Principles of Macroeconomics – Econ 1104 Chapter 13 Review Open-Economy Macroeconomic Basic Concepts. Graded A

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Principles of Macroeconomics – Econ 1104 Chapter 13 Review Open-Economy Macroeconomic Basic Concepts 1. Foreign-produced goods and services that are purchased domestically are called a) Imports ... b) Exports c) Net Imports d) Net Exports 2. Dave, a U.S. citizen buys a bicycle manufactured in China. Dave’s purchase is a) Both a U.S. and Chinese export b) Both a U.S. and Chinese import c) A U.S. import and a Chinese export d) A U.S. export and a Chinese import 3. A farmer in Mexico purchases a tractor made in the U.S. This purchase is an example of a) A U.S. import and a Mexican export b) A U.S. export and a Mexican import c) An export for both the U.S. and Mexico d) An import for both the U.S. and Mexico 4. Net exports of a country are the value of a) Goods and services imported minus the value of goods and services exported. b) Goods and services exported minus the value of goods and services imported. c) Goods exported minus the value of goods imported. d) Goods imported minus the value of goods exported. 5. A country sells more goods and services to foreign countries than it buys from them. It has 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. 6. Which of the following both reduce net exports? a) Exports rise, imports rise b) Exports rise, imports fall c) Exports fall, imports rise d) Exports fall, imports fall7. One year a country has negative net exports. The next year it still has negative net exports and imports have risen more than exports. a) Its trade surplus fell. b) Its trade surplus rose. c) Its trade deficit fell. d) Its trade deficit rose. 8. If Germany purchased more goods and services abroad than it sold abroad last year, then it had a) Positive net exports which is a trade surplus b) Positive net exports which is a trade deficit c) Negative net exports which is a trade surplus d) Negative net exports which is a trade deficit 9. Suppose that a country imports $90 million worth of goods and services and exports $80 million worth of goods and services. What is the value of net exports? a) $170 million b) $80 million c) $10 million d) -$10 million 10. A country purchases $3 billion of foreign-produced goods and services and sells $2 billion dollars of domestically produced goods and services to foreign countries. It has a) Exports of $3 billion and a trade surplus of $1 billion. b) Exports of $3 billion and a trade deficit of $1 billion. c) Exports of $2 billion and a trade surplus of $1 billion. d) Exports of $2 billion and a trade deficit of $1 billion. 11. If the U.S. has exports of $1.5 trillion and imports of $2.2 trillion, then the U.S. 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 overseas then it sells from overseas; it has a trade deficit. d) Buys more overseas then it sells from overseas; it has a trade surplus. 12. If a country has $2.4 billion of net exports and purchases $4.8 billion of goods and services from foreign countries, then it has a) $7.2 billion of exports and $4.8 billion of imports. b) $7.2 billion of imports and $4.8 billion of exports. c) $4.8 billion of exports and $7.2 billion of imports. d) $4.8 billion of imports and $7.2 billion of exports.Table 13-1 Bolivian Trade Flows Goods Services Purchased Abroad $40 billion Purchased Abroad $20 billion Sold Abroad $10 billion Sold Abroad $25 billion 13. Refer to Table 13-1. What are Bolivia’s exports? a) $60 billion b) $35 billion c) $10 billion d) None of the above are correct 14. Refer to Table 13-1. What are Bolivia’s imports? a) $60 billion b) $35 billion c) $40 billion d) None of the above are correct 15. Refer to Table 13-1. What are Bolivia’s net exports? a) $30 billion b) $5 billion c) -$5 billion d) -$25 billion 16. You buy a new car built in Sweden. Other things the same, your purchase by itself a) Raises both U.S. exports and U.S. net exports. b) Raises U.S. exports and lowers U.S. net exports. c) Raises both U.S. imports and U.S. net exports. d) Raises U.S. imports and lowers U.S. net exports. 