Question 1

Other things the same, which of the following would both increase the U.S. real exchange rate with Israel?

Accepted Answer

A)   prices in the U.S. were higher, or prices in Israel were higher.
B)   prices in the U.S were higher, or prices in Israel were lower.
C)   prices in the U.S. were lower, or prices in Israel were higher.
D)   prices in the U.S. were lower, or prices in Israel were lower.E) C) and D)
F) A) and C)

Question 2

If the U.S. has exports of $1.5 trillion and imports of $2.2 trillion, then the U.S.

Accepted Answer

A)   sells more overseas then it buys from overseas; it has a trade deficit.
B)   sells more overseas then it buys from overseas; it has a trade surplus.
C)   buys more from overseas then it sells overseas; it has a trade deficit.
D)   buys more from overseas then it sells overseas; it has a trade surplus.E) All of the above
F) A) and C)

Question 3

If the dollar buys fewer bananas in Guatemala than in Honduras, then traders could make a profit by

Accepted Answer

A)   buying bananas in Honduras and selling them in Guatemala, which would tend to raise the price of bananas in Honduras.
B)   buying bananas in Honduras and selling them in Guatemala, which would tend to raise the price of bananas in Guatemala.
C)   buying bananas in Guatemala and selling them in Honduras, which would tend to raise the price of bananas in Guatemala.
D)   buying bananas in Guatemala and selling them in Honduras, which would tend to raise the price of bananas in Honduras.E) C) and D)
F) A) and D)

Question 4

If a country were to save more, but its domestic investment remained the same, then which of the following would rise

Accepted Answer

A)   both net capital outflow and net exports
B)   net capital outflow but not net exports
C)   net exports but not net exports
D)   neither net exports nor net capital outflowE) B) and C)
F) None of the above

Question 5

Citizens in India buy music from the U.S. To do so they use Indian rupees to purchase U.S. dollars. If U.S. citizens hold these rupees rather than spending them, what happens to U.S. net exports and U.S. net capital outflows?

Accepted Answer

A)   both U.S. net exports and U.S. net capital outflow rise
B)   both U.S. net exports and U.S. net capital outflow fall
C)   U.S. net exports rise and U.S. net capital outflow fall
D)   U.S. net exports fall and U.S. net capita outflow riseE) A) and B)
F) A) and C)

Question 6

If a bushel of wheat costs $6.40 in the United States, costs 40 pesos in Mexico, and the nominal exchange rate is 10 pesos per dollar, then the real exchange rate is

Accepted Answer

A)   1.60
B)   1.25
C)   .625
D)   None of the above is correct.E) A) and B)
F) A) and C)

Question 7

A U.S. firm buys wool from Australia with U.S. currency. The Australian firm then uses this money to buy electric shears from a U.S. firm. Which of the following increases?

Accepted Answer

A)   Australian net capital outflow and Australian net exports
B)   only Australian net exports
C)   only Australian net capital outflow
D)   neither Australian net exports nor Australian capital outflowE) B) and D)
F) None of the above

Question 8

In the U.S. a candy bar costs $1. If the nominal exchange rate were 6 Chinese yuan per dollar and the real exchange rate were 1.2, then, what would be the price of a candy bar in China?

Accepted Answer

A)   7.2 yuan
B)   6 yuan
C)   5 yuan
D)   3.6 yuanE) B) and C)
F) B) and D)

Question 9

A roll of duct tape costs 2 Canadian dollars in Canada and 1.75 U.S. dollars in the U.S. If the nominal exchange rate were 1.10 Canadian dollars per U.S. dollar.

Accepted Answer

A)   A profit could be made by buying duct tape in Canada and selling it in the U.S. This would tend to drive up the price of U.S. duct tape.
B)   A profit could be made by buying duct tape in Canada and selling it in the U.S. This would tend to drive up the price of Canadian duct tape.
C)   A profit could be made by buying duct tape in the U.S. and selling it in Canada. This would tend to drive up the price of U.S. duct tape.
D)   A profit could be made by buying duct tape in the U.S. and selling it in Canada. This would tend to drive up the price of Canadian duct tape.E) A) and B)
F) A) and C)

Question 10

A rational investor will always purchase the bond that pays the highest real interest rate.

Accepted Answer

A) True 
 B)False

Question 11

According to the doctrine of purchasing-power parity, which of the following should depreciate if over the next year the inflation rate is higher in the U.S. than in the Euro area?

Accepted Answer

A)   both the U.S. real exchange rate and the U.S. nominal exchange rate
B)   the U.S. real exchange rate, but not the U.S. nominal exchange rate
C)   the U.S. nominal exchange rate, but not the U.S. real exchange rate
D)   neither the U.S. nominal exchange rate nor the U.S. real exchange rateE) A) and B)
F) A) and C)

Question 12

Suppose the world had only two countries and domestic residents of country A purchased $50 billion of assets from country B and country B purchased $30 billion of assets from country A. What would the net capital outflows of both countries be?

