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Exam 31: Open-Economy Macroeconomics: Basic Concepts

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Question 1

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If the U.S. real exchange rate is greater than 1, then there is the possibility of arbitraging by buying foreign goods to sell in the U.S.

A) True
B) False

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Question 2

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Suppose a lobster supper in Maine costs fewer dollars than a Lobster supper in Paris, France. Explain why this is inconsistent with purchasing-power parity and explain why the inconsistency may exist.

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According to purchasing-power parity, a ...

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Question 3

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If a U.S. firm buys Chinese toys using previously obtained Chinese currency, then both U.S. net exports and U.S. net capital outflow decrease.

Movies are a major export of the U.S.

If the purchasing power of the dollar is always the same at home and abroad, then the nominal exchange rate defined as units of foreign currency per dollar decreases if the U.S. price level rises more than the price level in foreign countries.

If the Chinese nominal exchange rate (foreign currency per Chinese Yuan) does not change, but prices rise slower in China than in all other countries, then the Chinese real exchange rate

By itself, if a U.S. firm builds a new factory overseas, U.S. net capital outflow rises.

If a country sells more goods and services abroad than it purchases abroad, it has positive net exports and a trade surplus.

A quality men's suit in the U.S. costs $400. The same suit costs 300 British pounds in the U.K. The nominal exchange rate is .60 pounds per dollar. A. Find the real exchange rate. Show your work. B. In terms of dollars where is the suit cheaper?

If a country's net exports fall, then its net capital outflow falls by the same amount.

Over the past six decades, the U.S. economy has experienced a dramatic increase in the relative importance of international trade and finance.

If over the next year the inflation rate in the euro area is higher than the inflation rate in Japan, then the euro should depreciate relative to the Japanese yen.

By itself, when a Japanese bank purchases a bond issued by a U.S. corporation, U.S. net capital outflow rises.

U.S. exports make up less than 20 percent of GDP.

Suppose that foreign citizens decide to purchase more U.S. pharmaceuticals and U.S. citizens decide to buy stock in foreign corporations. Other things the same, these actions

When U.S. national saving rises, domestic investment also necessarily rises.

Suppose exchange rates are defined as foreign currency per dollar and foreign goods per U.S. goods. According to purchasing-power parity, if the price of a basket of goods in the United States 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

Suppose that a country imports $120 million worth of goods and services and exports $160 million worth of goods and services. What is the value of net exports?

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.

When exchange rates are defined as foreign currency per dollar and foreign goods per US goods, the ability to profit by purchasing wheat in the United States and selling it in China implies that the