Question 1

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) B) and D)
F) A) and D)

Question 2

If the U.S. has exports of $1.5 trillion and imports of $2.2 trillion, then the U.S.

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

Question 3

Suppose the real exchange rate is 1/2 gallon of Canadian gasoline per gallon of U.S. gasoline, a gallon of U.S. gasoline costs $5.00 U.S., and a gallon of Canadian gas costs 8 Canadian dollars. What is the nominal exchange rate?

Accepted Answer

A)  .80 Canadian dollars per U.S. dollar
B)  1.25 Canadian dollars per U.S. dollar
C)  1.60 Canadian dollars per U.S. dollar
D)  None of the above is correct.E) None of the above
F) A) and B)

Question 4

If you are vacationing in France and the dollar depreciates relative to the euro, then

Accepted Answer

A)  the dollar buys more euros. It will take fewer dollars to buy a good that costs 50 euros.
B)  the dollar buys more euros. It will take more dollars to buy a good that costs 50 euros.
C)  the dollar buys fewer euros. It will take fewer dollars to buy a good that costs 50 euros.
D)  the dollar buys fewer euros. It will take more dollars to buy a good that costs 50 euros.E) A) and D)
F) All of the above

Question 5

According to purchasing power parity which of the following would happen if a country raised its money supply growth rate?

Accepted Answer

A)  its nominal exchange rate would fall
B)  its real exchange rate would fall
C)  its real net exports would rise
D)  All of the above would happen.E) All of the above
F) A) and B)

Question 6

If the exchange rate is .60 British pounds = $1, a bottle of ale that costs 3 pounds costs

Accepted Answer

A)  $1.80.
B)  $4.80.
C)  $5.
D)  None of the above is correct.E) All of the above
F) C) and D)

Question 7

If citizens of a country are not saving much, it is better to

Accepted Answer

A)  force citizens to save.
B)  reduce investment.
C)  have foreigners invest in the domestic economy than no one at all.
D)  to prevent opportunities for citizens to buy capital assets abroad.E) All of the above
F) None of the above

Question 8

The value of the goods and services Australia purchases from the U.S. are greater than the value of goods and services the U.S. purchases from Australia. The U.S. has

Accepted Answer

A)  positive net exports with Australia and a trade surplus with Australia.
B)  positive net exports with Australia and a trade deficit with Australia.
C)  negative net exports with Australia and a trade surplus with Australia.
D)  negative net exports with Australia and a trade deficit with Australia.E) None of the above
F) A) and B)

Question 9

Suppose that the inflation rate is higher in Turkey than in the U.S. for the next six months. Then according to purchasing power parity, if exchange rates are given in terms of how many Turkish lira or how many Turkish goods a U.S. dollar buys,

Accepted Answer

A)  the nominal exchange rate rises but the real exchange rate does not.
B)  the nominal exchange rate does not rise, but the real exchange rate does.
C)  both the nominal and real exchange rates rise.
D)  neither the nominal nor the real exchange rate rises.E) B) and C)
F) A) and D)

Question 10

If the real exchange rate between the U.S. and Argentina is 1, then

Accepted Answer

A)  purchasing-power parity holds, and 1 U.S. dollar buys 1 Argentinean bolivar.
B)  purchasing power parity holds, and the amount of dollars needed to buy goods in the U.S. is the same as the amount needed to buy enough Argentinean bolivars to buy the same goods in Argentina.
C)  purchasing power parity does not hold, but 1 U.S. dollar buys 1 Argentinean bolivar.
D)  purchasing power parity does not hold, but the amount of dollars needed to buy goods in the U.S. is the same as the amount needed to buy enough Argentinean bolivars to buy the same goods in Argentina.E) None of the above
F) B) and D)

Question 11

Jason plans to buy shrimp in Florida and sell them in Manhattan, Kansas where the price is higher. Jason plans to engage in arbitrage.