17. If a country had a trade deficit of $10 billion and then its exports rose by $20 billion and its imports rose by $10 billion, its net exports would now be a) $0 b) $10 billion c) -$10 billion d) -$20 billion18. Net capital outflow equals a) The value of domestic assets purchased by foreigners. b) The value of foreign assets purchased by domestic residents. c) The value of domestic assets purchased by foreigners - the value of foreign assets purchased by domestic residents. d) The value of foreign assets purchased by domestic residents - the value of domestic assets purchased by foreigners. 19. If U.S. residents purchase $600 billion worth of foreign assets and foreigners purchase $300 billion worth of U.S. assets, a) U.S. net capital outflow is $300 billion; capital is flowing into the U.S. b) U.S. net capital outflow is $300 billion; capital is flowing out of the U.S. c) U.S. net capital outflow is -$300 billion; capital is flowing into the U.S. d) U.S. net capital outflow is -$300 billion; capital is flowing out of the U.S. 20. If domestic residents of France purchase 1.2 trillion euros of foreign assets and foreigners purchase 1.5 trillion euros of French assets, then France’s net capital outflow is a) -0.3 trillion euros, so it must have a trade deficit. b) -0.3 trillion euros, so it must have a trade surplus. c) 0.3 trillion euros, so it must have a trade deficit. d) 0.3 trillion euros, so it must have a trade surplus. 21. If domestic residents of other countries purchase $600 billion of U.S. assets and U.S residents purchase $500 billion of foreign assets, then U.S. net capital outflow is a) $100 billion and the U.S. has a trade surplus. b) $100 billion and the U.S. has a trade deficit. c) -$100 billion and the U.S. has a trade surplus. d) -$100 billion and the U.S. has a trade deficit. 22. Jen and Alicia are both U.S. citizens. Jen opens a cafe in France. Alicia buys equipment from a company in Canada to use in her factory. Whose action is an example of U.S. foreign direct investment? a) Jen’s and Alicia’s b) Jen’s but not Alicia’s c) Alicia’s but not Jen’s d) Neither Alicia’s nor Jen’s 23. Which of the following is an example of U.S. foreign direct investment? a) A Chinese company opens a restaurant in the U.S. b) An Australian bank buys stocks issued by a U.S. corporation. c) A U.S. bank buys bonds issued by an Australian corporation. d) A U.S. company opens an auto parts factory in Canada.24. Which of the following is an example of U.S. foreign portfolio investment? a) A U.S. legal office opens a branch in Holland. b) Erica, a U.S. resident, buys bonds issued by the Swiss government. c) Both A and B are examples of U.S. portfolio investment. d) Neither A nor B are examples of U.S. portfolio investment. 25. Matt and Melinda are American residents. Matt buys stock issued by a German corporation. Melinda opens a shoe factory in Panama. Whose purchase, by itself, increases the U.S.’s net capital outflow? a) Matt’s b) Melinda’s c) Both Matt’s and Melinda’s d) Neither Matt’s nor Melinda’s 26. Sam, a U.S. citizen, buys bonds issued by a Greek company that bottles olives. Sam’s purchase is a) Foreign direct investment. By itself it increases U.S. net capital outflow. b) Foreign direct investment. By itself it decreases U.S. net capital outflow. c) Foreign portfolio investment. By itself it increases U.S. net capital outflow. d) Foreign portfolio investment. By itself it decreases U.S. net capital outflow. 27. When a Japanese auto maker opens a factory in the U.S., U.S. net capital outflow a) Increases because the foreign company makes a portfolio investment in the U.S. b) Declines because the foreign company makes a portfolio investment in the U.S. c) Increases because the foreign company makes a direct investment in capital in the U.S. d) Declines because the foreign company makes a direct investment in capital in the U.S. 28. Net capital outflow 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. 29. Which of the following equations is correct? a) S = I + C b) S = I – NX c) S = I + NCO d) S = NX – NCO 30. Which of the following equations is always correct in an open economy? a) NX = Y – C – I – G b) NX = S – I c) NX = NCO d) All of the above are correct31. If a country has Y > C + I + G, then it has a) Positive net capital outflow and positive net exports. b) Positive net capital outflow and negative net exports. c) Negative net capital outflow and positive net exports. d) Negative net capital outflow and negative net exports. 