Question 1

Suppose that a US dollar buys more gold in Australia than it buys in Russia. What does purchasing-power parity imply should happen?

Accepted Answer

People can make a profit by buying gold ...

Question 2

Suppose the money supply in Mexico grows more quickly than the money supply in the USA. We would expect that

Accepted Answer

A)   the Mexican peso should appreciate relative to the US dollar.
B)   the Mexican peso should depreciate relative to the US dollar.
C)   none of these answers
D)   the Mexican peso should maintain a constant exchange rate with the US dollar because of purchasing power parity.E) C) and D)
F) A) and B)

Question 3

If the nominal exchange rate is 2 UK pounds per 1 US dollar, and if the price of a Big Mac is $2 in the USA and £6 in the UK, then the real exchange rate is 2/3 British Big Mac per American Big Mac.

Accepted Answer

A) True 
 B)False

Question 4

Which of the following people or firms would be pleased by a depreciation of the pound against the US dollar?

Accepted Answer

A)   All the people and firms mentioned in these answers.
B)   A French exporter of wine to the UK.
C)   An American tourist visiting London.
D)   A UK importer of French wine.
E)   A UK company that wishes to expand abroad by building a factory in Poland.F) A) and D)
G) A) and E)

Question 5

How do the nominal exchange rate and the real exchange rate differ?

Accepted Answer

The nominal exchange rate is the rate at...

Question 6

If savings in Germany is €300 billion and investment in Germany is €550 billion, then

Accepted Answer

A)   there must be net capital outflow of -€550 billion.
B)   there must be net capital outflow of -€250 billion.
C)   the German government must be running a €250 billion surplus.
D)   the German financial market must be experiencing a net capital outflow.E) All of the above
F) A) and B)

Question 7

a) How do we find the real exchange rate from the nominal exchange rate?
b) Suppose a bottle of wine costs 20 euros in France and 25 dollars in the USA. If the exchange rate is .80 euros per dollar, what is the real exchange rate?

Accepted Answer

a) Real Exchange Rate = Nominal Exchange...

Question 8

If the UK's money supply grows faster than Switzerland's, the value of the pound should rise relative to the value of the Swiss franc.

Accepted Answer

A) True 
 B)False

Question 9

If Spain has a positive capital inflow, what does this signify?

Accepted Answer

A)   Nothing.
B)   That the government is running a budget deficit.
C)   That more funds were invested in Spain by foreigners than Spain invested abroad.
D)   That Spain is running a trade surplus.E) A) and B)
F) B) and D)

Question 10

Suppose that Brian, a resident of the UK, buys software from a company in Japan. Explain what this is and in what directions this changes UK net exports and UK net capital outflow.

Accepted Answer

The purchase of a foreign good by a UK r...

Question 11

If France saves €1,000 billion and French net capital outflow is - €200 billion, France's domestic investment is

Accepted Answer

A)   -€200 billion.
B)   €200 billion.
C)   €800 billion.
D)   €1,000 billion.
E)   €1,200 billion.F) B) and E)
G) A) and E)

Question 12

Suppose a resident of the USA buys a Jaguar car from the UK, and the UK exporter uses the receipts to buy shares in Boeing. Which of the following statements is true from the perspective of the UK?

Accepted Answer

A)   Net exports fall, and net capital outflow rises.
B)   Net exports rise, and net capital outflow rises.
C)   none of these answers
D)   Net exports rise, and net capital outflow falls.
E)   Net exports fall, and net capital outflow falls.F) C) and E)
G) A) and C)

Question 13

Each of the following is a reason why international trade has expanded in recent decades except which one?

Accepted Answer

A)   Technological improvements have meant that countries have become more similar in terms of the goods they can produce.
B)   Many new high technology goods have been introduced for which the cost of transport relative to the value of the product is low.
C)   There have been improvements in technology that have improved telecommunications between countries.
D)   Policy makers have promoted policies to increase international trade, such as the General Agreement on Tariffs and Trade, and subsequently established the World Trade Organization.
E)   Larger cargo ships and aeroplanes have reduced the cost of transporting goods.F) B) and D)
G) A) and B)

Question 14

According to purchasing-power parity, what is the relationship between changes in price levels between two countries and changes in nominal exchange rates?

Accepted Answer

Purchasing-power parity asserts that the...

Question 15

A country that exports more than it imports is said to have a trade deficit.

Accepted Answer

A) True 
 B)False

Question 16

Which of the following is an example of foreign direct investment?

