Question 1

In the United States, a cup of hot chocolate costs $5. In a foreign country, the same hot chocolate costs 6.5 units of that country's currency. If the exchange rate were 1.3 units of foreign currency per U.S. dollar, what is the real exchange rate?

Accepted Answer

A)   1/2 cup of that country's hot chocolate per cup of U.S. hot chocolate
B)   1 cup of that country's hot chocolate per cup of U.S. hot chocolate
C)   2 cups of that country's's hot chocolate per cup of U.S. hot chocolate
D)   None of the above is correct.E) A) and D)
F) All of the above

Question 2

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

Question 3

Table 13-1
 
-Refer to Table 13-1. What are Bolivia's exports?

Accepted Answer

A)   $60 billion
B)   $35 billion
C)   $10 billion
D)   None of the above are correct.E) A) and C)
F) B) and C)

Question 4

According to purchasing-power parity, if a basket of goods costs $100 in the U.S. and the same basket costs 800 pesos in Argentina, then what is the nominal exchange rate?

Accepted Answer

A)   8 pesos per dollar
B)   1 peso per dollar
C)   1/8 peso per dollar
D)   none of the above is correctE) B) and D)
F) None of the above

Question 5

If the nominal exchange rate e is foreign currency per dollar, the domestic price is P, and the foreign price is P*, then the real exchange rate is defined as

Accepted Answer

A)   e(P*/P) .
B)   e(P/P*) .
C)   e + P*/P.
D)   e - P/P*.E) A) and B)
F) None of the above

Question 6

A Big Mac in Japan costs 320 yen while it costs $3.60 in the U.S.. The nominal exchange rate is 80 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) B) and C)
F) None of the above

Question 7

You are planning a graduation trip to Nepal. Other things the same, if the dollar appreciates relative to the Nepalese rupee, then

Accepted Answer

A)   the dollar buys fewer rupees. Your purchases in Nepal will require fewer dollars.
B)   the dollar buys fewer rupees. Your purchases in Nepal will require more dollars.
C)   the dollar buys more rupees. Your purchases in Nepal will require fewer dollars.
D)   the dollar buys more rupees. Your purchases in Nepal will require more dollars.E) A) and D)
F) All of the above

Question 8

Net exports of a country are the value of

Accepted Answer

A)   goods and services imported minus the value of goods and services exported.
B)   goods and services exported minus the value of goods and services imported.
C)   goods exported minus the value of goods imported.
D)   goods imported minus the value of goods exported.E) None of the above
F) B) and D)

Question 9

A country has net capital outflow of -10 billion euros and domestic investment of 20 billion euros. What is its national saving?

Accepted Answer

A)   30 billion euros
B)   10 billion euros
C)   -10 billion euros
D)   -30 billion eurosE) All of the above
F) B) and D)

Question 10

Under what circumstances does purchasing-power parity explain how exchange rates are determined, and why is it not completely accurate?

Accepted Answer

Purchasing-power parity works well in he...

Question 11

Sonya, a citizen of Denmark, produces boots and shoes that she sells to department stores in the United States. Other things the same, these sales

Accepted Answer

A)   increase U.S. net exports and have no effect on Danish net exports.
B)   decrease U.S. net exports and have no effect on Danish net exports.
C)   increase U.S. net exports and decrease Danish net exports.
D)   decrease U.S. net exports and increase Danish net exports.E) A) and B)
F) B) and D)

Question 12

The nominal exchange rate is 30 Thai bhat for one U.S. dollar. A sub sandwich combo deal in the U.S. costs $6 dollars in the U.S. and 120 bhat in Thailand. The real exchange rate is

Accepted Answer

A)   3/8
B)   2/3
C)   3/2
D)   8/3E) A) and C)
F) B) and D)

Question 13

If a country's imports exceed its exports it has a trade surplus.

Accepted Answer

A) True 
 B)False

Question 14

The law of one price states that

Accepted Answer

A)   a good must sell at the price fixed by law.
B)   a good must sell at the same price at all locations.
C)   a good cannot sell for a price greater than the legal price ceiling.
D)   nominal exchange rates will not vary.E) A) and D)
F) A) and B)

Question 15

Exchange rates are 82 yen per dollar, 0.8 euro per dollar, and 10 pesos per dollar. A bottle of beer in New York costs 6 dollars, 820 yen in Tokyo, 7.2 euro in Munich, and 50 pesos in Cancun. Where is the most expensive and the cheapest beer in that order?

