Chapter 31 Quizzes

If the United States saves $1,000 billion and U.S. net capital outflow is -$200 billion, U.S. domestic investment is

$1,200 billion.

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

-.3 trillion euros, so it must have a trade deficit.

Suppose the nominal exchange rate between the Japanese yen and the U.S. dollar is 100 yen per dollar. Further, suppose that a pound of hamburger costs $2 in the United States and 250 yen in Japan. What is the real exchange rate between Japan and the United States?

0.8 pound of Japanese hamburger/pound of American hamburger

A country has net capital outflow of -10 billion euros and domestic investment of 20 billion euros. What is its national saving?

10 billion euros

If a county has 25 billion euros of imports, 15 billion euros of exports, and sells 20 billion euros of assets to foreigners, how many foreign assets do domestic residents purchase?

10 billion euros

If the nominal exchange rate between British pounds and dollars is 0.5 pound per dollar, how many dollars can you get for a British pound?

2 dollars

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?

250 yen per pound

Suppose a cup of coffee is 1.5 euros in Germany and $0.50 in the United States. If purchasing-power parity holds, what is the nominal exchange rate between euros and dollars?

3 euros per dollar

If the real exchange rate for coal is 1.5, the price of coal in the U.S. is $50 per ton, and the price of coal in Britain is 20 British pounds per ton, what is the nominal exchange rate?

3/5

If a U.S. dollar purchases 4 Argentinean pesos, and a gallon of milk costs $2 in the U.S. and 6 pesos in Argentina what is the real exchange rate?

4/3

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?

4000

A nation has a positive net capital outflow. Which of the following is correct?

All of the Above: Purchases of foreign assets by domestic residents exceed purchases of domestic assets by foreigners, It has positive net exports, and Its savings exceeds its domestic investment.

Suppose the real exchange rate between Russia and the United States is defined in terms of bottles of Russian vodka per bottle of U.S. vodka. Which of the following will increase thereal exchange rate (that is, increase the number of bottles of Russian vodka per bottle of U.S. vodka)?

All of these answers will increase the real exchange rate.

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

False

Arbitrage tends to cause prices for the same good to diverge from one another.

False

If Great Britain's money supply grows faster than Mexico's, the value of the British pound should rise relative to the value of the peso.

False

If a case of Pepsi costs $8 in the United States and 720 yen in Japan, then according to the purchasing-power parity theory of exchange rates, the yen/dollar exchange rate should be 5,760 yen/dollar.

False

If a company based in the United States prefers a strong dollar (a dollar with a high exchange value), then the company likely exports more than it imports.

False

If a country's trade surplus falls, its net capital outflow rises.

False

Net exports are defined as imports minus exports.

False

To increase domestic investment, a country must increase its saving.

False

Valuable, technologically advanced goods are less likely to be traded internationally because shipping costs absorb too much of the potential profit.

False

Which of the following statements isnot true about the relationship between national saving, investment, and net capital outflow?

For a given amount of saving, a decrease in net capital outflow must decrease domestic investment.

A country has net capital outflow of $20 billion. Which of the following is consistent with this net capital outflow?

It has $20 billion of net exports.

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

McDonald's builds a restaurant in Moscow.

Which of the following would directly increase U.S. net capital outflow?

Microsoft builds a new distribution facility in Sweden.

Each of the following is a reason why the U.S. economy continues to engage in greater amounts of international tradeexcept which one?

NAFTA imposes requirements for increased trade between countries in North America.

Which of the following statements is true about a country with a trade deficit?

Net exports are negative.

Suppose a U.S. resident buys a Jaguar automobile from Great Britain and the British exporter uses the receipts to buy stock in General Electric. Which of the following statements is true from the perspective of the United States?

Net exports fall, and net capital outflow falls.

Bill, a U.S. citizen, pays a Spanish architect to design a metal casting factory. Which country's exports increase?

Spain's

A nation's domestic investment is greater than its savings. Which of the following is correct?

