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 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

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.

If Japan exports more than it imports,

Japan's net capital outflow must be positive.

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.

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

True

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

dental services

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.

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

True

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

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

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

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.

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

False

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

True

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.

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

False

Net exports are defined as imports minus exports.

False

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.

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.