of U.S. foreign direct investment

Correct AnswerverifiedShow Answer

Jill, a U.S. citizen, uses some euros to purchase a bond issued by a French vineyard. This exchange

Correct AnswerverifiedShow Answer

From 1970 to 1998 the U.S. dollar

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Suppose that the real exchange rate between the United States and Vietnam is defined in terms of baskets of goods. Other things the same, which of the following will increase the real exchange rate (that is increase the number of baskets of Vietnamese goods a basket of U.S. goods buys) ?

Correct AnswerverifiedShow Answer

If U.S. exports are $150 billion and U.S. imports are $100 billion, which of the following is correct?

Correct AnswerverifiedShow Answer

According to purchasing-power parity, what is the relationship between changes in price levels between two countries and changes in nominal exchange rates?

Correct AnswerverifiedPurchasing-power parity asserts that the...View AnswerShow Answer

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?

Correct AnswerverifiedShow Answer

If prices in the U.S. rise faster than prices in the United Kingdom, then according to the doctrine of purchasing-power parity the U.S. nominal exchange rate should fall.

Correct AnswerverifiedShow Answer

Julie and John are American residents. Julie buys stock issued by a Japanese company. John opens a sporting goods store in Mexico. Whose purchase, by itself, increases the U.S.'s net capital outflow?

Correct AnswerverifiedShow Answer

If the exchange rate were 5 Egyptian pounds per U.S. dollar, a watch that costs $25 US dollars would cost

Correct AnswerverifiedShow Answer

An American hardware chain sells dollars to obtain Indian rupees. It then uses the rupees to buy electrical generators manufactured by an Indian firm. This exchange

Correct AnswerverifiedShow Answer

The increase in international trade in the United States is partly due to

Correct AnswerverifiedShow Answer

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Purchasing-power parity asserts that the...
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