Question 1

-Refer to the Table 12-1. What countries in the table does purchasing-power parity hold for?

Accepted Answer

A)   Bolivia and Japan
B)   Bolivia and Morocco
C)   Norway and Thailand
D)   Thailand and MoroccoE) A) and C)
F) A) and B)

Question 2

Healthy Grain Farms, a Canadian manufacturer of dried peas and lentils, sells cases of its product to stores overseas. Which statement best identifies the effects of these transactions?

Accepted Answer

A)   They decrease Canadian exports but increase Canadian net exports.
B)   They decrease both Canadian exports and Canadian net exports.
C)   They increase both Canadian exports and Canadian net exports.
D)   They increase Canadian exports but decrease Canadian net exports.E) None of the above
F) B) and C)

Question 3

According to the theory of purchasing-power parity, what must the nominal exchange rate between two countries reflect?

Accepted Answer

A)   the different price levels in those countries
B)   the different resource endowments in those countries
C)   the different income levels in those countries
D)   the different standards of living between those countriesE) None of the above
F) All of the above

Question 4

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

Accepted Answer

The logic behind purchasing-power parity...

Question 5

What is the formula for investment in an open economy?

Accepted Answer

A)   I = Y - C
B)   I = Y - C - NX
C)   I = S - NCO
D)   I = S + NXE) C) and D)
F) A) and B)

Question 6

Suppose the nominal exchange rate between the yen and the U.S. dollar is 260 yen per U.S. dollar, and that the nominal exchange rate between the Canadian dollar and the U.S. dollar is 1.30 Canadian dollars per U.S. dollar. How many yen would it take to buy a Canadian dollar?

Accepted Answer

A)   0.005
B)   0.5
C)   200.
D)   200E) B) and C)
F) A) and B)

Question 7

What is the formula for an open economy's GDP?

Accepted Answer

A)   Y = C + I + G
B)   Y = (C - T)  + I + G
C)   Y = C + I + G + S
D)   Y = C + I + G + NXE) None of the above
F) B) and C)

Question 8

Larry, a Canadian citizen, opens and operates a bookstore in England. What is this an example of?

Accepted Answer

A)   investment for Larry and Canadian foreign direct investment
B)   investment for Larry and Canadian foreign portfolio investment
C)   Canadian foreign direct investment and Canadian domestic investment
D)   Canadian foreign portfolio investment and Canadian domestic investmentE) All of the above
F) B) and D)

Question 9

Suppose Paul, a Romanian citizen, builds a telescope factory in Israel. What are the effects of these expenditures?

Accepted Answer

A)   They increase Romanian and Israeli net capital outflow.
B)   They increase Romanian net capital outflow, but decrease Israeli net capital outflow.
C)   They decrease Romanian net capital outflow, but increase Israeli net capital outflow.
D)   They increase Romanian net capital outflow, but Israeli net capital outflow remains unchanged.E) B) and D)
F) A) and B)

Question 10

Which of the following would be Canadian foreign direct investment?

Accepted Answer

A)   A Swedish car manufacturer opens a plant in Sherbrooke, Quebec.
B)   A Dutch citizen buys shares of stock in a Canadian company.
C)   Lululemon, a Canadian company, opens an athleticwear store in Jamaica.
D)   A Canadian citizen buys shares of stock in companies located in Japan.E) A) and B)
F) A) and C)

Question 11

Which statement best explains the relationship among price levels, nominal and real exchange rates, and money supply in Canada and Ireland when purchasing-power parity holds?

Accepted Answer

A)   When the price level in Canada falls more rapidly than that in Ireland, the real exchange rate, defined as Irish goods per unit of Canadian goods, stays the same.
B)   When the money supply in Canada rises more rapidly than in Ireland, the nominal exchange rate, defined as euros (the currency used in Ireland)  per dollar, increases.
C)   When prices for the same goods are the same in Canadian dollars in Canada and Ireland, the nominal exchange rate does not change.
D)   When prices in both countries stay the same and the nominal exchange rate increases, the real exchange rate decreases.E) A) and B)
F) C) and D)

Question 12

Perhaps the most dramatic change in the Canadian economy over the past five decades has been the increasing relative importance of international trade and finance.

Accepted Answer

A) True 
 B)False

Question 13

A rational investor will always purchase the bond that pays the highest real interest rate.

Accepted Answer

A) True 
 B)False

Question 14

On behalf of your firm, you make frequent trips to Hong Kong. You notice that you always have to pay more dollars to get enough local currency to get your suits dry-cleaned than you have to pay to get your suits dry-cleaned in Canada. Is this consistent with purchasing-power parity?

