Question 1

Other things the same,an increase in the nominal exchange rate raises the real exchange rate.

Accepted Answer

A) True 
 B)False

Question 2

Prices in both the U.S.and India rise,but prices in India increase by a larger percentage.According to purchasing-power parity the U.S.dollar

Accepted Answer

A)   gains value both in terms of the domestic goods and services it can buy and in terms of the Indian currency it can buy.
B)   gains value in terms of the domestic goods and services it can buy,but loses value in terms of the Indian currency it can buy.
C)   loses value in terms of the domestic goods and services it can buy,but gains value in terms of the Indian currency it can buy.
D)   loses value both in terms of the domestic goods and services it can buy and in terms of the Indian currency it can buy.E) C) and D)
F) A) and B)

Question 3

Other things the same,if the exchange rate changes from 30 Thai bhat per dollar to 25 Thai bhat per dollar,then the dollar has

Accepted Answer

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

Question 4

A U.S.firm buys bonds issued by a technology center in India.This purchase is an example of U.S.

Accepted Answer

A)   foreign portfolio investment.By itself it is an increase in U.S.holdings of foreign bonds and increases U.S.net capital outflow.
B)   foreign portfolio investment.By itself it is an increase in U.S.holdings of foreign bonds and decreases U.S.net capital outflow.
C)   foreign direct investment.By itself it is an increase in U.S.holdings of foreign bonds and increases U.S.net capital outflow.
D)   foreign direct investment.By itself it is an increase in U.S.holdings of foreign bonds and decreases U.S.net capital outflow.E) B) and C)
F) A) and D)

Question 5

Table 18-2
 
-Refer to Table 18-2.Which currency(ies) is(are) less valuable than predicted by the doctrine of purchasing-power parity?

Accepted Answer

A)   boloviano and dinar
B)   yen and kroner
C)   baht and kroner
D)   bahtE) C) and D)
F) None of the above

Question 6

According to purchasing power parity,if it took 3.5 Israeli Shekels to buy a dollar this year,but it took 4 to buy it last year,then the dollar has

Accepted Answer

A)   appreciated,indicating inflation was higher in the U.S.than in Israel.
B)   appreciated,indicating inflation was lower in the U.S.than in Israel.
C)   depreciated,indicating inflation was higher in the U.S.than in Israel.
D)   depreciated,indicating inflation was lower in the U.S.than in Israel.E) B) and C)
F) A) and D)

Question 7

The U.S.has a trade surplus.Which of the following is correct?

Accepted Answer

A)   capital is flowing into the U.S.and S > I
B)   capital is flowing into the U.S.and S 
C)   capital is flowing out of the U.S.and S > I
D)   capital is flowing out of the U.S.and S < IE) B) and D)
F) A) and B)

Question 8

A roll of duct tape costs 2 Canadian dollars in Canada and 1.75 U.S.dollars in the U.S.If the nominal exchange rate were 1.10 Canadian dollars per U.S.dollar.

Accepted Answer

A)   A profit could be made by buying duct tape in Canada and selling it in the U.S.This would tend to drive up the price of U.S.duct tape.
B)   A profit could be made by buying duct tape in Canada and selling it in the U.S.This would tend to drive up the price of Canadian duct tape.
C)   A profit could be made by buying duct tape in the U.S.and selling it in Canada.This would tend to drive up the price of U.S.duct tape.
D)   A profit could be made by buying duct tape in the U.S.and selling it in Canada.This would tend to drive up the price of Canadian duct tape.E) C) and D)
F) B) and D)

Question 9

Other things the same,if a country saves less,then

Accepted Answer

A)   net capital outflow rises,so net exports rise.
B)   net capital outflow rises,so net exports fall.
C)   net capital outflow falls,so net exports rise.
D)   net capital outflow falls,so net exports fall.E) A) and D)
F) B) and C)

Question 10

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 B)
F) All of the above

Question 11

The purchase of U.S.government bonds by Egyptians is an example of

Accepted Answer

A)   U.S.imports.
B)   U.S.exports.
C)   foreign portfolio investment by Egyptians.
D)   foreign direct investment by Egyptians.E) C) and D)
F) None of the above

Question 12

During some year a country had exports of $30 billion,imports of $40 billion,and domestic investment of $60 billion.What was its saving during the year?

