Question 1

Goods that cost 1/5 of one dollar in the U.S. cost one kroner in Denmark, the real exchange rate would be computed as how many Danish goods per U.S. goods?

Accepted Answer

A)   five
B)   the amount of kroner that can be bought with twenty U.S. cents
C)   the amount of kroner that can be bought with 5 dollars
D)   None of the above is correct.E) A) and D)
F) B) and C)

Question 2

After 1980 in the United States,

Accepted Answer

A)   national saving fell below investment and net capital outflow was a large positive number.
B)   national saving fell below investment and net capital outflow was a large negative number.
C)   investment fell below saving and net capital outflow was a large positive number.
D)   investment fell below saving, so net capital outflow was a large negative number.E) A) and D)
F) A) and C)

Question 3

Suppose that the real return from operating factories in Canada rises relative to the real rate of return in the United States. Other things the same,

Accepted Answer

A)   this will increases U.S. net capital outflow and decrease Canadian net capital outflow.
B)   this will decreases U.S. net capital outflow and increase Canadian net capital outflow.
C)   this will only increase U.S. net capital outflow.
D)   this will only increase Canadian net capital outflow.E) A) and B)
F) C) and D)

Question 4

The ability to profit by purchasing wheat in the U.S. and selling it in China implies that the

Accepted Answer

A)   nominal exchange rate is less than 1.
B)   nominal exchange rate is greater than 1.
C)   real exchange rate is less than 1.
D)   real exchange rate is greater than 1.E) None of the above
F) A) and B)

Question 5

If a country's purchases of foreign assets exceeds foreign purchases of domestic assets, that country has

Accepted Answer

A)   positive net exports and positive net capital outflows.
B)   positive net exports and negative net capital outflows.
C)   negative net exports and positive net capital outflows.
D)   negative net exports and negative net capital outflows.E) All of the above
F) A) and D)

Question 6

If a country has negative net capital outflows, then its net exports are

Accepted Answer

A)   positive and its saving is larger than its domestic investment.
B)   positive and its saving is smaller than its domestic investment.
C)   negative and its saving is larger than its domestic investment.
D)   negative and its saving is smaller than its domestic investment.E) A) and B)
F) C) and D)

Question 7

Susan, a U.S. citizen, builds and operates a kennel in France. This action is an example of

Accepted Answer

A)   investment for Susan and U.S. foreign direct investment.
B)   investment for Susan and U.S. foreign portfolio investment.
C)   U.S. foreign direct investment and U.S. domestic investment.
D)   U.S. foreign portfolio investment and U.S. domestic investment.E) All of the above
F) C) and D)

Question 8

Domestic saving must equal domestic investment in

Accepted Answer

A)   both closed and open economies.
B)   closed, but not open economies.
C)   open, but not closed economies.
D)   neither closed nor open economies.E) A) and D)
F) None of the above

Question 9

Other things the same, if a country has a trade deficit and saving rises,

Accepted Answer

A)   net capital outflow rises, so the trade deficit increases.
B)   net capital outflow rises, so the trade deficit decreases.
C)   net capital outflow falls, so the trade deficit increases.
D)   net capital outflow falls, so the trade deficit decreases.E) C) and D)
F) B) and D)

Question 10

Reduced barriers to trade help explain an increase in U.S. exports and imports relative to GDP since 1950.

Accepted Answer

A) True 
 B)False

Question 11

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

Accepted Answer

A) True 
 B)False

Question 12

If a lobster in Maine costs $10 and that the same type of lobster in Massachusetts costs $30, then people could make a profit by

Accepted Answer

A)   buying lobsters in Maine and selling them in Massachusetts. This action would increase the price of lobster in Massachusetts.
B)   buying lobsters in Maine and selling them in Massachusetts. This action would decrease the price of lobster in Massachusetts.
C)   buying lobsters in Massachusetts and selling them in Maine. This action would increase the price of lobster in Massachusetts.
D)   buying lobsters in Massachusetts and selling them in Maine. This action would decrease the price of lobster in Massachusetts.E) B) and D)
F) B) and C)

Question 13

A U.S. firm buys bonds issued by a technology center in India. This purchase is an example of U.S.

Accepted Answer

A)   foreign portfolio investment. By itself it is an increase in U.S. holdings of foreign bonds and increases U.S. net capital outflow.
B)   foreign portfolio investment. By itself it is an increase in U.S. holdings of foreign bonds and decreases U.S. net capital outflow.
C)   foreign direct investment. By itself it is an increase in U.S. holdings of foreign bonds and increases U.S. net capital outflow.
D)   foreign direct investment. By itself it is an increase in U.S. holdings of foreign bonds and decreases U.S. net capital outflow.E) A) and C)
F) A) and B)

Question 14

A country recently had $800 billion worth of domestic investment and its residents purchased $400 billion worth of foreign assets. If foreigners purchased $100 billion of this country's assets, what was this country's saving? Explain how your found your answer.

