Question 1

Suppose the real exchange rate is 1.25 pounds of bananas in Guatemala per pound of bananas in the U.S. If a pound of bananas in the U.S. costs $.50, and the exchange rate is 10 Guatemalan Quetzals per dollar, what is the price of bananas in Guatemala?

Accepted Answer

A)   2.50 Quetzals per pound
B)   4.00 Quetzals per pound
C)   5.75 Quetzals per pound
D)   6.25 Quetzals per poundE) B) and D)
F) A) and B)

Question 2

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) A) and B)
F) All of the above

Question 3

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

Accepted Answer

A) True 
 B)False

Question 4

Which of the following is an example of U.S. foreign direct investment and by itself increases U.S. net capital outflow?

Accepted Answer

A)   A Swedish bank buys a bond issued by the U.S. government.
B)   A German company builds a car factory in the U.S.
C)   A U.S. mutual fund purchases stock issued by a corporation in Bolivia.
D)   A U.S. grocery chain builds and operates a new warehouse in Honduras.E) A) and D)
F) B) and D)

Question 5

If the Mexican nominal exchange rate does not change, but prices rise faster in Mexico than in all other countries, then the Mexican real exchange rate

Accepted Answer

A)   does not change.
B)   rises.
C)   declines.
D)   There is not enough information to answer the questionE) None of the above
F) A) and B)

Question 6

If a country has a trade deficit then

Accepted Answer

A) S > I and Y > C + I + G. B) S > I and Y C) S C + I + G. D) S < I and Y < C + I + G.E) B) and C) F) A) and B)

Question 7

One year a country has positive net exports. The next year it still has positive but larger net exports

Accepted Answer

A)   its trade surplus fell.
B)   its trade surplus rose.
C)   its trade deficit fell.
D)   its trade deficit roseE) A) and B)
F) B) and C)

Question 8

A Big Mac in Japan costs 400 yen while it costs $4.50 in the U.S.. The nominal exchange rate is 100 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) A) and D)
F) All of the above

Question 9

If domestic residents of other countries purchase $600 billion of U.S. assets and U.S residents purchase $500 billion of foreign assets, then U.S. net capital outflow is

Accepted Answer

A)   $100 billion and the U.S. has a trade surplus.
B)   $100 billion and the U.S has a trade deficit.
C)   -$100 billion and the U.S. has a trade surplus.
D)   -$100 billion and the U.S. has a trade deficit.E) A) and B)
F) A) and C)

Question 10

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

Accepted Answer

A)   Disney builds a new amusement park near Barcelona, Spain.
B)   A U.S. citizen buys bonds issued by the British government.
C)   A Dutch hotel chain opens a new hotel in the United States.
D)   A citizen of Singapore buys a bond issued by a U.S. corporation.E) A) and D)
F) B) and C)

Question 11

If purchasing-power parity between France and the U.S. holds, but then U.S. prices rise,

Accepted Answer

A)   the real exchange rate is above its purchasing-power parity value. An increase in the nominal exchange rate can move it back.
B)   the real exchange rate is above its purchasing-power parity value. A decrease in the nominal exchange rate can move it back.
C)   the real exchange rate is below its purchasing-power parity value. An increase in the nominal exchange rate can move it back.
D)   the real exchange rate is below its purchasing-power parity value. A decrease in the nominal exchange rate can move it back.E) None of the above
F) A) and D)

Question 12

The nominal exchange rate is 90 Pakistani rupees per dollar. The price of a shirt in Pakistan is 1800 rupees. The same shirt sells for $25 in the U.S.
A. What is the real exchange rate? Show your work.
B. Can arbitragers make a profit?
C. If your answer to C is yes, where would they buy and where would they sell?

Accepted Answer

A. The real exchange rate = $2...

Question 13

A British grocery chain uses previously obtained U.S. dollars to purchase oranges from the United States. This transaction

Accepted Answer

A)   increases British net capital outflow, and increases U.S. net exports.
B)   increases British net capital outflow, and decreases U.S. net exports.
C)   decreases British net capital outflow, and increases U.S. net exports.
D)   decreases British net capital outflow, and decreases U.S. net exports.E) A) and B)
F) B) and C)

Question 14

The nominal exchange rate is about 2 Aruban florin per dollar. If a basket of goods in the United States costs $40, how many florins must a basket of goods in Aruba cost for purchasing-power parity to hold?

Accepted Answer

A)   20 florin
B)   40 florin
C)   60 florin
D)   80 florinE) B) and D)
F) A) and B)

Question 15

Last year a country sold $500 billion euros worth of goods to foreigners and had a trade deficit of $100 billion euros. What was the value of its imports?

Accepted Answer

The answer of Last year a country sold $500 billion...

Question 16

If a country's government reduced corruption and reformed its tax system so that businesses found operating there less risky, it's likely that this country's

Accepted Answer

A)   net exports and net capital outflows would increase.
B)   net exports would increase and its net capital outflows would decrease.
C)   net exports and net capital outflow would decrease.
D)   net exports would decrease and its net capital outflow would increase.E) None of the above
F) All of the above

Question 17

An increase in U.S. sales of movies to other countries raises U.S.

Accepted Answer

A)   exports and so raises the U.S. trade balance.
B)   exports and so reduces the U.S. trade balance.
C)   imports and so raises the U.S. trade balance.
D)   imports and so reduces the U.S. trade balance.E) None of the above
F) B) and D)

Question 18

If a country has negative net capital outflows, then its net exports are

Accepted Answer

A)   positive and its saving is larger than its domestic investment.
B)   positive and its saving is smaller than its domestic investment.
C)   negative and its saving is larger than its domestic investment.
D)   negative and its saving is smaller than its domestic investment.E) A) and B)
F) B) and D)

Question 19

If the American company Stryker builds and operates a new factory in France,

Accepted Answer

A)   it engages in foreign direct investment. By itself this action lowers U.S. net capital outflow.
B)   it engages in foreign direct investment. By itself this action raises U.S. net capital outflow.
C)   it engages in foreign portfolio investment. By itself this action lowers U.S. net capital outflow.
D)   it engages in foreign portfolio investment. By itself this action raises U.S. net capital outflow.E) B) and C)
F) None of the above

Question 20

In France a loaf of bread costs 3 euros. In Great Britain a loaf of bread costs 4 pounds. If the exchange rate is .9 pounds per euro, what is the real exchange rate?

Accepted Answer

A)   4/2.7 loaves of British bread per loaf of French bread
B)   3.6/3 loaves of British bread per loaf of French bread
C)   3/3.6 loaves of British bread per loaf of French bread
D)   2.7/4 loaves of British bread per loaf of French breadE) None of the above
F) B) and D)

Exam 18: Open-Economy Macroeconomics: Basic Concepts

The nominal exchange rate is about 2 Aruban florin per dollar. If a basket of goods in the United States costs $40, how many florins must a basket of goods in Aruba cost for purchasing-power parity to hold?

Correct Answer
verified

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

Correct Answer
verified

An increase in U.S. sales of movies to other countries raises U.S.

Correct Answer
verified

If purchasing-power parity between France and the U.S. holds, but then U.S. prices rise,

Correct Answer
verified

Which of the following is an example of U.S. foreign direct investment and by itself increases U.S. net capital outflow?

Correct Answer
verified

If the American company Stryker builds and operates a new factory in France,

Correct Answer
verified

If domestic residents of other countries purchase $600 billion of U.S. assets and U.S residents purchase $500 billion of foreign assets, then U.S. net capital outflow is

Correct Answer
verified

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

Correct Answer
verified

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

In France a loaf of bread costs 3 euros. In Great Britain a loaf of bread costs 4 pounds. If the exchange rate is .9 pounds per euro, what is the real exchange rate?