Accepted Answer

A)   General Motors of the USA buys steel from South Korea.
B)   General Motors of the USA buys shares in Saab of Sweden.
C)   McDonald's builds a restaurant in Moscow.
D)   UK publisher Bloomsbury sells the rights to make a film of a Harry Potter book to an American film studio.E) B) and D)
F) A) and B)

Question 17

A country's trade balance is positive when

Accepted Answer

A)   exports exceed imports.
B)   exports plus investment exceed imports plus domestic saving.
C)   imports exceed exports.
D)   imports plus domestic saving exceed exports plus investment.E) C) and D)
F) B) and D)

Question 18

What does purchasing-power parity imply about the real exchange rate?

Accepted Answer

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

Question 19

An economy that interacts with other economies is known as

Accepted Answer

A)   an export economy.
B)   a friendly economy.
C)   an open economy.
D)   a balanced trade economy.
E)   an import economy.F) B) and C)
G) A) and E)

Question 20

Which of the following, if undertaken by a UK economic agent, would be classified as foreign direct investment?

Accepted Answer

A)   A purchase of 100 shares in Vodafone.
B)   A loan of £1 million to a Brazilian mining company.
C)   A purchase of shares in Swiss firm Nestlé.
D)   The establishment of a new accountancy practice in Bucharest, Romania.E) B) and C)
F) All of the above

Exam 29: Open-Economy Macroeconomics: Basic Concepts

What does purchasing-power parity imply about the real exchange rate?

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

An economy that interacts with other economies is known as

Correct AnswerverifiedShow Answer

How do the nominal exchange rate and the real exchange rate differ?

Correct AnswerverifiedThe nominal exchange rate is the rate at...View AnswerShow Answer

A country's trade balance is positive when

Correct AnswerverifiedShow Answer

If Spain has a positive capital inflow, what does this signify?

Correct AnswerverifiedShow Answer

Which of the following people or firms would be pleased by a depreciation of the pound against the US dollar?

Correct AnswerverifiedShow Answer

Suppose that Brian, a resident of the UK, buys software from a company in Japan. Explain what this is and in what directions this changes UK net exports and UK net capital outflow.

Correct AnswerverifiedThe purchase of a foreign good by a UK r...View AnswerShow Answer

According to purchasing-power parity, what is the relationship between changes in price levels between two countries and changes in nominal exchange rates?

Correct AnswerverifiedPurchasing-power parity asserts that the...View AnswerShow Answer

Suppose that a US dollar buys more gold in Australia than it buys in Russia. What does purchasing-power parity imply should happen?

Correct AnswerverifiedPeople can make a profit by buying gold ...View AnswerShow Answer

Suppose the money supply in Mexico grows more quickly than the money supply in the USA. We would expect that

Correct AnswerverifiedShow Answer

If the UK's money supply grows faster than Switzerland's, the value of the pound should rise relative to the value of the Swiss franc.

Correct AnswerverifiedShow Answer

Suppose a resident of the USA buys a Jaguar car from the UK, and the UK exporter uses the receipts to buy shares in Boeing. Which of the following statements is true from the perspective of the UK?

Correct AnswerverifiedShow Answer

A country that exports more than it imports is said to have a trade deficit.

Correct AnswerverifiedShow Answer

If France saves €1,000 billion and French net capital outflow is - €200 billion, France's domestic investment is

Correct AnswerverifiedShow Answer

a) How do we find the real exchange rate from the nominal exchange rate? b) Suppose a bottle of wine costs 20 euros in France and 25 dollars in the USA. If the exchange rate is .80 euros per dollar, what is the real exchange rate?

Correct Answerverifieda) Real Exchange Rate = Nominal Exchange...View AnswerShow Answer

If the nominal exchange rate is 2 UK pounds per 1 US dollar, and if the price of a Big Mac is $2 in the USA and £6 in the UK, then the real exchange rate is 2/3 British Big Mac per American Big Mac.

Correct AnswerverifiedShow Answer

Which of the following is an example of foreign direct investment?

Correct AnswerverifiedShow Answer

Which of the following, if undertaken by a UK economic agent, would be classified as foreign direct investment?

Correct AnswerverifiedShow Answer

If savings in Germany is €300 billion and investment in Germany is €550 billion, then

Correct AnswerverifiedShow Answer

Each of the following is a reason why international trade has expanded in recent decades except which one?

Correct AnswerverifiedShow Answer

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That it is equal to one. The n...
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The nominal exchange rate is the rate at...
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The purchase of a foreign good by a UK r...
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Purchasing-power parity asserts that the...
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People can make a profit by buying gold ...
View Answer

Correct Answer
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Correct Answer
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Correct Answer
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a) Real Exchange Rate = Nominal Exchange...
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