ECN 222 Homework 9

A country has $100 million of net exports and $170 million of saving. Net capital outflow is

$100 million and domestic investment is $70 million.

A country has $40 billion of domestic investment and net capital outflows of -$20 billion. What is the country's saving?

$20 billion

A country sells more to foreign countries than it buys from them. It has

a trade surplus and positive net exports.

According to purchasing-power parity, if it took 1,100 Korean Won to buy a dollar this year, but it took 1,000 to buy it last year, then the dollar has

appreciated indicating inflation was lower in the U.S. than in Korea.

A Portuguese company exchanges euros for $60,000 from a U.S. bank. The Portuguese firm then uses the dollars to purchase $60,000 of canning equipment from a U.S. company. As a result of these two transactions alone

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

Domestic saving must equal domestic investment in

closed, but not open economies.

A Japanese bank buys U.S. government bonds, this purchase

decreases U.S. net capital outflow, but increases Japanese net capital outflow.

Ann, a U.S. citizen, uses some previously obtained euros to purchase a bond issued by a Spanish company. This transaction

does not change U.S. net capital outflow.

A country's trade balance will fall if

either saving falls or investment rises.

An Italian company builds and operates a pasta factory in the United States. This is an example of Italian

foreign direct investment that increases Italian net capital outflow.

A company in Panama pays for a U.S. architect to design a factory building. By itself this transaction

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

A depreciation of the U.S. real exchange rate induces U.S. consumers to buy

more domestic goods and fewer foreign goods.

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

more than one, so a profit could be made by buying jeans in Algeria and selling them in the U.S.

A country has a trade deficit. Its

net capital outflow must be negative and saving is smaller than investment.

If the real exchange rate is less than 1, then the

nominal exchange rate x U.S. price < foreign price. The dollars required to purchase a good in the U.S. would not buy enough foreign currency to buy the same good overseas.

Other things the same, the real exchange rate between American and French goods would be lower if

prices of French goods were higher, or the number of euros a dollar purchased was lower.

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

e(P/P*).

If the U.S. real exchange rate appreciates, U.S. exports to Europe

fall, and European exports to the U.S. rise.

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

If a country exports more than it imports, then it has

positive net exports and positive net capital outflows.

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?

the amount of kroner that can be bought with twenty U.S. cents

If purchasing-power parity holds, the price level in the U.S. is 250, and the price level in Japan is 260, which of the following is true?

the nominal exchange rate is 260/250

If a dollar buys more corn in the U.S. than in Mexico, then

the real exchange rate is less than 1; a profit might be made by buying corn in the U.S. and selling it in Mexico.

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.?

Belgium but not Japan

A Japanese flour mill buys wheat from the United States and pays for it with yen. Other things the same, Japanese

net exports decrease, and U.S. net capital outflow increases.

According to purchasing-power parity, if the price of a basket of goods in the U.S. rose from $2,000 to $2,104 and the price of the same basket of goods rose from 800 units to 832 units of some other country's currency, then the

nominal exchange rate would depreciate.

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

nominal terms and implies the dollar will appreciate.