Econ 202 Chapter 13

1. A country's saving is greater than its domestic investment. This difference means that its a. net capital outflow and net exports are positive. b. net capital outflow and net exports are negative. c. net capital outflow is positive and net exports are negative. d. net capital outflow is negative and net exports are positive.

a

14. From 1980 to 1987 a. foreigners were buying more assets from the United States than Americans were buying abroad. The United States was going into debt. b. Americans were buying more assets abroad than foreigners were buying from the United States. The United States was going into debt. c. foreigners were buying more assets from the United States than Americans were buying abroad. The United States was moving into surplus. d. Americans were buying more assets abroad than foreigners were buying from the United States. The United States was moving into surplus.

a

16. A country has $60 million of saving and domestic investment of $40 million. Net exports are a. $20 million. b. -$20 million. c. $100 million. d. -$100 million.

a

17. Suppose that the nominal exchange rate is 80 yen per dollar, that the price of a basket of goods in the U.S. is $500 and the price of a basket of goods in Japan is 50,000 yen. Suppose that these values change to 100 yen per dollar, $600, and 70,000 yen. Then the real exchange rate would a. appreciate which by itself would make U.S. net exports fall. b. appreciate which by itself would make U.S. net exports rise. c. depreciate which by itself would make U.S. net exports fall. d. depreciate which by itself would make U.S. net exports rise.

a

19. An Italian company exchanges euros for dollars from U.S. residents and then uses the dollars to buy U.S. products to sell in its stores in Rome. U.S. residents who exchanged their dollars for euros use the euros to buy bonds issued by French corporations. At this point a. both U.S. net exports and U.S. net capital outflows have risen. b. both U.S. net exports and U.S. net capital outflow have fallen. c. U.S. net exports have risen and U.S. net capital outflow have fallen. d. U.S. net exports have fallen and U.S. net capital outflow have risen.

a

32. Suppose that the real exchange rate between the United States and Brazil is defined in terms of baskets of goods. Other things the same, which of the following will increase the real exchange rate (that is increase the number of baskets of Brazilian goods a basket of U.S. goods buys)? a. an increase in the quantity of Brazilian currency that can be purchased with a dollar b. a decrease in the price of U.S. goods c. an increase in the price in Brazilian currency of Brazilian goods d. All of the above are correct.

a

33. If the dollar buys fewer bananas in Guatemala than in Honduras, then traders could make a profit by a. buying bananas in Honduras and selling them in Guatemala, which would tend to raise the price of bananas in Honduras. b. buying bananas in Honduras and selling them in Guatemala, which would tend to raise the price of bananas in Guatemala. c. buying bananas in Guatemala and selling them in Honduras, which would tend to raise the price of bananas in Guatemala. d. buying bananas in Guatemala and selling them in Honduras, which would tend to raise the price of bananas in Honduras.

a

36. Suppose a McDonalds Big Mac costs $4.40 in the United States and 3.30 euros in the euro area and 5.72 Australian dollars in Australia. If exchange rates are .75 euros per dollar and 1.3 Australian dollars per dollar, where does purchasing-power parity hold? a. both the euro area and Australia b. the euro area but not Australia c. Australia but not the euro area d. neither the euro area nor Australia

a

37. According to purchasing-power parity, when a country's central bank decreases the money supply, a unit of money a. gains value both in terms of the domestic goods and services it can buy and in terms of the foreign currency it can buy. b. gains value in terms of the domestic goods and services it can buy, but loses value in terms of the foreign currency it can buy. c. loses value in terms of the domestic goods and services it can buy, but gains value in terms of the foreign currency it can buy. d. loses value both in terms of the domestic goods and services it can buy and in terms of the foreign currency it can buy.

a

39. If over the next six months inflation is higher in the U.S. than in foreign countries, then according to purchasing-power parity a. only the nominal exchange rate depreciates. b. both the real and nominal exchange rate appreciate. c. both the real and nominal exchange rate depreciate. d. only the real exchange rate appreciates.

a

4. A country has $50 million of domestic investment and net capital outflow of $15 million. What is saving? a. $65 million b. -$65 million c. $35 million d. -$35 million

a

8. Other things the same, if a country's domestic investment decreases, then a. net capital outflow rises, so net exports rise. b. net capital outflow rises, so net exports fall. c. net capital outflow falls, so net exports rise. d. net capital outflow falls, so net exports fall.

a

9. The nominal exchange rate is 4 Saudi Arabian riyals, 8 Moroccan dirham, 60 Indian rupees, or .8 euros per U.S. dollar. A fast food breakfast costs $5 in the U.S., 30 riyals in Saudi Arabia, 40 Moroccan dirham in Morocco, 250 Indian rupees in India, and 5 euros in France. According to these numbers, where is the real exchange rate between American and foreign goods the lowest? a. Saudi Arabia b. Morocco c. India d. Britain

a

10. The exchange rate is 1.5 Bosnian markas per U.S. dollar. The price of a refrigerator in Bosnia is 1,200 markas while in the U.S. it is $1,000. The real exchange rate is a. 9/5 b. 5/4 c. 4/5 d. None of the above are correct.

