Question 1

If sales of Saudi Arabian oil to the rest of the world increase and Saudis use the proceeds to buy foreign goods, which of the following increases?

Accepted Answer

A)  Saudi Arabian net exports but not Saudi Arabian net capital outflow
B)  Saudi Arabian net capital outflow but not Saudi Arabian net exports
C)  both Saudi Arabian net exports and net capital outflow
D)  neither Saudi Arabian net exports nor net capital outflowE) A) and B)
F) A) and C)

Question 2

If U.S. residents purchase $450 billion of foreign assets and foreigners purchase $575 billion of U.S. assets, then the U.S. has net capital outflows of -$125 billion and a trade deficit of $125 billion.

Accepted Answer

A) True 
 B)False

Question 3

A utilities company in the Netherlands buys wind generators made by a U.S. company. It pays from them with previously obtained dollars. By itself, this exchange

Accepted Answer

A)  increases both U.S. net exports and U.S. net capital outflow.
B)  decreases both U.S. net exports and U.S. net capital outflow.
C)  increases U.S. net exports and does not affect U.S. net capital outflow.
D)  None of the above is correct.E) B) and D)
F) All of the above

Question 4

A Big Mac in Japan costs 400 yen while it costs $4.50 in the U.S.. The nominal exchange rate is 100 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 risesE) A) and C)
F) A) and B)

Question 5

The theory of purchasing-power parity states that a unit of a country's currency should be able to buy the same quantity of goods in foreign countries as it does in the domestic economy.

Accepted Answer

A) True 
 B)False

Question 6

Net capital outflow is defined as the purchase of

Accepted Answer

A)  foreign assets by domestic residents minus the purchase of domestic assets by foreign residents.
B)  foreign assets by domestic residents minus the purchase of foreign goods and services by domestic residents.
C)  domestic assets by foreign residents minus the purchase of domestic goods and services by foreign residents.
D)  domestic assets by foreign residents minus the purchase of foreign assets by domestic residents.E) B) and C)
F) A) and D)

Question 7

Goods that cost one dollar in the U.S. cost one euro in France, the real exchange rate would be computed as how many French goods per U.S. goods?

Accepted Answer

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

Question 8

In which of the following situations must national saving rise?

Accepted Answer

A)  Both domestic investment and net capital outflow increase.
B)  Domestic investment increases and net capital outflow decreases.
C)  Domestic investment decreases and net capital outflow increases.
D)  Both domestic investment and net capital outflow decrease.E) B) and D)
F) None of the above

Question 9

If a country's trade surplus falls, its net capital outflow rises.

Accepted Answer

A) True 
 B)False

Question 10

A country imports $20 billion worth of goods and services and exports $15 billion worth of goods and services. What is its net capital outflow?

Accepted Answer

A)  ​$5 billion, so its residents' purchases of foreign assests exceed foreigners' purchases of domestic assets
B)  $5 billion, so foreigners' purchases of domestic assets exceed its resident's purchases of foreign assets
C)  ​-$5 billion, so its residents' purchases of foreign assests exceed foreigners' purchases of domestic assets
D)  -$5 billion, so foreigners' purchases of domestic assets exceed its residents' purchases of foreign assetsE) A) and B)
F) C) and D)

Question 11

The price level in Country A is 250. The price level in Country B is 300. If purchasing-power parity holds, what is the nominal value of Country A's currency in the market for foreign exchange with Country B? Show your work.

Accepted Answer

The answer of The price level in Country A is...

Question 12

By itself, when a Japanese bank purchases a bond issued by a U.S. corporation, U.S. net capital outflow rises.

Accepted Answer

A) True 
 B)False

Question 13

If purchasing-power parity holds, the price level in the U.S. is 250, and the price level in Japan is 260, which of the following is true?

Accepted Answer

A)  the real exchange rate is 250/260
B)  the real exchange rate is 260/250
C)  the nominal exchange rate is 250/260
D)  the nominal exchange rate is 260/250E) B) and D)
F) All of the above

Question 14

Exchange rates are 100 yen per dollar, 0.8 euro per dollar, and 12 pesos per dollar. A bottle of beer in New York costs 6 dollars, 500 yen in Tokyo, 6 euro in Munich, and 84 pesos in Cancun. Where is the most expensive and the cheapest beer, in that order?