Accepted Answer

A)   $70 billion
B)   $50 billion
C)   $10 billion
D)   -$10 billionE) C) and D)
F) All of the above

Question 13

If purchasing power parity holds,when a country's central bank decreases the money supply,its

Accepted Answer

A)   price level rises and its currency appreciates relative to other currencies in the world.
B)   price level falls and its currency appreciates relative to other currencies in the world.
C)   price level rises and its currency depreciates relative to other currencies in the world.
D)   price level falls and its currency depreciates relative to other currencies in the world.E) None of the above
F) A) and C)

Question 14

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) A) and D)
F) A) and C)

Question 15

A Canadian manufacturing company opens a factory the produces air conditioners in the United States.This is an example of Canadian

Accepted Answer

A)   foreign direct investment that increases Canadian net capital outflow.
B)   foreign direct investment that decreases Canadian net capital outflow.
C)   foreign portfolio investment that increases Canadian net capital outflow.
D)   foreign portfolio investment that decreases Canadian net capital outflow.E) A) and D)
F) C) and D)

Question 16

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) B) and D)
F) B) and C)

Question 17

If Ireland's domestic investment exceeds national saving,then Ireland has

Accepted Answer

A)   positive net capital outflows and negative net exports.
B)   positive net capital outflows and positive net exports.
C)   negative net capital outflows and negative net exports.
D)   negative net capital outflows and positive net exports.E) A) and C)
F) None of the above

Question 18

Other things the same,an increase in the foreign price level leads to an increase in the real exchange rate.

Accepted Answer

A) True 
 B)False

Question 19

When a company from Germany builds an automobile factory in the United States,the German firm has engaged in foreign direct investment.

Accepted Answer

A) True 
 B)False

Question 20

According to purchasing-power parity theory,the nominal exchange rate between the U.S.and another country should equal the U.S.price level divided by the price level in the foreign country.

Accepted Answer

A) True 
 B)False

Exam 31: Open-Economy Macroeconomic Models

Other things the same,an increase in the foreign price level leads to an increase in the real exchange rate.

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A roll of duct tape costs 2 Canadian dollars in Canada and 1.75 U.S.dollars in the U.S.If the nominal exchange rate were 1.10 Canadian dollars per U.S.dollar.

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Prices in both the U.S.and India rise,but prices in India increase by a larger percentage.According to purchasing-power parity the U.S.dollar

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During some year a country had exports of $30 billion,imports of $40 billion,and domestic investment of $60 billion.What was its saving during the year?

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The U.S.has a trade surplus.Which of the following is correct?

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If purchasing power parity holds,when a country's central bank decreases the money supply,its

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According to purchasing power parity,if it took 3.5 Israeli Shekels to buy a dollar this year,but it took 4 to buy it last year,then the dollar has

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Other things the same,an increase in the nominal exchange rate raises the real exchange rate.

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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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Other things the same,if the exchange rate changes from 30 Thai bhat per dollar to 25 Thai bhat per dollar,then the dollar has

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Other things the same,if a country saves less,then

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When a company from Germany builds an automobile factory in the United States,the German firm has engaged in foreign direct investment.

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

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The purchase of U.S.government bonds by Egyptians is an example of

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According to purchasing-power parity theory,the nominal exchange rate between the U.S.and another country should equal the U.S.price level divided by the price level in the foreign country.

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A U.S.firm buys bonds issued by a technology center in India.This purchase is an example of U.S.

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A Canadian manufacturing company opens a factory the produces air conditioners in the United States.This is an example of Canadian

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If Ireland's domestic investment exceeds national saving,then Ireland has

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Table 18-2 -Refer to Table 18-2.Which currency(ies) is(are) less valuable than predicted by the doctrine of purchasing-power parity?

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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?

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