32. If a country has a trade surplus a) It has positive net exports and positive net capital outflow. b) It has positive net exports and negative net capital outflow. c) It has negative net exports and positive net capital outflow. d) It has negative net exports and negative net capital outflow. 33. U.S. exports are $300 billion, U.S. imports are $500 billion. Which of the following are consistent with the level of net exports? 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. assets. 34. A U.S. firm exchanges dollars for yen and then uses them to buy Japanese goods. Overall as a result of these transactions 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. 35. A German mutual fund sells euros to a U.S. bank for $20,000. The mutual fund then uses these dollars to purchase a bond issued by United Express, a U.S. delivery company. As a result of these two transactions, what happened to U.S. net capital outflow? a) It fell by $40,000 b) It fell by $20,000 c) It was unchanged d) It rose by $20,000 36. A country has $100 million of net exports and $170 million of saving. Net capital outflow is a) $70 million and domestic investment is $170 million. b) $70 million and domestic investment is $270 million. c) $100 million and domestic investment is $70 million. d) None of the above is correct.37. A country has $60 million of saving and domestic investment of $40 million. Net exports are a) $20 million b) -$20 million c) $100 million d) -$100 million 38. A country has net capital outflow of -10 billion euros and domestic investment of 20 billion euros. What is its national saving? a) 30 billion euros b) 10 billion euros c) -10 billion euros d) -30 billion euros 39. 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? 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 B 40. The nominal exchange rate is the a) Nominal interest rate in one country divided by the nominal interest rate in the other country. b) The ratio of a foreign country’s interest rate to the domestic interest rate. c) Rate at which a person can trade the currency of one country for another. d) The real exchange rate minus the inflation rate. 41. If the exchange rate is .60 British pounds = $1, a bottle of ale that costs 3 pounds costs a) $1.80 b) $4.80 c) $5.00 d) None of the above are correct 42. The dollar is said to depreciate against the euro if a) The exchange rate falls. Other things the same, it will cost fewer euros to buy U.S. goods. b) The exchange rate falls. Other things the same, it will cost more euros to buy U.S. goods. c) The exchange rate rises. Other things the same, it will cost fewer euros to buy U.S. goods. d) The exchange rate rises. Other things the same, it will cost more euros to buy U.S. goods.43. If you go to the bank and notice that a dollar buys more Japanese yen than it used to, then the dollar has a) Appreciated. Other things the same, the appreciation would make Americans less likely to travel to Japan. b) Appreciated. Other things the same, the appreciation would make Americans more likely to travel to Japan. c) Depreciated. Other things the same, the appreciation would make Americans less likely to travel to Japan. d) Depreciated. Other things the same, the appreciation would make Americans more likely to travel to Japan. 44. You are the CEO of a U.S. firm considering building a factory in Chile. If the dollar appreciates relative to the Chilean peso, then other things the same a) It takes fewer dollars to build the factory. By itself building the factory increases U.S. net capital outflow. b) It takes fewer dollars to build the factory. By itself building the factory decreases U.S. net capital outflow. c) It takes more dollars to build the factory. By itself building the factory increases U.S. net capital outflow. d) It takes more dollars to build the factory. By itself building the factory decreases U.S. net capital outflow. 45. Other things the same, if the exchange rate changes from 6 Chinese yuan per dollar to 7 Chinese yuan per dollar, then the dollar a) Appreciates and buys more Chinese goods. b) Appreciates and buys fewer Chinese goods. c) Depreciates and buys more Chinese goods. d) Depreciates and buys fewer Chinese goods. 