Accepted Answer

A)   $50 billion for country A and $30 billion for country B
B)   $30 billion for country A and $50 billion for country B
C)   $20 billion for country A and -$20 billion for country B
D)   -$20 billion for country A and $20 billion for country BE) A) and D)
F) A) and B)

Question 13

If a country had a trade surplus of $100 billion and then its exports rose by $40 billion and its imports rose by $30 billion, its net exports would now be

Accepted Answer

A)   $110 billion
B)   $90 billion.
C)   $70 billion.
D)   $60 billion.E) None of the above
F) A) and B)

Question 14

When the Sykes Corporation (an American company)  buys shares of Audi stock (a German company)  for its pension fund, U.S. net capital outflow

Accepted Answer

A)   increases because an American company makes a portfolio investment in Germany.
B)   declines because an American company makes a portfolio investment in Germany.
C)   increases because an American company makes a direct investment in Germany.
D)   declines because an American company makes a direct investment in Germany.E) C) and D)
F) None of the above

Question 15

Other things the same, an increase in the real exchange rate raises U.S. net exports.

Accepted Answer

A) True 
 B)False

Question 16

When making investment decisions, investors

Accepted Answer

A)   compare the real interest rates offered on different bonds.
B)   compare the nominal, but not the real, interest rates offered on different bonds.
C)   purchase the highest-priced bond available.
D)   All of the above are correct.E) A) and B)
F) A) and C)

Question 17

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

Accepted Answer

A) True 
 B)False

Question 18

Firms in Saudi Arabia sell oil to the U.S. Other things the same, these oil sales

Accepted Answer

A)   increase Saudi net exports and net capital outflow.
B)   decrease Saudi net exports and net capital outflow.
C)   increase Saudi net exports and decrease Saudi net capital outflow.
D)   decrease Saudi net exports and increase Saudi net capital outflow.E) B) and C)
F) A) and D)

Question 19

A U.S. company uses U.K. pounds it already owned to purchase bonds issued by a company in the U.K. Which of these countries has an increase in net capital outflow?

Accepted Answer

A)   The U.S. and the U.K.
B)   The U.S. but not the U.K.
C)   The U.K. but not the U.S.
D)   Neither the U.S. nor the U.K.E) A) and D)
F) None of the above

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)   both countries rise.
D)   both countries fall.E) A) and B)
F) A) and C)

Exam 13: Open-Economy Macroeconomic Models

If the dollar buys fewer bananas in Guatemala than in Honduras, then traders could make a profit by

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

A U.S. firm buys wool from Australia with U.S. currency. The Australian firm then uses this money to buy electric shears from a U.S. firm. Which of the following increases?

Correct AnswerverifiedShow Answer

According to the doctrine of purchasing-power parity, which of the following should depreciate if over the next year the inflation rate is higher in the U.S. than in the Euro area?

Correct AnswerverifiedShow Answer

When making investment decisions, investors

Correct AnswerverifiedShow Answer

A U.S. company uses U.K. pounds it already owned to purchase bonds issued by a company in the U.K. Which of these countries has an increase in net capital outflow?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

If a country had a trade surplus of $100 billion and then its exports rose by $40 billion and its imports rose by $30 billion, its net exports would now be

Correct AnswerverifiedShow Answer

If the U.S. has exports of $1.5 trillion and imports of $2.2 trillion, then the U.S.

Correct AnswerverifiedShow Answer

In the U.S. a candy bar costs $1. If the nominal exchange rate were 6 Chinese yuan per dollar and the real exchange rate were 1.2, then, what would be the price of a candy bar in China?

Correct AnswerverifiedShow Answer

When the Sykes Corporation (an American company) buys shares of Audi stock (a German company) for its pension fund, U.S. net capital outflow

Correct AnswerverifiedShow Answer

If a country were to save more, but its domestic investment remained the same, then which of the following would rise

Correct AnswerverifiedShow Answer

Suppose the world had only two countries and domestic residents of country A purchased $50 billion of assets from country B and country B purchased $30 billion of assets from country A. What would the net capital outflows of both countries be?

Correct AnswerverifiedShow Answer

Firms in Saudi Arabia sell oil to the U.S. Other things the same, these oil sales

Correct AnswerverifiedShow Answer

Other things the same, which of the following would both increase the U.S. real exchange rate with Israel?

Correct AnswerverifiedShow Answer

Citizens in India buy music from the U.S. To do so they use Indian rupees to purchase U.S. dollars. If U.S. citizens hold these rupees rather than spending them, what happens to U.S. net exports and U.S. net capital outflows?

Correct AnswerverifiedShow Answer

If a bushel of wheat costs $6.40 in the United States, costs 40 pesos in Mexico, and the nominal exchange rate is 10 pesos per dollar, then the real exchange rate is

Correct AnswerverifiedShow Answer

A rational investor will always purchase the bond that pays the highest real interest rate.

Correct AnswerverifiedShow Answer

A roll of duct tape costs 2 Canadian dollars in Canada and 1.75 U.S. dollars in the U.S. If the nominal exchange rate were 1.10 Canadian dollars per U.S. dollar.

Correct AnswerverifiedShow Answer

Other things the same, an increase in the real exchange rate raises U.S. net exports.

Correct AnswerverifiedShow Answer

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