Question 1

If the exchange rate is 8 Moroccan dirhams per U.S. dollars, a crate of oranges costs 400 dirhams in the Moroccan capital of Rabat, and a similar crate of oranges in Miami sells for $55 dollars, then

Accepted Answer

A)   the real exchange rate is greater than one and arbitrageurs could profit by buying oranges in the U.S. and selling them in Morocco.
B)   the real exchange rate is greater than one and arbitrageurs could profit by buying oranges in Morocco and selling them in the U.S.
C)   the real exchange rate is less than one and arbitrageurs could profit by buying oranges in the U.S. and selling them in Morocco.
D)   the real exchange rate is less than one and arbitrageurs could profit by buying oranges in Morocco and selling them in the U.S.E) None of the above
F) B) and C)

Question 2

If you are vacationing in France and the dollar depreciates relative to the euro, then

Accepted Answer

A)   the dollar buys more euros. It will take fewer dollars to buy a good that costs 50 euros.
B)   the dollar buys more euros. It will take more dollars to buy a good that costs 50 euros.
C)   the dollar buys fewer euros. It will take fewer dollars to buy a good that costs 50 euros.
D)   the dollar buys fewer euros. It will take more dollars to buy a good that costs 50 euros.E) A) and B)
F) A) and C)

Question 3

Other things the same, an increase in domestic prices raises the real exchange rate.

Accepted Answer

A) True 
 B)False

Question 4

A country sells more to foreign countries than it buys from them. It has

Accepted Answer

A)   a trade surplus and positive net exports.
B)   a trade surplus and negative net exports.
C)   a trade deficit and positive net exports.
D)   a trade deficit and negative net exports.E) None of the above
F) All of the above

Question 5

If Walmart buys $50 million worth of consumer goods from China and sells them in the U.S., and China uses the $50 million to purchase U.S. bonds, U.S. net exports and U.S. net capital outflow both fall.

Accepted Answer

A) True 
 B)False

Question 6

Net capital outflow

Accepted Answer

A)   is always greater than net exports.
B)   is always less than net exports.
C)   is always equal to net exports.
D)   could be any of the above.E) All of the above
F) A) and B)

Question 7

Suppose a McDonalds Big Mac cost $4.40 in the United States and 3.30 euros in the euro area and 5.72 Australian dollars in Australia. If exchange rates are .75 euros per dollar and 1.3 Australian dollars per dollar, where does purchasing-power parity hold?

Accepted Answer

A)   both the euro area and Australia
B)   the euro area but not Australia
C)   Australia but not the euro area
D)   neither the euro area nor AustraliaE) B) and D)
F) None of the above

Question 8

According to purchasing-power parity, if the Federal Reserve increased the money supply

Accepted Answer

A)   U.S. prices would rise and the nominal exchange rate would rise.
B)   U.S. prices would rise and the nominal exchange rate would fall.
C)   U.S. prices would fall and the nominal exchange rate would rise.
D)   U.S. prices and the nominal exchange rate would fall.E) B) and C)
F) All of the above

Question 9

Which of the following statements is correct for an open economy with a trade surplus?

Accepted Answer

A)   The trade surplus cannot last for very many years.
B)   The trade surplus must be offset by negative net capital outflow.
C)   The trade surplus implies that the country's national saving is greater than domestic investment.
D)   None of the above is correct.E) All of the above
F) B) and D)

Question 10

Suppose that the real exchange rate between the United States and Kenya is defined in terms of baskets of goods. Other things the same, which of the following will increase the real exchange rate that is increase the number of baskets of Kenyan goods a basket of U.S. goods buys) ?

Accepted Answer

A)   an increase in the number of Kenyan shillings that can be purchased with a dollar
B)   an increase in the price of U.S. goods
C)   a decrease in the price in Kenyan shillings of Kenyan goods
D)   All of the above are correct.E) A) and B)
F) All of the above

Question 11

In Ireland, a pint of beer costs 3 euros. In Australia, a pint of beer costs 4 Australian dollars. If the exchange rate is .8 euros per Australian dollar, what is the real exchange rate?

Accepted Answer

A)   4/2.4 pints of Irish beer per pint of Australian beer
B)   3/3.2 pint of Irish beer per pint of Australian beer
C)   3.2/3 pints of Irish beer per pint of Australian beer
D)   2.4/4 pints of Irish beer per pint of Australian beerE) B) and C)
F) A) and C)

Question 12

A country has $45 million of domestic investment and net capital outflow of -$60 million. What is its saving?

