Question 1

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

Question 2

If a McDonald's Big Mac cost $4.50 in the United States and 3.60 euros in the Euro area, then purchasing-power parity implies the nominal exchange rate is how many euros per dollar?

Accepted Answer

A)  1.25 If the value is less than this, it costs more dollars to buy a Big Mac in the U.S. than in the Euro area.
B)  1.25 If the value is less than this, it costs fewer dollars to buy a Big Mac in the U.S. then in the Euro area.
C)  .80 If the value is less than this, it costs more dollars to buy a Big Mac in the U.S. than in the Euro area.
D)  .80 If the value is less than this, it costs fewer dollars to buy a Big Mac in the U.S. than in the Euro area.E) A) and B)
F) All of the above

Question 3

Most of the change from 1980 to 1987 in U.S. net capital outflow as a percent of GDP was due to a(n)

Accepted Answer

A)  decrease in U.S. investment.
B)  decrease in U.S. national saving.
C)  increase in U.S. investment.
D)  increase in U.S. national saving.E) All of the above
F) B) and C)

Question 4

Both foreign direct investment and foreign portfolio investment by U.S. residents increase U.S. net capital outflow.

Accepted Answer

A) True 
 B)False

Question 5

According to purchasing-power parity, if it took 55 Indian rupees to buy a dollar today, but it took 58 to buy it a year ago, then the dollar has

Accepted Answer

A)  appreciated, indicating inflation was higher in the U.S. than in India.
B)  appreciated, indicating inflation was lower in the U.S. than in India.
C)  depreciated, indicating inflation was higher in the U.S. than in India.
D)  depreciated, indicating inflation was lower in the U.S. than in India.E) A) and C)
F) A) and B)

Question 6

A nation has a positive net capital outflow. Which of the following is correct?

Accepted Answer

A)  Purchases of foreign assets by domestic residents exceed purchases of domestic assets by foreigners
B)  It has positive net exports.
C)  Its savings exceeds its domestic investment.
D)  All of the above are correct.E) None of the above
F) A) and B)

Question 7

Lydia, a citizen of Italy, produces scarves and purses 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 Italian net exports.
B)  decrease U.S. net exports and have no effect on Italian net exports.
C)  increase U.S. net exports and decrease Italian net exports.
D)  decrease U.S. net exports and increase Italian net exports.E) None of the above
F) A) and B)

Question 8

The increase in the trade deficit in the 1980's reflected a decrease in national saving that is associated with an increase in the government budget deficit.

Accepted Answer

A) True 
 B)False

Question 9

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

Question 10

Table 31-2
Colombian Trade Flows 
-Refer to Table 31-2.​ What are Colombian exports?

Accepted Answer

A)  110 billion pesos
B)  100 billion pesos
C)  80 billion pesos
D)  ​60 billion pesosE) All of the above
F) B) and C)

Question 11

If purchasing-power parity holds, a dollar will buy

Accepted Answer

A)  one unit of each foreign currency.
B)  foreign currency equal to the U.S. price level divided by the foreign country's price level.
C)  enough foreign currency to buy as many goods as it does in the United States.
D)  None of the above is implied by purchasing-power parity.E) C) and D)
F) B) and D)

Question 12

When net capital outflow is negative, it means that on net the value of domestic assets purchased by foreigners exceeds the value of foreign assets purchased by domestic residents.

Accepted Answer

A) True 
 B)False

Question 13

Between 2000 and 2009, tough economic times lead to

Accepted Answer

A)  investment falling by a larger percentage than saving rose, so net capital outflow rose.
B)  investment falling by by a larger percentage than saving, so net capital outflow rose.
C)  investement falling by a smaller percentage than saving, so net capital outflow fell.
D)  investment and saving both falling by about the same percentage.E) A) and D)
F) A) and C)

Question 14

According to purchasing-power parity, if it took 1,100 Korean Won to buy a dollar this year, but it took 1,000 to buy it last year, then the dollar has

Accepted Answer

A)  appreciated, indicating inflation was higher in the U.S. than in Korea.
B)  appreciated indicating inflation was lower in the U.S. than in Korea.
C)  depreciated indicating inflation was higher in the U.S. than in Korea.
D)  depreciated indicating inflation was lower in the U.S. than in Korea.E) A) and C)
F) B) and C)

