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Exam 31: Open-Economy Macroeconomics: Basic Concepts

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Question 91

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As measured by the amount of trade it does, has the U.S. economy become more internationalized? Provide two reasons for this change.

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Yes.
reduced transportation co...

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Question 92

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It is possible for a country to have domestic investment that exceeds national saving.

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B) False

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Question 93

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Jorge, a Spanish citizen, is contracted by a French architect to design a metal casting factory. Which country's exports increase?

In an open economy national saving equals domestic investment plus net capital outflow.

A department store chain in Japan uses yen to purchase 500,000 U.S. dollars from a U.S. bank. It then uses these dollars to buy DVDs from a U.S. filmmaker. As a result of these transactions: A. By how much and in what direction did U.S. net exports change? B. By how much and in which direction did U.S. net capital outflow change?

Net capital outflow

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

A U.S. mutual fund buys stock issued by a corporation in Colombia. A U.S. grocery store chain builds and manages a new warehouse in Honduras. Which one(s) of these is foreign direct investment? Which one(s) would be taken into account when computing U.S. net capital outflows?

An American brewery sells dollars to obtain euros. It then uses the euros to buy brewing equipment from a German company. These transactions

Why are net exports and net capital outflow always equal?

A U.S. company uses pound sterlings it already owned to purchase bonds issued by a company in Germany. Which of these countries has an increase in net capital outflow?

If a U.S. dollar purchases 4 Argentinean pesos, and a gallon of milk costs $3 in the U.S. and 6 pesos in Argentina what is the real exchange rate?

Maria and Michael are both U.S. citizens. Maria opens a café in Spain. Michael builds a U.S.-based factory using equipment from Japan. Whose action is an example of U.S. foreign direct investment?

If purchasing-power parity holds, then the value of the

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

According to purchasing-power parity, what is the relationship between changes in price levels between two countries and changes in nominal exchange rates?

A country recently had $800 billion worth of domestic investment and its residents purchased $400 billion worth of foreign assets. If foreigners purchased $100 billion of this country's assets, what was this country's saving? Explain how your found your answer.

A pair of hiking boots costs $120 in the U.S., if the real exchange rate is 6/5 and the nominal exchange rate is 2 Brazilian reais per dollar, what is the price of the same hiking boots in Brazil? Show your work.

If the price of a good in the U.S. is $10, the exchange rate is 2 units of foreign currency per dollar, and the foreign price of the same good is 30 units of foreign currency, then the real exchange rate is 2/3.

In an open economy, gross domestic product equals $2,460 billion, consumption expenditure equals $1,435 billion, government expenditure equals $325 billion, investment equals $560 billion, and net capital outflow equals $375 billion. What is national saving?