46. If a dollar currently purchases 12.5 pesos and someone forecasts that in a year it will purchase 14 pesos, then the forecast is given in a) Real terms and implies the dollar will appreciate. b) Real terms and implies the dollar will depreciate. c) Nominal terms and implies the dollar will appreciate. d) Nominal terms and implies the dollar will depreciate. 47. If the nominal exchange rate e is foreign currency per dollar, the domestic price is P, and the foreign price is P*, then the real exchange rate is defined as a) e(P*/P) b) e(P/P*). c) e + P*/P. d) e - P/P*. 48. If a U.S. dollar purchases 4 Argentinean pesos, and a gallon of milk costs $3 in the U.S. and 6 pesos in Argentina what is the real exchange rate? a) 2 b) 3/2 c) 2/3 d) ½49. Exchange rates are 100 yen per dollar, 0.8 euro per dollar, and 12 pesos per dollar. A bottle of beer in New York costs 6 dollars, 500 yen in Tokyo, 6 euro in Munich, and 84 pesos in Cancun. Where is the most expensive and the cheapest beer, in that order? a) Cancun, New York b) Munich, Tokyo c) Tokyo, Munich d) New York, Cancun 50. 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 a) 1.60 b) 1.25 c) 0.625 d) None of the above is correct 51. If the real exchange rate between the U.S. and Japan is 1, the nominal exchange rate is 100 yen per U.S. dollar and the price of chicken in the U.S. is $2.50 per pound, what is the price of chicken in Japan? a) 400 yen per pound b) 250 yen per pound c) 100 yen per pound d) 40 yen per pound 52. A depreciation of the U.S. real exchange rate induces U.S. consumers to buy 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. 53. If the U.S. real exchange rate appreciates, U.S. exports a) Increase and U.S. imports decrease. b) Decrease and U.S. imports increase. c) And U.S. imports both decrease. d) And U.S. imports both increase. 54. The law of one price states that a) A good must sell at the price fixed by law. b) A good must sell at the same price at all locations. c) A good cannot sell for a price greater than the legal price ceiling. d) Nominal exchange rates will not vary.55. If purchasing-power parity holds, a dollar will buy a) More good in foreign countries than in the United States. b) As many goods in foreign countries as it does in the United States. c) Fewer goods in foreign countries than it does in the United States. d) None of the above is implied by purchasing-power parity. 56. According to purchasing-power parity, which of the following necessarily equals the ratio of the foreign price level divided by the domestic price level? a) The real exchange rate, but not the nominal exchange rate b) The nominal exchange rate, but not the real exchange rate c) The real exchange rate and the nominal exchange rate d) Neither the real exchange rate nor the nominal exchange rate 57. According to purchasing-power parity, if the same basket of goods costs $100 in the U.S. and 50 pounds in Britain, then what is the nominal exchange rate? a) 2 pounds per dollar b) 1 pound per dollar c) ½ pound per dollar d) None of the above are correct 58. The nominal exchange rate is about 2 Aruban florin per dollar. If a basket of goods in the United States costs $40, how many florins must a basket of goods in Aruba cost for purchasing-power parity to hold? a) 20 florin b) 40 florin c) 60 florin d) 80 florin 59. A basket of goods costs $800 in the U.S. In Belgium the basket of goods costs 640 euros and the exchange rate is .80 euros per U.S. dollar. In Japan the basket of goods costs 90,000 yen and the exchange rate is 90 yen per dollar. Which country has purchasing-power parity with the U.S.? a) Both Belgium and Japan b) Belgium but not Japan c) Japan but not Belgium d) Neither Belgium nor Japan 60. The price of a basket of goods is $2000 in the U.S. If purchasing-power parity holds, and the dollar buys two units of some country’s currency, then how many units of foreign currency does the same basket of goods cost in that country? a) 4000 b) 2000 c) 1000 d) None of the above are correct61. An MP3 player in Singapore costs 200 Singaporean dollars. In the U.S. it costs 100 US dollars. What is the nominal exchange rate if purchasing-power parity holds? a) 2.0 b) 1.0 c) 0.5 d) None of the above are correct 62. A tall latte in China costs 30 yuan. The same latte in the U.S. costs 4 dollars. If the exchange rate is 6.5 yuan per dollar then, the real exchange rate is a) 0.867 so the good is more expensive in the U.S. b) 0.867 so the good is more expensive in the China c) 1.154 so the good is more expensive in the U.S. d) 1.154 so the good is more expensive in the China 63. 