Question 15

Other things the same, a country could move from having a trade deficit to having a trade surplus 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) A) and C)
F) C) and D)

Question 16

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

Question 17

A pair of running shoes costs $70 in the U.S. If the price of the same shoes is 4500 rupees in India and the exchange rate is 60 rupees per dollar, than the real exchange rate is

Accepted Answer

A)  more than 1, so a profit could be made by buying these shoes in the U.S. and selling them in India.
B)  more than 1, so a profit could be made by buying these shoes in India and selling them in the U.S.
C)  less than 1, so a profit could be made by buying these shoes in the U.S. and selling them in India.
D)  less than 1, so a profit could be made by buying these shoes in India and selling them in the U.S.E) None of the above
F) B) and D)

Question 18

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 19

A U.S. grocery chain buys bananas from Honduras and pays for them with U.S. dollars.

Accepted Answer

A)  The purchase of the bananas increases U.S. net exports and the payment with dollars increases U.S. net capital outflow.
B)  The purchase of bananas increases U.S. net exports and the payment with dollars decreases U.S. net capital outflow.
C)  The purchase of bananas decreases U.S. net exports and the payment with dollars increases U.S. net capital outflow.
D)  The purchase of bananas decreases U.S. net exports and the payment with dollars decreases U.S. net capital outflow.E) A) and B)
F) A) and C)

Question 20

How do we find the real exchange rate from the nominal exchange rate?

Accepted Answer

Real Exchange Rate =...

Exam 31: Open-Economy Macroeconomics: Basic Concepts

The increase in the trade deficit in the 1980's reflected a decrease in national saving that is associated with an increase in the government budget deficit.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

If a McDonald's Big Mac cost $4.50 in the United States and 3.60 euros in the Euro area, then purchasing-power parity implies the nominal exchange rate is how many euros per dollar?

Correct AnswerverifiedShow Answer

Most of the change from 1980 to 1987 in U.S. net capital outflow as a percent of GDP was due to a(n)

Correct AnswerverifiedShow Answer

According to purchasing-power parity, if it took 55 Indian rupees to buy a dollar today, but it took 58 to buy it a year ago, then the dollar has

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

A nation has a positive net capital outflow. Which of the following is correct?

Correct AnswerverifiedShow Answer

When net capital outflow is negative, it means that on net the value of domestic assets purchased by foreigners exceeds the value of foreign assets purchased by domestic residents.

Correct AnswerverifiedShow Answer

Lydia, a citizen of Italy, produces scarves and purses that she sells to department stores in the United States. Other things the same, these sales

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

A pair of running shoes costs $70 in the U.S. If the price of the same shoes is 4500 rupees in India and the exchange rate is 60 rupees per dollar, than the real exchange rate is

Correct AnswerverifiedShow Answer

How do we find the real exchange rate from the nominal exchange rate?

Correct AnswerverifiedReal Exchange Rate =...View AnswerShow 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

Both foreign direct investment and foreign portfolio investment by U.S. residents increase U.S. net capital outflow.

Correct AnswerverifiedShow Answer

Net exports of a country are the value of

Correct AnswerverifiedShow Answer

If purchasing-power parity holds, a dollar will buy

Correct AnswerverifiedShow Answer

According to purchasing-power parity, if it took 1,100 Korean Won to buy a dollar this year, but it took 1,000 to buy it last year, then the dollar has

Correct AnswerverifiedShow Answer

Table 31-2 Colombian Trade Flows -Refer to Table 31-2.​ What are Colombian exports?

Correct AnswerverifiedShow Answer

Between 2000 and 2009, tough economic times lead to

Correct AnswerverifiedShow Answer

A U.S. grocery chain buys bananas from Honduras and pays for them with U.S. dollars.

Correct AnswerverifiedShow Answer

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

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Real Exchange Rate =...
View Answer

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Table 31-2 Colombian Trade Flows -Refer to Table 31-2. What are Colombian exports?

Correct Answer
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