Accepted Answer

A) True 
 B)False

Question 12

If a country had a trade surplus of $50 billion and then its exports rose by $30 billion and its imports rose by $20 billion, its net exports would now be

Accepted Answer

A)  $0 billion.
B)  $20 billion.
C)  $40 billion.
D)  $60 billion.E) B) and D)
F) B) and C)

Question 13

What is the logic behind the theory of purchasing-power parity?

Accepted Answer

The logic behind purchasing-power parity...

Question 14

If U.S. consumers decrease their demand for cellphones from Finland, then other things the same Finland's

Accepted Answer

A)  exports and net exports fall.
B)  exports fall and net exports rise.
C)  imports and net exports fall.
D)  imports fall and net exports rise.E) B) and D)
F) B) and C)

Question 15

If a country's purchases of foreign assets exceeds foreign purchases of domestic assets, that country 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.E) A) and B)
F) A) and C)

Question 16

If a nation is selling more goods and services to foreigners than it is buying from them, then on net it must be buying assets abroad.

Accepted Answer

A) True 
 B)False

Question 17

A Swiss watchmaker opens a factory in the United States. This is an example of Swiss

Accepted Answer

A)  exports.
B)  imports.
C)  foreign portfolio investment.
D)  foreign direct investment.E) All of the above
F) B) and C)

Question 18

If purchasing power parity holds, a bushel of rice costs $10 in the U.S., and the nominal exchange rate is 40 Thai baht per dollar, what is the price of rice in Thailand?

Accepted Answer

A)  400 baht
B)  200 baht
C)  100 baht
D)  40 bahtE) C) and D)
F) B) and C)

Question 19

Net capital outflow equals the difference between a country's

Accepted Answer

A)  income and expenditure.
B)  investment and saving.
C)  buying 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) All of the above

Question 20

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

Exam 18: Open-Economy Macroeconomic Models

A Swiss watchmaker opens a factory in the United States. This is an example of Swiss

Correct AnswerverifiedShow Answer

If purchasing power parity holds, a bushel of rice costs $10 in the U.S., and the nominal exchange rate is 40 Thai baht per dollar, what is the price of rice in Thailand?

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If the exchange rate is .60 British pounds = $1, a bottle of ale that costs 3 pounds costs

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The value of the goods and services Australia purchases from the U.S. are greater than the value of goods and services the U.S. purchases from Australia. The U.S. has

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Suppose the real exchange rate is 1/2 gallon of Canadian gasoline per gallon of U.S. gasoline, a gallon of U.S. gasoline costs $5.00 U.S., and a gallon of Canadian gas costs 8 Canadian dollars. What is the nominal exchange rate?

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If a country's purchases of foreign assets exceeds foreign purchases of domestic assets, that country has

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Net capital outflow equals the difference between a country's

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If the U.S. has exports of $1.5 trillion and imports of $2.2 trillion, then the U.S.

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If you are vacationing in France and the dollar depreciates relative to the euro, then

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If a country had a trade surplus of $50 billion and then its exports rose by $30 billion and its imports rose by $20 billion, its net exports would now be

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

Jason plans to buy shrimp in Florida and sell them in Manhattan, Kansas where the price is higher. Jason plans to engage in arbitrage.

Correct AnswerverifiedShow Answer

Suppose that the inflation rate is higher in Turkey than in the U.S. for the next six months. Then according to purchasing power parity, if exchange rates are given in terms of how many Turkish lira or how many Turkish goods a U.S. dollar buys,

Correct AnswerverifiedShow Answer

If a nation is selling more goods and services to foreigners than it is buying from them, then on net it must be buying assets abroad.

Correct AnswerverifiedShow Answer

If U.S. consumers decrease their demand for cellphones from Finland, then other things the same Finland's

Correct AnswerverifiedShow Answer

According to purchasing power parity which of the following would happen if a country raised its money supply growth rate?

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What is the logic behind the theory of purchasing-power parity?

Correct AnswerverifiedThe logic behind purchasing-power parity...View AnswerShow Answer

If citizens of a country are not saving much, it is better to

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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.

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If the real exchange rate between the U.S. and Argentina is 1, then

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The logic behind purchasing-power parity...
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