Question 1

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.

Accepted Answer

A) True 
 B)False

Question 2

If the exchange rate is .70 euro per dollar, the price of an MP3 player in Paris is 150 euros and the price of an MP3 player in the U.S. is $150, then what is the real exchange rate?

Accepted Answer

A)   1/.70 French MP3 players per U.S. MP3 player
B)   1 French MP3 players per U.S. MP3 player
C)   .70 French MP3 players per U.S. MP3 player.
D)   None of the above are correct.E) B) and D)
F) All of the above

Question 3

A pound of steak costs $10 in the U.S. and 56.25 riyals the currency of Saudi Arabia) in Saudi Arabia. If the real exchange rate is 2/3, what is the nominal exchange rate? Show your work.

Accepted Answer

The real exchange rate 2/3 = $...

Question 4

An Italian company builds and operates a pasta factory in the United States. This is an example of Italian

Accepted Answer

A)   foreign direct investment that increases Italian net capital outflow.
B)   foreign direct investment that decreases Italian net capital outflow.
C)   foreign portfolio investment that increases Italian net capital outflow.
D)   foreign portfolio investment that decreases Italian net capital outflow.E) None of the above
F) B) and D)

Question 5

A farm equipment retailer in Azerbaijan exchanges Azerbaijan manats the currency of Azerbaijan) for $300,000 a bank in Azerbaijan was holding. It uses the $300,000 to buy farm equipment from a U.S. company. The U.S. company deposits half of these funds in a U.S. bank and exchanges the other half for euros from a bank in London.
As a result of these transactions, by how much, if at all, and in which direction did:
A. U.S. net exports change?
B. U.S. net capital outflow change?

Accepted Answer

A. U.S. net exports ...

Question 6

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

Question 7

The increase in international trade in the United States is partly due to

Accepted Answer

A)   improvements in transportation.
B)   advances in telecommunications.
C)   increased trade of goods with a high value per pound.
D)   All of the above are correct.E) All of the above
F) A) and B)

Question 8

Foreign-produced goods and services that are purchased domestically are called

Accepted Answer

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

Question 9

If purchasing-power parity holds but then U.S. prices rise, which of the following move the exchange rate back towards purchasing-power parity?

Accepted Answer

A)   foreign prices rise or the U.S. nominal exchange rate rises
B)   foreign prices rise or the U.S. nominal exchange rate falls
C)   foreign prices fall or the U.S. nominal exchange rate rises
D)   foreign prices fall or the U.S. nominal exchange rate fallsE) None of the above
F) All of the above B

Question 10

A Swiss company sells chocolates to a retailer in the United States. These sales by themselves

Accepted Answer

A)   decrease U.S. net export and Swiss net exports.
B)   decrease U.S. net exports and increase Swiss net exports.
C)   increase U.S. and Swiss net exports.
D)   increase U.S. net exports and decrease Swiss net exports.E) A) and B)
F) B) and D)

Question 11

A country has $100 million of net exports and $170 million of saving. Net capital outflow is

Accepted Answer

A)   $70 million and domestic investment is $170 million.
B)   $70 million and domestic investment is $270 million.
C)   $100 million and domestic investment is $70 million.
D)   None of the above is correct.E) A) and C)
F) A) and B)

Question 12

The Norwegian government uses $500,000 of previously obtained U.S. dollars to buy $500,000 of police cars from a U.S. company. As a result of this exchange, by how much, if at all, and in which direction did:
A. U.S. net exports change?
B. U.S. net capital outflow change?

Accepted Answer

A. U.S. net exports ...

Question 13

A U.S. citizen buys bonds issued by an automobile manufacturer in Japan. Her expenditures are U.S.

Accepted Answer

A)   foreign direct investment that increase U.S. net capital outflow.
B)   foreign direct investment that decrease U.S. net capital outflow.
C)   foreign portfolio investment that increase U.S. net capital outflow.
D)   foreign portfolio investment that decrease U.S. net capital outflow.E) All of the above
F) B) and C)

Question 14

If a country has a trade deficit

Accepted Answer

A)   it has positive net exports and positive net capital outflow.
B)   it has positive net exports and negative net capital outflow.
C)   it has negative net exports and positive net capital outflow.
D)   it has negative net exports and negative net capital outflow.E) C) and D)
F) A) and B)

Question 15

On behalf of your firm, you make frequent trips to Tokyo. You notice that you always have to pay more dollars to get your hair cut than you pay in the U.S. This observation is

Accepted Answer

A)   consistent with purchasing-power parity if prices in Japan are rising more rapidly than prices in the United States.
B)   consistent with purchasing-power parity if prices in Japan are rising less rapidly than prices in the United States.
C)   inconsistent with purchasing-power parity, but might be explained by limited opportunities for arbitrage in haircuts across international borders.
D)   None of the above is correct.E) B) and C)
F) A) and D)

Question 16

If a country has Y > C + I + G, then

Accepted Answer

A)   S > I and it has a trade surplus.
B)   S > I and it has a trade deficit.
C)   S 
D)   S < I and it has a trade deficit.E) C) and D)
F) A) and D) A

Question 17

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) B) and D)
F) None of the above

Question 18

Alfonso, a citizen of Italy, decides to purchase bonds issued by Ireland instead of ones issued by the United States even though the Irish bonds have a higher risk of default. An economic reason for his decision might be that

Accepted Answer

A)   he dislikes U.S. foreign policy.
B)   the Irish bonds pay a higher rate of interest.
C)   the U.S. government is more stable than the Irish government.
D)   None of the above provide an economic reason for buying the riskier bond.E) B) and C)
F) None of the above B

Question 19

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

Accepted Answer

A)   A Swedish car manufacturer opens a plant in Tennessee.
B)   A Dutch citizen buys shares of stock in a U.S. company.
C)   A U.S. based restaurant chain opens new restaurants in India.
D)   A U.S. citizen buys stock in companies located in Japan.E) A) and D)
F) A) and C)

Question 20

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

Exam 18: Open-Economy Macroeconomics: Basic Concepts

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.