Accepted Answer

A)   No, but it might be explained by limited opportunities for arbitrage across international borders.
B)   Yes, if prices in Hong Kong are rising more rapidly than prices in Canada.
C)   Yes, if prices in Hong Kong are rising less rapidly than prices in Canada.
D)   No, but it can be explained by arbitrage across international borders.E) A) and D)
F) A) and B)

Question 15

Between 1981 and 1988, what happened to Canadian net capital outflow as a percent of GDP?

Accepted Answer

A)   It became a larger, positive number.
B)   It became a smaller, positive number.
C)   It became a larger, negative number.
D)   It became a smaller, negative number.E) A) and B)
F) A) and C)

Question 16

What terms refers to the process of taking advantage of different prices for a good in different markets?

Accepted Answer

A)   arbitrage
B)   currency exchange
C)   capitalism
D)   the law of one priceE) A) and C)
F) None of the above

Question 17

What does net capital outflow measure?

Accepted Answer

A)   foreign assets held by domestic residents minus domestic assets held by foreign residents
B)   the imbalance between the amount of domestic assets bought by domestic residents and the amount of foreign assets bought by foreigners
C)   the imbalance between the amount of foreign assets bought by domestic residents and the amount of domestic goods and services sold to foreigners
D)   domestic assets held by foreigners minus foreign assets held by domestic residentsE) A) and B)
F) A) and C)

Question 18

If the nominal exchange rate e is foreign currency per dollar, the domestic price is P, and the foreign price is P*, what is the definition of the real exchange rate?

Accepted Answer

A)   e(P*/P) 
B)   e(P/P*) 
C)   e + P/P
D)   e - P/P*E) B) and C)
F) A) and D)

Question 19

Which unit of measurement would be appropriate for a real exchange rate?

Accepted Answer

A)   9 euros per dollar
B)   15 euros per basket of Canadian goods
C)   1/2 case of German beer per case of Canadian beer
D)   1/2 case of German beer per dollar of Canadian beerE) C) and D)
F) A) and B)

Question 20

Which of the following best describes net capital outflow in Canada from 1961 to about 1998?

Accepted Answer

A)   small but always positive
B)   small and sometimes negative and sometimes positive
C)   large and positive
D)   large and negative in all but three yearsE) A) and D)
F) B) and C)

Exam 12: Open-Economy Macroeconomics: Basic Concepts

Perhaps the most dramatic change in the Canadian economy over the past five decades has been the increasing relative importance of international trade and finance.

Correct AnswerverifiedShow Answer

Between 1981 and 1988, what happened to Canadian net capital outflow as a percent of GDP?

Correct AnswerverifiedShow Answer

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

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

If the nominal exchange rate e is foreign currency per dollar, the domestic price is P, and the foreign price is P*, what is the definition of the real exchange rate?

Correct AnswerverifiedShow Answer

What does net capital outflow measure?

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Which unit of measurement would be appropriate for a real exchange rate?

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According to the theory of purchasing-power parity, what must the nominal exchange rate between two countries reflect?

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What is the formula for investment in an open economy?

Correct AnswerverifiedShow Answer

On behalf of your firm, you make frequent trips to Hong Kong. You notice that you always have to pay more dollars to get enough local currency to get your suits dry-cleaned than you have to pay to get your suits dry-cleaned in Canada. Is this consistent with purchasing-power parity?

Correct AnswerverifiedShow Answer

Which of the following best describes net capital outflow in Canada from 1961 to about 1998?

Correct AnswerverifiedShow Answer

Which statement best explains the relationship among price levels, nominal and real exchange rates, and money supply in Canada and Ireland when purchasing-power parity holds?

Correct AnswerverifiedShow Answer

Which of the following would be Canadian foreign direct investment?

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A rational investor will always purchase the bond that pays the highest real interest rate.

Correct AnswerverifiedShow Answer

What terms refers to the process of taking advantage of different prices for a good in different markets?

Correct AnswerverifiedShow Answer

Larry, a Canadian citizen, opens and operates a bookstore in England. What is this an example of?

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What is the formula for an open economy's GDP?

Correct AnswerverifiedShow Answer

Healthy Grain Farms, a Canadian manufacturer of dried peas and lentils, sells cases of its product to stores overseas. Which statement best identifies the effects of these transactions?

Correct AnswerverifiedShow Answer

-Refer to the Table 12-1. What countries in the table does purchasing-power parity hold for?

Correct AnswerverifiedShow Answer

Suppose the nominal exchange rate between the yen and the U.S. dollar is 260 yen per U.S. dollar, and that the nominal exchange rate between the Canadian dollar and the U.S. dollar is 1.30 Canadian dollars per U.S. dollar. How many yen would it take to buy a Canadian dollar?

Correct AnswerverifiedShow Answer

Suppose Paul, a Romanian citizen, builds a telescope factory in Israel. What are the effects of these expenditures?

Correct AnswerverifiedShow Answer

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The logic behind purchasing-power parity...
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