unit 4.1

The nominal exchange rate is 30 Thai bhat for one U.S. dollar. A sub sandwich combo deal in the U.S. costs $6 dollars in the U.S. and 120 bhat in Thailand. The real exchange rate is

>a. 3/2

The value of Austria's exports minus the value of Austria's imports is called

>a. Austria's net exports.

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 deficit rose.

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

>a. positive net exports and positive net capital outflows.

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

In an open economy, gross domestic product equals $3,500 billion, consumption expenditure equals $2100 billion, government expenditure equals $400 billion, investment equals $800 billion, and net exports equals $200 billion. What is national savings?

>a.$1,000billion

Refer to Table 31-1. What are Bolivia's net exports?

>a.-$25 billion

If a Starbucks tall latte costs $3.20 in the United States and 3 euros in the Euro area, then purchasing-power parity implies the nominal exchange rate is how many euros per dollar?

>a..938 If the exchange rate is less than this, it costs more dollars to buy a tall latte in the U.S. than in the Euro area.

If the exchange rate is 2 Brazilian reals per dollar and a meal in Rio costs 20 reals, then how many dollars does it take to buy a meal in Rio?

>a.10 and your purchase will increase Brazil's net exports.

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*).

If it took as many dollars to buy goods in the United States as it did to buy enough currency to buy the same goods in India, the real exchange rate would be computed as how many Indian goods per U.S. goods?

>a.one

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?

>b. 2

In Ireland, a pint of beer costs 3 euros. In Australia, a pint of beer costs 4 Australian dollars. If the exchange rate is .8 euros per Australian dollar, what is the real exchange rate?

>b. 3.2/3 pints of Irish beer per pint of Australian beer

A U.S. bakery buys wheat from Canada and pays for it with US dollars. This transaction

>b. increases Canadian net exports, and decreases U.S. net capital outflow.

If the real exchange rate between the U.S. and Argentina is 1, then

>b. purchasing-power parity holds, and the amount of dollars needed to buy goods in the U.S. is the same as the amount needed to buy enough Argentinean bolivars to buy the same goods in Argentina.

According to the doctrine of purchasing-power parity, which of the following should depreciate if over the next year the inflation rate is higher in the U.S. than in the Euro area?

>b. the U.S. nominal exchange rate, but not the U.S. real exchange rate

A country has net capital outflow of $40 billion. Which of the following is consistent with this net capital outflow?

>b.Purchases of foreign assets by domestic residents exceed purchases of domestic assets by foreign residents by $40 billion.

The real exchange rate is the nominal exchange rate, defined as foreign currency per dollar, times

>b.U.S. prices divided by foreign prices.

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

>b.decrease and U.S. imports increase.

A country's trade balance will fall if

>b.either saving falls or investment rises.

If purchases of French assets by foreigners are less than French purchases of foreign assets, then France has a

>b.positive net capital outflow and a trade surplus.

A country has $3 billion of domestic investment and net exports of -$2 billion. What is its saving?

>c. $1 billion

If a country has net exports of $8 billion and sold $40 billion of goods and services abroad, then it has

>c. $40 billion of exports and $32 billion of imports.

A good in the U.S. costs $20. The same good costs 150 pesos in Mexico. If the nominal exchange rate is 10 pesos per dollar, what is the real exchange rate?

>c. 4/3 so the good is more expensive in the U.S.

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?

>c. 80 florin

Other things the same, if the exchange rate changes from 6 Chinese yuan per dollar to 7 Chinese yuan per dollar, then the dollar

>c. appreciates and buys more Chinese goods.

A Guatemalan company exchanges quetzal (Guatemalan currency) for dollars and then uses the dollars to purchase construction equipment from a U.S. company. These transactions

>c. decrease Guatemalan net capital outflow, and increases U.S. net exports.

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

>c. depreciate relative to currencies of countries that have lower inflation rates.

According to purchasing-power parity, which of the following necessarily equals the ratio of the foreign price level divided by the domestic price level?

>c. the nominal exchange rate, but not the real exchange rate

If the U.S. has a trade deficit and the nominal exchange rate depreciates, then other things the same

>c. the trade deficit falls and net capital outflows rise.

If saving is less than domestic investment, then

>c. there is a trade deficit and Y < C + I + G.

A particular brand of shampoo costs 6 Canadian dollars in Toronto. The nominal exchange rate is about 1.2 and the real exchange rate is .90. These numbers imply that the U.S. dollar price of the same shampoo is about

>c.$4.49

Which of the following is an example of U.S. foreign direct investment?

>c.A U.S. citizen builds and operates a coffee shop in the Netherlands.

Which of the following is an example of U.S. foreign direct investment?

>c.A U.S. company opens an auto parts factory in Canada.

If the Kenyan nominal exchange rate declines, and prices are unchanged in Kenya and abroad, then the Kenyan real exchange rate

>c.declines

All saving in the U.S. economy shows up as

>c.either investment in the U.S. economy or U.S. net capital outflow.

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

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

Sam, a U.S. citizen, buys bonds issued by a Greek company that bottles olives. Sam's purchase is

>c.foreign portfolio investment. By itself it increases U.S. net capital outflow.

A country's trade balance

>c.is greater than zero only if exports are greater than imports.

If over the next few years inflation is higher in Mexico than in the U.S., then according to purchasing-power parity which of the following should rise?

>c.the U.S. nominal exchange rate but not the U.S. real exchange rate

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

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

Consider an identical basket of goods in both the U.S. and Taiwan. For a given nominal exchange rate, in which case is it certain that the U.S. real exchange rate with Taiwan falls?

>c.the price of the basket of goods falls in the U.S. and rises in Taiwan.

U.S.-based John Deere sells machinery to residents of South Africa who pay with South African currency (the rand).

>d. This increases U.S. net capital outflow because the U.S. acquires foreign assets.

Paine Pharmaceuticals produces medicines in the U.S. Its overseas sales

>d. are an export of the U.S. and increase U.S. net exports.

When Ghana sells chocolate to the United States, U.S. net exports

>d. decrease, and U.S. net capital outflow decreases.

From 1980 to 1987

>d. foreigners were buying more assets from the United States than Americans were buying abroad. The United States was going into debt.

If U.S. consumers decrease their demand for cell phones from Finland, then other things the same Finland's

a. imports fall and net exports rise. >b. imports and net exports fall. c. exports fall and net exports rise. d. exports and net exports fall.

Between 2000 and 2009, tough economic times lead to

a. investment and saving both falling by about the same percentage. b. investment falling by by a larger percentage than saving, so net capital outflow rose. >c. investement falling by a smaller percentage than saving, so net capital outflow fell. d. investment falling by a larger percentage than saving rose, so net capital outflow rose.

According to purchasing-power parity, if over the course of a year the price level in the U.S. rises more than in Japan, then which of the following falls?

a. the U.S. nominal exchange rate, but not the U.S. real exchange rate b. the U.S. nominal exchange rate and the U.S. real exchange rate >c. neither the real exchange rate nor the nominal exchange rate d. the U.S. real exchange rate, but not the U.S. nominal exchange rate

Colombian trade flow Refer to Table 31-2.​ What are Colombian net exports?

a. ​20 billion pesos >b. 10 billion pesos c. -​20 billion pesos d. ​-10 billion pesos