Correct Answer
verified

If the exchange rate is .70 euro per dollar, the price of an MP3 player in Paris is 150 euros and the price of an MP3 player in the U.S. is $150, then what is the real exchange rate?

Correct Answer
verified

A pound of steak costs $10 in the U.S. and 56.25 riyals the currency of Saudi Arabia) in Saudi Arabia. If the real exchange rate is 2/3, what is the nominal exchange rate? Show your work.

Correct Answer
verified
The real exchange rate 2/3 = $...
View Answer

An Italian company builds and operates a pasta factory in the United States. This is an example of Italian

Correct Answer
verified

Correct Answer
verified
A. U.S. net exports ...
View Answer

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

Correct Answer
verified

The increase in international trade in the United States is partly due to

Correct Answer
verified

Foreign-produced goods and services that are purchased domestically are called

Correct Answer
verified

If purchasing-power parity holds but then U.S. prices rise, which of the following move the exchange rate back towards purchasing-power parity?

Correct Answer
verified
B

A Swiss company sells chocolates to a retailer in the United States. These sales by themselves

Correct Answer
verified

A country has $100 million of net exports and $170 million of saving. Net capital outflow is

Correct Answer
verified

The Norwegian government uses $500,000 of previously obtained U.S. dollars to buy $500,000 of police cars from a U.S. company. As a result of this exchange, by how much, if at all, and in which direction did: A. U.S. net exports change? B. U.S. net capital outflow change?

Correct Answer
verified
A. U.S. net exports ...
View Answer

A U.S. citizen buys bonds issued by an automobile manufacturer in Japan. Her expenditures are U.S.

Correct Answer
verified

If a country has a trade deficit

Correct Answer
verified

On behalf of your firm, you make frequent trips to Tokyo. You notice that you always have to pay more dollars to get your hair cut than you pay in the U.S. This observation is

Correct Answer
verified

If a country has Y > C + I + G, then

Correct Answer
verified
A

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

Correct Answer
verified

Alfonso, a citizen of Italy, decides to purchase bonds issued by Ireland instead of ones issued by the United States even though the Irish bonds have a higher risk of default. An economic reason for his decision might be that

Correct Answer
verified
B

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

Correct Answer
verified

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

Correct Answer
verified

Exam 18: Open-Economy Macroeconomics: Basic Concepts

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.

Correct AnswerverifiedShow Answer

If the exchange rate is .70 euro per dollar, the price of an MP3 player in Paris is 150 euros and the price of an MP3 player in the U.S. is $150, then what is the real exchange rate?

Correct AnswerverifiedShow Answer

A pound of steak costs $10 in the U.S. and 56.25 riyals the currency of Saudi Arabia) in Saudi Arabia. If the real exchange rate is 2/3, what is the nominal exchange rate? Show your work.

Correct AnswerverifiedThe real exchange rate 2/3 = $...View AnswerShow Answer

An Italian company builds and operates a pasta factory in the United States. This is an example of Italian

Correct AnswerverifiedShow Answer

Correct AnswerverifiedA. U.S. net exports ...View AnswerShow Answer

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

Correct AnswerverifiedShow Answer

The increase in international trade in the United States is partly due to

Correct AnswerverifiedShow Answer

Foreign-produced goods and services that are purchased domestically are called

Correct AnswerverifiedShow Answer

If purchasing-power parity holds but then U.S. prices rise, which of the following move the exchange rate back towards purchasing-power parity?

Correct AnswerverifiedB

A Swiss company sells chocolates to a retailer in the United States. These sales by themselves

Correct AnswerverifiedShow Answer

A country has $100 million of net exports and $170 million of saving. Net capital outflow is

Correct AnswerverifiedShow Answer

The Norwegian government uses $500,000 of previously obtained U.S. dollars to buy $500,000 of police cars from a U.S. company. As a result of this exchange, by how much, if at all, and in which direction did: A. U.S. net exports change? B. U.S. net capital outflow change?

Correct AnswerverifiedA. U.S. net exports ...View AnswerShow Answer

A U.S. citizen buys bonds issued by an automobile manufacturer in Japan. Her expenditures are U.S.

Correct AnswerverifiedShow Answer

If a country has a trade deficit

Correct AnswerverifiedShow Answer

On behalf of your firm, you make frequent trips to Tokyo. You notice that you always have to pay more dollars to get your hair cut than you pay in the U.S. This observation is

Correct AnswerverifiedShow Answer

If a country has Y > C + I + G, then

Correct AnswerverifiedA

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

Correct AnswerverifiedShow Answer

Alfonso, a citizen of Italy, decides to purchase bonds issued by Ireland instead of ones issued by the United States even though the Irish bonds have a higher risk of default. An economic reason for his decision might be that

Correct AnswerverifiedB

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Correct Answer
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Correct Answer
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Correct Answer
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The real exchange rate 2/3 = $...
View Answer

Correct Answer
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Correct Answer
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A. U.S. net exports ...
View Answer

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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B

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Correct Answer
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A. U.S. net exports ...
View Answer

Correct Answer
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Correct Answer
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A

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B

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