Accepted Answer

A)  Cancun, New York
B)  Munich, Tokyo
C)  Tokyo, Munich
D)  New York, CancunE) C) and D)
F) B) and D)

Question 15

Net capital outflow equals the difference between a country's

Accepted Answer

A)  income and expenditure.
B)  investment and saving.
C)  purchases of foreign goods and services and sales of goods and services abroad.
D)  purchases of foreign assets and sales of domestic assets abroad.E) None of the above
F) A) and B)

Question 16

A U.S. mutual fund uses $1 million to buy yen from a Japanese bank. It then uses these yen to buy stocks in a Japanese electronics firm. The Japanese electronic firm then exchanges the $1 million dollars of yen for dollars from a U.S. bank. It uses these dollars to buy equipment manufactured by a company located in the U.S.
As a result of these exchanges, by how much, if at all, and in which direction does:
A. U.S. net exports change?
B. U.S. net capital outflow change?

Accepted Answer

A. U.S. net exports ...

Question 17

If a dollar buys less coffee in the U.S. than in Kenya, then

Accepted Answer

A)  the real exchange rate is greater than 1; a profit might be made by buying coffee in Kenya and selling it in the U.S.
B)  the real exchange rate is greater than 1; a profit might be made by buying coffee in the U.S. and selling it in Kenya.
C)  the real exchange rate is less than 1; a profit might be made by buying coffee in Kenya and selling it in the U.S.
D)  the real exchange rate is less than 1; a profit might be made by buying coffee in the U.S. and selling it in Kenya.E) B) and C)
F) All of the above

Question 18

If the Mexican nominal exchange rate does not change, but prices rise faster in Mexico than in all other countries, then the Mexican real exchange rate

Accepted Answer

A)  does not change.
B)  rises.
C)  declines.
D)  There is not enough information to answer the questionE) A) and C)
F) A) and B)

Question 19

If a Starbucks tall latte costs $3.20 in the United States and 3 euros in the Euro area, then purchasing-power parity implies the nominal exchange rate is how many euros per dollar?

Accepted Answer

A)  .938 If the exchange rate is less than this, it costs more dollars to buy a tall latte in the U.S. than in the Euro area.
B)  .938 If the exchange rate is less than this, it costs fewer dollars to buy a tall latte in the U.S. then in the Euro area.
C)  1.067 If the exchange rate is less than this, it costs more dollars to buy a tall latte in the U.S. than in the Euro area.
D)  1.067 If the exchange rate is less than this, it costs fewer dollars to buy a tall latte in the U.S. than in the Euro area.E) C) and D)
F) A) and D)

Question 20

According to purchasing-power parity, if prices in the United States increase by a larger percentage than prices in the United Kingdom, then the

Accepted Answer

A)  real exchange rate rises.
B)  nominal exchange rate rises.
C)  real exchange rate falls.
D)  nominal exchange rate falls.E) A) and D)
F) A) and C)

Exam 31: Open-Economy Macroeconomics: Basic Concepts

If a Starbucks tall latte costs $3.20 in the United States and 3 euros in the Euro area, then purchasing-power parity implies the nominal exchange rate is how many euros per dollar?

Correct Answer
verified

According to purchasing-power parity, if prices in the United States increase by a larger percentage than prices in the United Kingdom, then the

Correct Answer
verified

A Big Mac in Japan costs 400 yen while it costs $4.50 in the U.S.. The nominal exchange rate is 100 yen per dollar. Which of the following would both make the real exchange rate move towards purchasing-power parity?

Correct Answer
verified

Net capital outflow is defined as the purchase of

Correct Answer
verified

By itself, when a Japanese bank purchases a bond issued by a U.S. corporation, U.S. net capital outflow rises.

Correct Answer
verified

The theory of purchasing-power parity states that a unit of a country's currency should be able to buy the same quantity of goods in foreign countries as it does in the domestic economy.

Correct Answer
verified

Exchange rates are 100 yen per dollar, 0.8 euro per dollar, and 12 pesos per dollar. A bottle of beer in New York costs 6 dollars, 500 yen in Tokyo, 6 euro in Munich, and 84 pesos in Cancun. Where is the most expensive and the cheapest beer, in that order?

Correct Answer
verified

Correct Answer
verified
A. U.S. net exports ...
View Answer

The price level in Country A is 250. The price level in Country B is 300. If purchasing-power parity holds, what is the nominal value of Country A's currency in the market for foreign exchange with Country B? Show your work.

Correct Answer
verified

Goods that cost one dollar in the U.S. cost one euro in France, the real exchange rate would be computed as how many French goods per U.S. goods?

Correct Answer
verified

If purchasing-power parity holds, the price level in the U.S. is 250, and the price level in Japan is 260, which of the following is true?

