Question 1

A Japanese bank buys U.S. government bonds, this purchase

Accepted Answer

A)   increases U.S. net capital outflow and has no affect on Japanese net capital outflow.
B)   increases U.S. net capital outflow and increases Japanese net capital outflow.
C)   increases U.S. net capital outflow, but decreases Japanese net capital outflow.
D)   decreases U.S. net capital outflow, but increases Japanese net capital outflow.E) All of the above
F) B) and D)

Question 2

Suppose that real interest rates in the U.S. rise relative to real interest rates in other countries. This increase would make foreigners

Accepted Answer

A)   more willing to purchase U.S. bonds, so U.S. net capital outflow would fall.
B)   more willing to purchase U.S. bonds, so U.S. net capital outflow would rise.
C)   less willing to purchase U.S. bonds, so U.S. net capital outflow would fall.
D)   less willing to purchase U.S. bonds, so U.S. net capital outflow would rise.E) A) and B)
F) A) and C)

Question 3

If P = domestic prices, P* = foreign prices, and e is the nominal exchange rate, which of the following is implied by purchasing-power parity?

Accepted Answer

A)   P = e/P*
B)   1 = e/P*
C)   e = P*/P
D)   None of the above is correct.E) B) and C)
F) A) and C)

Question 4

According to purchasing-power parity, if the price of a basket of goods in the U.S. rose from $1,500 to $2,000 and the price of the same basket of goods rose from 600 units of some other country's currency to 1,000 units of that country's currency, then the

Accepted Answer

A)   nominal exchange rate would appreciate.
B)   nominal exchange rate would depreciate.
C)   real exchange rate would appreciate.
D)   real exchange rate would depreciate.E) A) and D)
F) A) and C)

Question 5

If a country changes its corporate tax laws so that foreign businesses build and manage more business in that country, then the net capital outflow of that country

Accepted Answer

A)   and the net capital outflow of other countries rise.
B)   rises and the net capital outflow of other countries fall.
C)   falls and the net capital outflow of other countries rise.
D)   None of the above are correct.E) A) and B)
F) None of the above

Question 6

A certain cell phone sells for 2400 yuan in China and for $300 in the U.S. The nominal exchange rate is 6.5 yuan per dollar.
A. Find the real exchange rate. Show your work.
B. In terms of dollars where is the cell phone cheaper?

Accepted Answer

The real exchange rate = $300 ...

Question 7

If a country had a trade deficit of $10 billion and then its exports rose by $20 billion and its imports rose by $10 billion, its net exports would now be

Accepted Answer

A)   $0
B)   $10 billion.
C)   -$10 billion.
D)   -$20 billion.E) C) and D)
F) B) and C)

Question 8

Which of the following equations is always correct in an open economy?

Accepted Answer

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

Question 9

According to purchasing-power parity which of the following would happen if a country raised its money supply growth rate?

Accepted Answer

A)   its nominal exchange rate would fall
B)   its real exchange rate would fall
C)   its real net exports would rise
D)   All of the above would happen.E) A) and B)
F) None of the above

Question 10

Other things the same, an increase in the U.S. real exchange rate makes U.S. goods more expensive relative to foreign goods.

Accepted Answer

A) True 
 B)False

Question 11

Other things the same, if U.S. net capital outflow rises, so does U.S. saving.

Accepted Answer

A) True 
 B)False

Question 12

Suppose that Bill, a resident of the U.S., buys software from a company in Japan. Explain why and in what directions this changes U.S. net exports and U.S. net capital outflow.

Accepted Answer

The purchase of a foreign good by a U.S....

Question 13

A Swiss watchmaker opens a factory in the United States. This is an example of Swiss

Accepted Answer

A)   exports.
B)   imports.
C)   foreign portfolio investment.
D)   foreign direct investment.E) A) and D)
F) A) and C)

Question 14

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

Accepted Answer

A)   positive net capital outflow and positive net exports.
B)   positive net capital outflow and negative net exports.
C)   negative net capital outflow and positive net exports.
D)   negative net capital outflow and negative net exports.E) B) and D)
F) None of the above

Question 15

What does purchasing-power parity imply about the real exchange rate? Explain what this means.

Accepted Answer

That it is equal to one. The n...

Question 16

If a country changes its corporate tax laws so that domestic businesses build and manage more business in other countries, then the net capital outflow of that country

Accepted Answer

A)   and the net capital outflow of other countries rise.
B)   rises and the net capital outflow of other countries fall.
C)   falls and the net capital outflow of other countries rise.
D)   None of the above are correct.E) A) and B)
F) None of the above

Question 17

If a nation is selling more goods and services to foreigners than it is buying from them, then on net it must be selling assets abroad.