Accepted Answer

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

Question 16

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

Question 17

If Japan's national saving exceeds its domestic investment, then Japan 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 B)
F) B) and D)

Question 18

Suppose that a country has $120 billion of national saving, and $80 billion of domestic investment. Is this possible? Where did the other $40 billion of national savings go?

Accepted Answer

This is possible for an open economy. Th...

Question 19

Other things the same, a country could move from having a trade surplus to having a trade deficit if either

Accepted Answer

A)   saving rose or domestic investment rose.
B)   saving rose or domestic investment fell.
C)   saving fell or domestic investment rose.
D)   saving fell or domestic investment fell.E) B) and C)
F) None of the above

Question 20

The price of a basket of goods and services in the U.S. is $600. In Canada the same basket of goods costs 700 Canadian dollars. If the nominal exchange rate were 1.2 Canadian dollars per U.S. dollar, what would be the real exchange rate?

Accepted Answer

A)   700/600
B)   600/700
C)   700/720
D)   None of the above is correct.E) B) and C)
F) C) and D)

Exam 13: Open-Economy Macroeconomic Models

A Big Mac in Japan costs 320 yen while it costs $3.60 in the U.S.. The nominal exchange rate is 80 yen per dollar. Which of the following would both make the real exchange rate move towards purchasing-power parity?

Correct AnswerverifiedShow Answer

According to purchasing-power parity, if a basket of goods costs $100 in the U.S. and the same basket costs 800 pesos in Argentina, then what is the nominal exchange rate?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

The law of one price states that

Correct AnswerverifiedShow Answer

The nominal exchange rate is 30 Thai bhat for one U.S. dollar. A sub sandwich combo deal in the U.S. costs $6 dollars in the U.S. and 120 bhat in Thailand. The real exchange rate is

Correct AnswerverifiedShow Answer

A country has net capital outflow of -10 billion euros and domestic investment of 20 billion euros. What is its national saving?

Correct AnswerverifiedShow Answer

If a country's imports exceed its exports it has a trade surplus.

Correct AnswerverifiedShow Answer

In the United States, a cup of hot chocolate costs $5. In a foreign country, the same hot chocolate costs 6.5 units of that country's currency. If the exchange rate were 1.3 units of foreign currency per U.S. dollar, what is the real exchange rate?

Correct AnswerverifiedShow Answer

Exchange rates are 82 yen per dollar, 0.8 euro per dollar, and 10 pesos per dollar. A bottle of beer in New York costs 6 dollars, 820 yen in Tokyo, 7.2 euro in Munich, and 50 pesos in Cancun. Where is the most expensive and the cheapest beer in that order?

Correct AnswerverifiedShow Answer

Suppose that a country has $120 billion of national saving, and $80 billion of domestic investment. Is this possible? Where did the other $40 billion of national savings go?

Correct AnswerverifiedThis is possible for an open economy. Th...View AnswerShow Answer

The price of a basket of goods and services in the U.S. is $600. In Canada the same basket of goods costs 700 Canadian dollars. If the nominal exchange rate were 1.2 Canadian dollars per U.S. dollar, what would be the real exchange rate?

Correct AnswerverifiedShow Answer

If the nominal exchange rate e is foreign currency per dollar, the domestic price is P, and the foreign price is P*, then the real exchange rate is defined as

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Under what circumstances does purchasing-power parity explain how exchange rates are determined, and why is it not completely accurate?

Correct AnswerverifiedPurchasing-power parity works well in he...View AnswerShow Answer

Other things the same, a country could move from having a trade surplus to having a trade deficit if either

Correct AnswerverifiedShow Answer

Net exports of a country are the value of

Correct AnswerverifiedShow Answer

You are planning a graduation trip to Nepal. Other things the same, if the dollar appreciates relative to the Nepalese rupee, then

Correct AnswerverifiedShow Answer

Sonya, a citizen of Denmark, produces boots and shoes that she sells to department stores in the United States. Other things the same, these sales

Correct AnswerverifiedShow Answer

Table 13-1 -Refer to Table 13-1. What are Bolivia's exports?

Correct AnswerverifiedShow Answer

If Japan's national saving exceeds its domestic investment, then Japan has

Correct AnswerverifiedShow Answer

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This is possible for an open economy. Th...
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Purchasing-power parity works well in he...
View Answer

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