Correct Answer
verified

If sales of Saudi Arabian oil to the rest of the world increase and Saudis use the proceeds to buy foreign goods, which of the following increases?

Correct Answer
verified

If a dollar buys less coffee in the U.S. than in Kenya, then

Correct Answer
verified

If a country's trade surplus falls, its net capital outflow rises.

Correct Answer
verified

A utilities company in the Netherlands buys wind generators made by a U.S. company. It pays from them with previously obtained dollars. By itself, this exchange

Correct Answer
verified

If the Mexican nominal exchange rate does not change, but prices rise faster in Mexico than in all other countries, then the Mexican real exchange rate

Correct Answer
verified

If U.S. residents purchase $450 billion of foreign assets and foreigners purchase $575 billion of U.S. assets, then the U.S. has net capital outflows of -$125 billion and a trade deficit of $125 billion.

Correct Answer
verified

A country imports $20 billion worth of goods and services and exports $15 billion worth of goods and services. What is its net capital outflow?

Correct Answer
verified

Net capital outflow equals the difference between a country's

Correct Answer
verified

In which of the following situations must national saving rise?

Correct Answer
verified

Exam 31: Open-Economy Macroeconomics: Basic Concepts

If a Starbucks tall latte costs $3.20 in the United States and 3 euros in the Euro area, then purchasing-power parity implies the nominal exchange rate is how many euros per dollar?

Correct AnswerverifiedShow Answer

According to purchasing-power parity, if prices in the United States increase by a larger percentage than prices in the United Kingdom, then the

Correct AnswerverifiedShow Answer

A Big Mac in Japan costs 400 yen while it costs $4.50 in the U.S.. The nominal exchange rate is 100 yen per dollar. Which of the following would both make the real exchange rate move towards purchasing-power parity?

Correct AnswerverifiedShow Answer

Net capital outflow is defined as the purchase of

Correct AnswerverifiedShow Answer

By itself, when a Japanese bank purchases a bond issued by a U.S. corporation, U.S. net capital outflow rises.

Correct AnswerverifiedShow Answer

The theory of purchasing-power parity states that a unit of a country's currency should be able to buy the same quantity of goods in foreign countries as it does in the domestic economy.

Correct AnswerverifiedShow Answer

Exchange rates are 100 yen per dollar, 0.8 euro per dollar, and 12 pesos per dollar. A bottle of beer in New York costs 6 dollars, 500 yen in Tokyo, 6 euro in Munich, and 84 pesos in Cancun. Where is the most expensive and the cheapest beer, in that order?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedA. U.S. net exports ...View AnswerShow Answer

The price level in Country A is 250. The price level in Country B is 300. If purchasing-power parity holds, what is the nominal value of Country A's currency in the market for foreign exchange with Country B? Show your work.

Correct AnswerverifiedShow Answer

Goods that cost one dollar in the U.S. cost one euro in France, the real exchange rate would be computed as how many French goods per U.S. goods?

Correct AnswerverifiedShow Answer

If purchasing-power parity holds, the price level in the U.S. is 250, and the price level in Japan is 260, which of the following is true?

Correct AnswerverifiedShow Answer

If sales of Saudi Arabian oil to the rest of the world increase and Saudis use the proceeds to buy foreign goods, which of the following increases?

Correct AnswerverifiedShow Answer

If a dollar buys less coffee in the U.S. than in Kenya, then

Correct AnswerverifiedShow Answer

If a country's trade surplus falls, its net capital outflow rises.

Correct AnswerverifiedShow Answer

A utilities company in the Netherlands buys wind generators made by a U.S. company. It pays from them with previously obtained dollars. By itself, this exchange

Correct AnswerverifiedShow Answer

If the Mexican nominal exchange rate does not change, but prices rise faster in Mexico than in all other countries, then the Mexican real exchange rate

Correct AnswerverifiedShow Answer

If U.S. residents purchase $450 billion of foreign assets and foreigners purchase $575 billion of U.S. assets, then the U.S. has net capital outflows of -$125 billion and a trade deficit of $125 billion.

Correct AnswerverifiedShow Answer

A country imports $20 billion worth of goods and services and exports $15 billion worth of goods and services. What is its net capital outflow?

Correct AnswerverifiedShow Answer

Net capital outflow equals the difference between a country's

Correct AnswerverifiedShow Answer

In which of the following situations must national saving rise?

Correct AnswerverifiedShow Answer

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A. U.S. net exports ...
View Answer

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