Accepted Answer

A) True 
 B)False

Question 18

A U.S. firm buys bonds issued by a technology center in India. This purchase is an example of U.S.

Accepted Answer

A)   foreign portfolio investment. By itself it is an increase in U.S. holdings of foreign bonds and increases U.S. net capital outflow.
B)   foreign portfolio investment. By itself it is an increase in U.S. holdings of foreign bonds and decreases U.S. net capital outflow.
C)   foreign direct investment. By itself it is an increase in U.S. holdings of foreign bonds and increases U.S. net capital outflow.
D)   foreign direct investment. By itself it is an increase in U.S. holdings of foreign bonds and decreases U.S. net capital outflow.E) All of the above
F) A) and C)

Question 19

Derive the relation between savings, domestic investment, and net capital outflow using the national income accounting identity.

Accepted Answer

Start from the national income accountin...

Question 20

Susan, a U.S. citizen, builds and operates a kennel in France. This action is an example of

Accepted Answer

A)   investment for Susan and U.S. foreign direct investment.
B)   investment for Susan and U.S. foreign portfolio investment.
C)   U.S. foreign direct investment and U.S. domestic investment.
D)   U.S. foreign portfolio investment and U.S. domestic investment.E) A) and D)
F) A) and C)

Exam 18: Open-Economy Macroeconomics: Basic Concepts

A Japanese bank buys U.S. government bonds, this purchase

Correct AnswerverifiedShow Answer

Which of the following equations is always correct in an open economy?

Correct AnswerverifiedShow Answer

A certain cell phone sells for 2400 yuan in China and for $300 in the U.S. The nominal exchange rate is 6.5 yuan per dollar. A. Find the real exchange rate. Show your work. B. In terms of dollars where is the cell phone cheaper?

Correct AnswerverifiedThe real exchange rate = $300 ...View AnswerShow Answer

If a country changes its corporate tax laws so that domestic businesses build and manage more business in other countries, then the net capital outflow of that country

Correct AnswerverifiedShow Answer

What does purchasing-power parity imply about the real exchange rate? Explain what this means.

Correct AnswerverifiedThat it is equal to one. The n...View AnswerShow Answer

If a country changes its corporate tax laws so that foreign businesses build and manage more business in that country, then the net capital outflow of that country

Correct AnswerverifiedShow Answer

Derive the relation between savings, domestic investment, and net capital outflow using the national income accounting identity.

Correct AnswerverifiedStart from the national income accountin...View AnswerShow Answer

Suppose that Bill, a resident of the U.S., buys software from a company in Japan. Explain why and in what directions this changes U.S. net exports and U.S. net capital outflow.

Correct AnswerverifiedThe purchase of a foreign good by a U.S....View AnswerShow Answer

A Swiss watchmaker opens a factory in the United States. This is an example of Swiss

Correct AnswerverifiedShow Answer

A U.S. firm buys bonds issued by a technology center in India. This purchase is an example of U.S.

Correct AnswerverifiedShow Answer

According to purchasing-power parity which of the following would happen if a country raised its money supply growth rate?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Other things the same, if U.S. net capital outflow rises, so does U.S. saving.

Correct AnswerverifiedShow Answer

Susan, a U.S. citizen, builds and operates a kennel in France. This action is an example of

Correct AnswerverifiedShow Answer

If P = domestic prices, P* = foreign prices, and e is the nominal exchange rate, which of the following is implied by purchasing-power parity?

Correct AnswerverifiedShow Answer

Other things the same, an increase in the U.S. real exchange rate makes U.S. goods more expensive relative to foreign goods.

Correct AnswerverifiedShow Answer

If a country had a trade deficit of $10 billion and then its exports rose by $20 billion and its imports rose by $10 billion, its net exports would now be

Correct AnswerverifiedShow Answer

If a nation is selling more goods and services to foreigners than it is buying from them, then on net it must be selling assets abroad.

Correct AnswerverifiedShow Answer

Suppose that real interest rates in the U.S. rise relative to real interest rates in other countries. This increase would make foreigners

Correct AnswerverifiedShow Answer

According to purchasing-power parity, if the price of a basket of goods in the U.S. rose from $1,500 to $2,000 and the price of the same basket of goods rose from 600 units of some other country's currency to 1,000 units of that country's currency, then the

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
The real exchange rate = $300 ...
View Answer

Correct Answer
verified

Correct Answer
verified
That it is equal to one. The n...
View Answer

Correct Answer
verified

Correct Answer
verified
Start from the national income accountin...
View Answer

Correct Answer
verified
The purchase of a foreign good by a U.S....
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified