Quiz 10

A country has $100 million of saving and domestic investment of $30 million. What are net exports? Select one: a. -$70 million b. $70 million c. $100 million d. $130 million

b.

A Canadian firm opens a factory that produces climbing equipment in Austria. What are the effects of this transaction? Select one: a. Canadian net capital outflow increases, and Albanian net capital outflow decreases. b. Canadian net capital outflow decreases, and Albanian net capital outflow increases. c. Only Canadian net capital outflow increases. d. Only Albanian net capital outflow increases.

a

A country's exports are $500 billion, and imports are $700 billion. What is the country's trade balance? Select one: a. $200 billion deficit b. $200 billion surplus c. $1200 billion deficit d. $1200 billion surplus

a.

How do nominal exchange rates change over time? Select one: a. They vary little over time. b. They vary substantially over time. c. They appreciate over time for most countries. d. They depreciate over time for most countries.

b.

Country A buys $250 of wine from country B, and B buys $130 of wool from A. Which of the following correctly indicates the two countries' net exports (in the order A, B)? Select one: a. -$120, $120 b. $120, -$120 c. $250, $130 d. $330, $0

a.

According to purchasing-power parity, if prices in Canada increase by a larger percentage than prices in Algeria, how does the exchange rate change? Select one: a. The real exchange rate, defined as Algerian goods per unit of Canadian goods, rises. b. The real exchange rate, defined as Algerian goods per unit of Canadian goods, falls. c. The nominal exchange rate, defined as Algerian currency per dollar, rises. d. The nominal exchange rate, defined as Algerian currency per dollar, falls.

a

A British pharmacy buys drugs from a Canadian company and pays for them with British pounds. What are the effects of this transaction? Select one: a. It increases British net exports and increases Canadian capital outflow. b. It increases British net exports and decreases Canadian capital outflow. c. It decreases British net exports and increases Canadian capital outflow. d. It decreases British net exports and decreases Canadian capital outflow.

a.

A Canadian computer maker sells computers to a Czech Republic firm. This company uses all of the revenues from this sale to purchase stock in a Czech Republic company. What happens to Canadian net exports and net foreign investment due to these transactions? Select one: a. They will increase both Canadian net exports and Canadian net foreign investment. b. They will decrease both Canadian net exports and Canadian net foreign investment. c. They will increase Canadian net exports and will decrease Canadian net foreign investment. d. They will decrease Canadian net exports and will increase Canadian net foreign investment.

a.

A citizen of Ethiopia uses previously obtained Canadian dollars to purchase lamb from Canada. What are the effects of this transaction? Select one: a. It increases Saudi net capital outflow and increases Canadian net exports. b. It increases Saudi net capital outflow and decreases Canadian net exports. c. It decreases Saudi net capital outflow and increases Canadian net exports. d. It decreases Saudi net capital outflow and decreases Canadian net exports.

a.

According to the theory of purchasing-power parity, what must the nominal exchange rate between two countries reflect? Select one: a. the different price levels in those countries b. the different resource endowments in those countries c. the different income levels in those countries d. the different standards of living between those countries

a.

If the exchange rate changes from 130 yen per dollar to 150 yen per dollar, what has happened to the dollar? Select one: a. It has appreciated and so buys more Japanese goods. b. It has appreciated and so buys fewer Japanese goods. c. It has depreciated and so buys more Japanese goods. d. It has depreciated and so buys fewer Japanese goods.

a.

On behalf of your firm, you make frequent trips to Hong Kong. You notice that you always have to pay more dollars to get enough local currency to get your suits dry-cleaned than you have to pay to get your suits dry-cleaned in Canada. Is this consistent with purchasing-power parity? Select one: a. No, but it might be explained by limited opportunities for arbitrage across international borders. b. Yes, if prices in Hong Kong are rising more rapidly than prices in Canada. c. Yes, if prices in Hong Kong are rising less rapidly than prices in Canada. d. No, but it can be explained by arbitrage across international borders.

a.

A German company sells vehicles to a dealership in Canada. Which statement best identifies the effects of these transactions? Select one: a. They have no effect on Canadian net exports, and they increase German net exports. b. They decrease Canadian net exports and increase German net exports. c. They increase Canadian and German net exports. d. They increase Canadian net exports and decrease German net exports.

b.

A country has $50 million of domestic investment and net capital outflow of -$80 million. What is saving? Select one: a. -$80 million b. -$30 million c. $50 million d. $130 million

b.

Assume Canada is a small open economy with perfect capital mobility. If the interest rate is 8 percent in Canada and 6 percent in China, and if the exchange rate is stable at 6 Chinese yuan for one Canadian dollar, what would happen? Select one: a. Canadian investors want to invest in China, and Chinese investors want to invest in Canada. b. Both Canadian and Chinese investors want to invest in Canada. c. Canadian investors want to invest in Canada, and Chinese investors want to invest in China. d. Both Canadian and Chinese investors want to invest in China.

b.

If a country has business opportunities that become relatively attractive to other countries, what best predicts the effects of this change? Select one: a. Both net exports and net capital outflow increase. b. Both net exports and net capital outflow decrease. c. Net exports increase, but net capital outflow decreases. d. Net exports decrease, but net capital outflow increases.

b.

If the Canadian dollar gets weaker relative to the Japanese yen, what might happen? Select one: a. Canadian trade surplus will fall. b. Canadian trade deficit will fall. c. Japanese trade surplus will rise. d. Japanese trade deficit will fall.

b.

If the Canadian real exchange rate appreciates, what will most likely happen? Select one: a. Exports increase and imports decrease. b. Exports decrease and imports increase. c. Exports and imports both increase. d. Exports and imports both decrease.

b.

If the nominal exchange rate e is foreign currency per dollar, the domestic price is P, and the foreign price is P*, what is the definition of the real exchange rate? Select one: a. e(P*/P) b. e(P/P*) c. e + P/P d. e - P/P*

b.

Suppose that a kilogram can of coffee costs about $16 in Canada. Suppose the exchange rate is 0.7 euro per dollar and that a kilogram can of coffee in Belgium costs about 5.6 euros. What is the real exchange rate? Select one: a. 3/4 cans of Belgian coffee per can of Canadian coffee b. 2 cans of Belgian coffee per can of Canadian coffee c. 2.45 cans of Belgian coffee per can of Canadian coffee d. 3.5 cans of Belgian coffee per can of Canadian coffee

b.

A Japanese firm buys lumber from Canada and pays for it with yen. What are the effects of this transaction? Select one: a. Japanese net exports increase, and Canadian net capital outflow increases. b. Japanese net exports increase, and Canadian net capital outflow decreases. c. Japanese net exports decrease, and Canadian net capital outflow increases. d. Japanese net exports decrease, and Canadian net capital outflow decreases.

c.

If P = domestic prices, P* = foreign prices, and e is the nominal exchange rate, what is implied by purchasing-power parity? Select one: a. P = e/P* b. 1 = e/P* c. e = P*/P d. P/P*=1

c.

In 2015, Denmark had net exports of $100 billion and sold $600 billion of goods and services abroad. What were Denmark's components of net exports? Select one: a. $500 billion of exports and $600 billion of imports b. $500 billion of exports and $700 billion of imports c. $600 billion of exports and $500 billion of imports d. $700 billion of exports and $500 billion of imports

c.

In Canada, a cup of hot chocolate costs $6. In Australia, the same hot chocolate costs 6 Australian dollars. If the exchange rate is $2 Australian dollars per Canadian dollar, what is the real exchange rate? Select one: a. 1/2 cup of Australian hot chocolate per cup of Canadian hot chocolate b. 1 cup of Australian hot chocolate per cup of Canadian hot chocolate c. 2 cups of Australian hot chocolate per cup of Canadian hot chocolate d. 3 cups of Australian hot chocolate per cup of Canadian hot chocolate

c.

A Canadian firm buys apples from New Zealand with Canadian currency. The New Zealand firm then uses this money to buy packaging equipment from a Canadian firm. How do these transactions affect net exports or net capital outflow? Select one: a. They increase New Zealand net capital outflow and New Zealand net exports. b. They increase New Zealand net exports but not New Zealand net capital outflow. c. They increase New Zealand net capital outflow but not New Zealand net exports. d. They increase neither New Zealand net exports nor New Zealand capital outflow.

d.

According to purchasing-power parity theory, if the same fast-food hamburger costs $2.50 in Canada and 5 euros in France, what should the nominal exchange rate be? Select one: a. 1/4 euros per dollar b. 1/2 euro per dollar c. 1 euro per dollar d. 2 euro per dollar

d.

Assume the exchange rate is about 153 Kazakhstan tenge per dollar. According to purchasing-power parity, when would this exchange rate rise? Select one: a. if the price level in either Canada or Kazakhstan rose b. if the price level in either Canada or Kazakhstan fell c. if the price level in Canada rose or the price level in Kazakhstan fell d. if the price level in Canada fell or the price level in Kazakhstan rose

d.

Consider this statement: "Canada is characterized by perfect capital mobility." What does this mean in the language of economics? Select one: a. that capital is free to move across provinces in Canada b. that capital is free to move from one sector to another c. that Canadians can invest abroad but foreigners cannot invest in Canada d. that Canadians can invest abroad and foreigners can invest in Canada

d.

Exchange rates are 0.75 U.S. dollars per Canadian dollar, 170 yen per Canadian dollar, 0.8 euro per Canadian dollar, and 20 pesos per Canadian dollar. A bottle of beer in New York costs 6 U.S. dollars, 1200 yen in Tokyo, 7 euros in Munich, and 100 pesos in Cancun. Where is the most expensive beer? Select one: a. Cancun b. New York c. Tokyo d. Munich

d.

If the Canadian real interest rate exceeds the world real interest rate, what would Canadian savers most likely do? Select one: a. Canadian savers would prefer to buy foreign assets. b. Canadian savers would prefer to wait until the real interest rate falls to equal the world interest rate. c. Canadian savers would sell their Canadian assets and buy foreign assets instead. d. Canadian savers would sell their foreign assets and buy Canadian assets instead.

d.