Accepted Answer

A)   $15 million
B)   -$15 million
C)   $105 million
D)   -$105 millionE) A) and B)
F) A) and C)

Question 13

If the U.S. real exchange rate appreciates, U.S. exports

Accepted Answer

A)   increase and U.S. imports decrease.
B)   decrease and U.S. imports increase.
C)   and U.S. imports both increase.
D)   and U.S. imports both decrease.E) All of the above
F) B) and C)

Question 14

An appreciation of the U.S. real exchange rate induces U.S. consumers to buy

Accepted Answer

A)   fewer domestic goods and fewer foreign goods.
B)   more domestic goods and fewer foreign goods.
C)   fewer domestic goods and more foreign goods.
D)   more domestic goods and more foreign goods.E) All of the above
F) B) and D)

Question 15

If saving is greater than domestic investment, then

Accepted Answer

A)   there is a trade deficit and Y > C + I + G.
B)   there is a trade deficit and Y 
C)   there is a trade surplus and Y > C + I + G.
D)   there is a trade surplus and Y < C + I + G.E) None of the above
F) C) and D)

Question 16

A utilities company in the Netherlands buys wind generators made by a U.S. company. It pays from them with previously obtained dollars. By itself, this exchange

Accepted Answer

A)   increases both U.S. net exports and U.S. net capital outflow.
B)   decreases both U.S. net exports and U.S. net capital outflow.
C)   increases U.S. net exports and does not affect U.S. net capital outflow.
D)   None of the above is correct.E) A) and C)
F) B) and D)

Question 17

A firm in China sells toys to a U.S. department store chain. Other things the same, these sales

Accepted Answer

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

Question 18

Many economists believe that the theory of purchasing-power parity describes the forces that determine exchange rates in the long run.

Accepted Answer

A) True 
 B)False

Question 19

A U.S. firm exchanges dollars for yen and then uses them to buy Japanese goods. Overall as a result of these transactions

Accepted Answer

A)   both U.S. net capital outflow and U.S. net exports rise.
B)   both U.S. net capital outflow and U.S. net exports fall.
C)   U.S. net capital outflow rises and U.S. net exports fall.
D)   U.S. net capital outflow falls and U.S. net exports rise.E) None of the above
F) C) and D)

Question 20

Purchasing-power parity implies that the nominal exchange rate given as foreign currency per unit of U.S. currency must rise if the price levels)  in

Accepted Answer

A)   foreign countries rise.
B)   the United States rises.
C)   all countries rise.
D)   all countries fall.E) All of the above
F) B) and D)

Exam 13: Open-Economy Macroeconomics: Basic Concepts

A country sells more to foreign countries than it buys from them. It has

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A country has $45 million of domestic investment and net capital outflow of -$60 million. What is its saving?

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A utilities company in the Netherlands buys wind generators made by a U.S. company. It pays from them with previously obtained dollars. By itself, this exchange

Correct AnswerverifiedShow Answer

If the exchange rate is 8 Moroccan dirhams per U.S. dollars, a crate of oranges costs 400 dirhams in the Moroccan capital of Rabat, and a similar crate of oranges in Miami sells for $55 dollars, then

Correct AnswerverifiedShow Answer

Purchasing-power parity implies that the nominal exchange rate given as foreign currency per unit of U.S. currency must rise if the price levels) in

Correct AnswerverifiedShow Answer

If Walmart buys $50 million worth of consumer goods from China and sells them in the U.S., and China uses the $50 million to purchase U.S. bonds, U.S. net exports and U.S. net capital outflow both fall.

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Which of the following statements is correct for an open economy with a trade surplus?

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According to purchasing-power parity, if the Federal Reserve increased the money supply

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If saving is greater than domestic investment, then

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Other things the same, an increase in domestic prices raises the real exchange rate.

Correct AnswerverifiedShow Answer

A firm in China sells toys to a U.S. department store chain. Other things the same, these sales

Correct AnswerverifiedShow Answer

In Ireland, a pint of beer costs 3 euros. In Australia, a pint of beer costs 4 Australian dollars. If the exchange rate is .8 euros per Australian dollar, what is the real exchange rate?

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If you are vacationing in France and the dollar depreciates relative to the euro, then

Correct AnswerverifiedShow Answer

Many economists believe that the theory of purchasing-power parity describes the forces that determine exchange rates in the long run.

Correct AnswerverifiedShow Answer

A U.S. firm exchanges dollars for yen and then uses them to buy Japanese goods. Overall as a result of these transactions

Correct AnswerverifiedShow Answer

Suppose that the real exchange rate between the United States and Kenya is defined in terms of baskets of goods. Other things the same, which of the following will increase the real exchange rate that is increase the number of baskets of Kenyan goods a basket of U.S. goods buys) ?

Correct AnswerverifiedShow Answer

An appreciation of the U.S. real exchange rate induces U.S. consumers to buy

Correct AnswerverifiedShow Answer

Suppose a McDonalds Big Mac cost $4.40 in the United States and 3.30 euros in the euro area and 5.72 Australian dollars in Australia. If exchange rates are .75 euros per dollar and 1.3 Australian dollars per dollar, where does purchasing-power parity hold?

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Net capital outflow

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If the U.S. real exchange rate appreciates, U.S. exports

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