This nation has a negative net capital outflow.

According to purchasing power parity, the nominal exchange rate between the U.S. and another country should equal the price level of foreign goods divided by the price level of U.S. goods.

True

Arbitrage is the process of taking advantage of differences in prices of the same good by buying where the good is cheap and selling where it is expensive.

True

For a given amount of U.S. national saving, an increase in U.S. net capital outflow decreases U.S. domestic investment.

True

For any country, net exports are always equal to net capital outflow because every international transaction involves an exchange of an equal value of some combination of goods and assets.

True

If over the next year the price level in Turkey increases and the price level in Japan falls, then the Turkish lira should depreciate relative to the Japanese Yen.

True

If purchasing-power parity holds, the real exchange rate is always equal to 1.

True

If the nominal exchange rate is 2 British pounds to the dollar, and if the price of a Big Mac is $2 in the United States and 6 pounds in Great Britain, then the real exchange rate is 2/3 British Big Mac per American Big Mac.

True

If the yen/dollar exchange rate rises, the dollar has appreciated.

True

In order to increase domestic investment, a country must either increase its saving or decrease its net foreign investment.

True

U.S. net capital outflow falls when Toyota buys stock in Hilton Hotels, an American corporation.

True

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?

U.S. net exports and U.S. net capital outflow

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

an Italian importer of U.S. steel

The most accurate measure of the international value of the dollar is

an exchange rate index that accounts for many exchange rates.

An economy that interacts with other economies is known as

an open economy.

When people take advantage of differences in prices for the same good by buying it where it is cheap and selling it where it is expensive, it is known as

arbitrage.

Carl and Carly are American residents. Carl buys stock of a corporation in Austria. Carly opens a coffee shop in Austria. Whose purchase, by itself, decreases Austria's net capital outflow?

both Carl's and Carly's

Which of the following products would likely be the least accurate if used to calculate purchasing-power parity?

dental services

According to purchasing power parity, inflation in the U.S. causes the dollar to

depreciate relative to currencies of countries that have lower inflation rates

If the number of Japanese yen a dollar buys falls, but neither country's price level changes, then the real exchange rate

depreciates which causes U.S. net exports to increase.

An increase in U.S. sales of movies to other countries raises U.S.

exports and so raises the U.S. trade balance.

The purchase of U.S. government bonds by Egyptians is an example of

foreign portfolio investment by Egyptians.

Other things the same, which of the following could explain a rise in Sweden's net capital outflow?

interest rates on Swedish bonds rise.

If the American company Stryker builds and operates a new factory in Greece,

it engages in direct foreign investment. By itself this action raises U.S. net capital outflow.

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

nominal exchange rate would appreciate

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

real exchange rate is less than 1

If the exchange rate changes from 3 Brazilian reals per dollar to 4 reals per dollar,

the dollar has appreciated.

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

the peso should depreciate relative to the dollar.

According to purchasing power parity what should the nominal exchange rate between the U.S. and another country be equal to?

the price level in the other country divided by the price level in the U.S.

Suppose the inflation rate over the last 20 years has been 10 percent in Great Britain, 7 percent in Japan, and 3 percent in the United States. If purchasing-power parity holds, which of the following statements is true ? Over this period,

the yen should have risen in value compared to the pound and fallen compared to the dollar.

If Japan exports more than it imports,

Japan's net capital outflow must be positive.

Reductions in transportation costs help explain the increase in U.S. trade flows.

True

Suppose that real interest rates in the U.S. rise relative to real interest rates in other countries. This increase would make foreigners

more willing to purchase U.S. bonds, so U.S. net capital outflow would fall.

If sales of Saudi Arabian oil to the rest of the world increase and Saudis use the proceeds to buy foreign goods, which of the following increases?

neither Saudi Arabian net exports nor net capital outflow

According to purchasing power parity which of the following would happen if a country raised its money supply growth rate?

its nominal exchange rate would fall