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 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. 64. If the dollar buys fewer bananas in Guatemala than in Honduras, then traders could make a profit by 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. 65. A pair of jeans cost $25 in the U.S. and 1600 dinar in Algeria. If the nominal exchange rate is 75 dinar per U.S. dollar, then the real exchange rate is a) More than one, so a profit could be made by buying jeans in Algeria and selling them in the U.S. b) More than one, so a profit could be made by buying jeans in the U.S. and selling them in Algeria. c) Less than one, so a profit could be made by buying jeans in Algeria and selling them in the U.S. d) Less than one, so a profit could be made by buying jeans in the U.S. and selling them in Algeria.66. If P = domestic prices, P* = foreign prices, and e is the nominal exchange rate, which of the following is implied by purchasing-power parity? a) P = e/P* b) 1 = e/P* c) e = P*/P d) None of the above is correct. Table 13 - 2 Country Currency Currency per U.S. Dollar U.S. Price Index Country Price Index Britain Pound .6 200 120 Germany Euro .80 200 200 Japan Yen 100 200 18000 Saudi Arabia Riyal 4 200 900 Venezuela Bolivar 6 200 1200 67. Refer to Table 13-2. For which country (ies) in the table does purchasing-power parity with the U.S. hold? a) Germany and Japan b) Japan and Saudi Arabia c) Britain and Venezuela d) Germany 68. Refer to Table 13-2. Which currency(ies) is(are) have a higher nominal exchange rate than predicted by the doctrine of purchasing-power parity? a) The bolivar and the pound b) The euro and the riyal c) The yen d) The pound 69. Refer to Table 13-2. Which currency(ies) is(are) have a nominal exchange rate less than that predicted by the doctrine of purchasing-power parity? a) The euro and the riyal b) The pound and the yen c) The bolivar d) The yen 70. Refer to Table 13-2. In real terms, U.S. goods are less expensive than goods in which country(ies)? a) Britain and Japan b) Germany and Saudi Arabia c) Germany and Venezuela d) Japan71. Suppose a McDonalds Big Mac costs $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? 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 are nor Australia 72. According to purchasing-power parity, if the price of a basket of goods in the U.S. 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 a) Nominal exchange rate would appreciate. b) Nominal exchange rate would depreciate. c) Real exchange rate would appreciate. d) Real exchange rate would depreciate. 73. According to purchasing-power parity, inflation in the U.S. causes the dollar to a) Depreciate relative to all other currencies. b) Depreciate relative to currencies of countries that have lower inflation rates. c) Appreciate relative to all other countries. d) Appreciate relative to currencies of countries that have lower inflation rates. 74. Other things the same, according to purchasing-power parity, if over the next few years Mexico has a higher money supply growth rate than the U.S., then a) Prices in Mexico will rise by a larger percentage than in the U.S. So, the dollar will appreciate against the Mexican peso. b) Prices in Mexico will rise by larger percentage than in the U.S. So, the dollar will depreciate against the Mexican peso. c) Prices in Mexico will rise by a smaller percentage than in the U.S. So, the dollar will appreciate against the Mexican peso. d) Prices in Mexico will rise by a smaller percentage than in the U.S. So, the dollar will depreciate against the Mexican peso. 75. According to purchasing-power parity, if the Federal Reserve increased the money supply 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 rise and the nominal exchange rate would fall. d) U.S. prices and the nominal exchange rate would fall. [Show More]

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