Accepted Answer

This country had saving of $1,100 billio...

Question 15

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 16

U.S. exports are $300 billion, U.S. imports are $500 billion. Which of the following are consistent with the level of net exports?

Accepted Answer

A)   The U.S has a trade surplus. The U.S. purchases $800 billion worth of foreign assets and foreign countries purchase $600 billion worth of U.S. assets.
B)   The U.S. has a trade surplus. The U.S. purchases $600 billion worth of foreign assets and foreign countries purchase $800 billion worth of U.S. assets.
C)   The U.S has a trade deficit. The U.S. purchases $800 billion worth of foreign assets and foreign countries purchase $600 billion worth of U.S. assets.
D)   The U.S. has a trade deficit. The U.S. purchases $600 billion worth of foreign assets and foreign countries purchase $800 billion worth of U.S. asset.E) C) and D)
F) B) and D)

Question 17

From 1970 to 1998 the U.S. dollar

Accepted Answer

A)   gained value compared to the Italian lira because inflation was higher in the U.S.
B)   gained value compared to the Italian lira because inflation was lower in the U.S.
C)   lost value compared to the Italian lira because inflation was higher in the U.S.
D)   lost value compared to the Italian lira because inflation was lower in the U.S.E) B) and D)
F) A) and B)

Question 18

Which of the following equations is always correct in an open economy?

Accepted Answer

A)   I = Y - C
B)   I = S
C)   I = S - NCO
D)   I = S + NXE) C) and D)
F) B) and D)

Question 19

A Japanese bank buys bonds sold by Minnesota Manufacturing. Minnesota Manufacturing then uses these funds to buy machinery from Canada. Which of the following decreases?

Accepted Answer

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

Question 20

Other things the same, the real exchange rate between U.S. and Belgian goods would be higher if

Accepted Answer

A)   prices in the U.S. were higher, or the number of euro the dollar purchased were higher.
B)   prices in the U.S. were higher, or the number of euro the dollar purchased were lower.
C)   prices in the U.S. were lower, or the number of euro the dollar purchased were higher.
D)   prices in the U.S. were lower, or the number of euro the dollar purchased were lower.E) A) and B)
F) A) and C)

Exam 31: Open-Economy Macroeconomics: Basic Concepts

If a lobster in Maine costs $10 and that the same type of lobster in Massachusetts costs $30, then people could make a profit by

Correct AnswerverifiedShow Answer

From 1970 to 1998 the U.S. dollar

Correct AnswerverifiedShow Answer

Domestic saving must equal domestic investment in

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

Goods that cost 1/5 of one dollar in the U.S. cost one kroner in Denmark, the real exchange rate would be computed as how many Danish goods per U.S. goods?

Correct AnswerverifiedShow Answer

A Japanese bank buys bonds sold by Minnesota Manufacturing. Minnesota Manufacturing then uses these funds to buy machinery from Canada. Which of the following decreases?

Correct AnswerverifiedShow Answer

Suppose that the real return from operating factories in Canada rises relative to the real rate of return in the United States. Other things the same,

Correct AnswerverifiedShow Answer

If a country has negative net capital outflows, then its net exports are

Correct AnswerverifiedShow Answer

Other things the same, if a country has a trade deficit and saving rises,

Correct AnswerverifiedShow Answer

Susan, a U.S. citizen, builds and operates a kennel in France. This action is an example of

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

If a country's purchases of foreign assets exceeds foreign purchases of domestic assets, that country has

Correct AnswerverifiedShow Answer

Reduced barriers to trade help explain an increase in U.S. exports and imports relative to GDP since 1950.

Correct AnswerverifiedShow Answer

Other things the same, the real exchange rate between U.S. and Belgian goods would be higher if

Correct AnswerverifiedShow Answer

Which of the following equations is always correct in an open economy?

Correct AnswerverifiedShow Answer

The ability to profit by purchasing wheat in the U.S. and selling it in China implies that the

Correct AnswerverifiedShow Answer

U.S. exports are $300 billion, U.S. imports are $500 billion. Which of the following are consistent with the level of net exports?

Correct AnswerverifiedShow Answer

After 1980 in the United States,

Correct AnswerverifiedShow Answer

A U.S. firm buys bonds issued by a technology center in India. This purchase is an example of U.S.

Correct AnswerverifiedShow Answer

A country recently had $800 billion worth of domestic investment and its residents purchased $400 billion worth of foreign assets. If foreigners purchased $100 billion of this country's assets, what was this country's saving? Explain how your found your answer.

Correct AnswerverifiedThis country had saving of $1,100 billio...View AnswerShow Answer

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This country had saving of $1,100 billio...
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