Correct Answer
verified

Suppose the real exchange rate is 1.25 pounds of bananas in Guatemala per pound of bananas in the U.S. If a pound of bananas in the U.S. costs $.50, and the exchange rate is 10 Guatemalan Quetzals per dollar, what is the price of bananas in Guatemala?

Correct Answer
verified

One year a country has positive net exports. The next year it still has positive but larger net exports

Correct Answer
verified

A Big Mac in Japan costs 400 yen while it costs $4.50 in the U.S.. The nominal exchange rate is 100 yen per dollar. Which of the following would both make the real exchange rate move towards purchasing-power parity?

Correct Answer
verified

Last year a country sold $500 billion euros worth of goods to foreigners and had a trade deficit of $100 billion euros. What was the value of its imports?

Correct Answer
verified

If a country has a trade deficit then

Correct Answer
verified

If a country has negative net capital outflows, then its net exports are

Correct Answer
verified

If a country's government reduced corruption and reformed its tax system so that businesses found operating there less risky, it's likely that this country's

Correct Answer
verified

If the Mexican nominal exchange rate does not change, but prices rise faster in Mexico than in all other countries, then the Mexican real exchange rate

Correct Answer
verified

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

Correct Answer
verified

A British grocery chain uses previously obtained U.S. dollars to purchase oranges from the United States. This transaction

Correct Answer
verified

Exam 18: Open-Economy Macroeconomics: Basic Concepts

The nominal exchange rate is about 2 Aruban florin per dollar. If a basket of goods in the United States costs $40, how many florins must a basket of goods in Aruba cost for purchasing-power parity to hold?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

An increase in U.S. sales of movies to other countries raises U.S.

Correct AnswerverifiedShow Answer

If purchasing-power parity between France and the U.S. holds, but then U.S. prices rise,

Correct AnswerverifiedShow Answer

Which of the following is an example of U.S. foreign direct investment and by itself increases U.S. net capital outflow?

Correct AnswerverifiedShow Answer

If the American company Stryker builds and operates a new factory in France,

Correct AnswerverifiedShow Answer

If domestic residents of other countries purchase $600 billion of U.S. assets and U.S residents purchase $500 billion of foreign assets, then U.S. net capital outflow is

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Correct AnswerverifiedA. The real exchange rate = $2...View AnswerShow Answer

In France a loaf of bread costs 3 euros. In Great Britain a loaf of bread costs 4 pounds. If the exchange rate is .9 pounds per euro, what is the real exchange rate?

Correct AnswerverifiedShow Answer

Suppose the real exchange rate is 1.25 pounds of bananas in Guatemala per pound of bananas in the U.S. If a pound of bananas in the U.S. costs $.50, and the exchange rate is 10 Guatemalan Quetzals per dollar, what is the price of bananas in Guatemala?

Correct AnswerverifiedShow Answer

One year a country has positive net exports. The next year it still has positive but larger net exports

Correct AnswerverifiedShow Answer

A Big Mac in Japan costs 400 yen while it costs $4.50 in the U.S.. The nominal exchange rate is 100 yen per dollar. Which of the following would both make the real exchange rate move towards purchasing-power parity?

Correct AnswerverifiedShow Answer

Last year a country sold $500 billion euros worth of goods to foreigners and had a trade deficit of $100 billion euros. What was the value of its imports?

Correct AnswerverifiedShow Answer

If a country has a trade deficit then

Correct AnswerverifiedShow Answer

If a country has negative net capital outflows, then its net exports are

Correct AnswerverifiedShow Answer

If a country's government reduced corruption and reformed its tax system so that businesses found operating there less risky, it's likely that this country's

Correct AnswerverifiedShow Answer

If the Mexican nominal exchange rate does not change, but prices rise faster in Mexico than in all other countries, then the Mexican real exchange rate

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

A British grocery chain uses previously obtained U.S. dollars to purchase oranges from the United States. This transaction

Correct AnswerverifiedShow Answer

Correct Answer
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Correct Answer
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Correct Answer
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A. The real exchange rate = $2...
View Answer

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Correct Answer
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