b

13. 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? a. 400 yen per pound b. 250 yen per pound c. 100 yen per pound d. 40 yen per pound

b

15. Refer to Table 31-2. What are Colombian exports? a. 110 billion pesos b. 100 billion pesos c. 80 billion pesos d. 60 billion pesos

b

20. 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 a. nominal exchange rate would appreciate. b. nominal exchange rate would depreciate. c. real exchange rate would appreciate. d. real exchange rate would depreciate.

b

26. If a lobster in Maine costs $10 and that the same type of lobster in Massachusetts costs $30, then people could make a profit by a. buying lobsters in Maine and selling them in Massachusetts. This action would increase the price of lobster in Massachusetts. b. buying lobsters in Maine and selling them in Massachusetts. This action would decrease the price of lobster in Massachusetts. c. buying lobsters in Massachusetts and selling them in Maine. This action would increase the price of lobster in Massachusetts. d. buying lobsters in Massachusetts and selling them in Maine. This action would decrease the price of lobster in Massachusetts.

b

3. The country of Wiknam has net capital outflow of $1,000, government purchases of $5,000 and consumption of $20,000. Which of the following is correct? a. If its domestic investment is $1,000, its GDP is $26,000. b. If its domestic investment is $2,000, its GDP is $28,000. c. If its domestic investment is $5,000, its GDP is $29,000. d. None of the above are correct.

b

30. An American brewery sells dollars to obtain euros. It then uses the euros to buy brewing equipment from a German company. These transactions a. increase U.S. net capital outflow because Germans obtain U.S. assets. b. decrease U.S. net capital outflow because Germans obtain U.S. assets. c. increase U.S. net capital outflow because the U.S. buys capital goods. d. decrease U.S. net capital outflow because the U.S. buys capital goods.

b

40. The law of one price states that a. a good must sell at the price fixed by law. b. a good must sell at the same price at all locations. c. a good cannot sell for a price greater than the legal price ceiling. d. nominal exchange rates will not vary.

b

7. 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 a. appreciated, indicating inflation was higher in the U.S. than in Korea. b. appreciated indicating inflation was lower in the U.S. than in Korea. c. depreciated indicating inflation was higher in the U.S. than in Korea. d. depreciated indicating inflation was lower in the U.S. than in Korea.

b

11. A U.S. corporation builds a restaurant in China. Its expenditures are U.S. a. foreign portfolio investment that increase U.S. net capital outflow. b. foreign portfolio investment that decrease U.S. net capital outflow. c. foreign direct investment that increase U.S. net capital outflow. d. foreign direct investment that decrease U.S. net capital outflow.

c

18. A British grocery chain uses previously obtained U.S. dollars to purchase oranges from the United States. This transaction a. increases British net capital outflow, and increases U.S. net exports. b. increases British net capital outflow, and decreases U.S. net exports. c. decreases British net capital outflow, and increases U.S. net exports. d. decreases British net capital outflow, and decreases U.S. net exports.

c

22. An appreciation of the U.S. real exchange rate induces U.S. consumers to buy a. fewer domestic goods and fewer foreign goods. b. more domestic goods and fewer foreign goods. c. fewer domestic goods and more foreign goods. d. more domestic goods and more foreign goods.

c

24. The purchase of U.S. government bonds by Egyptians is an example of a. U.S. imports. b. U.S. exports. c. foreign portfolio investment by Egyptians. d. foreign direct investment by Egyptians.

c

29. If the Canadian nominal exchange rate does not change, but prices rise faster abroad than in Canada, then the Canadian real exchange rate a. does not change. b. rises. c. declines. d. None of the above is necessarily correct.

c

31. In the U.S. a candy bar costs $1. If the nominal exchange rate were 6 Chinese yuan per dollar and the real exchange rate were 1.2, then, what would be the price of a candy bar in China? a. 7.2 yuan b. 6 yuan c. 5 yuan d. 3.6 yuan

c

34. Most of the change from 1991 to 2000 in U.S. net capital outflow as a percent of GDP was due to a(n) a. decrease in U.S. investment. b. decrease in U.S. national saving. c. increase in U.S. investment. d. increase in U.S. national saving.

c

38. The nominal exchange rate is the a. nominal interest rate in one country divided by the nominal interest rate in the other country. b. the ratio of a foreign country's interest rate to the domestic interest rate. c. rate at which a person can trade the currency of one country for another. d. the real exchange rate minus the inflation rate.

c

6. A Texas ranch sells beef to a U.S. company that sells it to a grocery chain in Japan. These sales a. decrease U.S. exports but increase U.S. net exports. b. decrease both U.S. exports and U.S. net exports. c. increase both U.S. exports and U.S. net exports. d. increase U.S. exports but decrease U.S. net exports.

c

12. A Swiss watchmaker opens a factory in the United States. This is an example of Swiss a. exports. b. imports. c. foreign portfolio investment. d. foreign direct investment.

d

2. From 1970 to 1998 the U.S. dollar a. gained value compared to the German mark because inflation was higher in Germany. b. gained value compared to the German mark because inflation was lower in Germany. c. lost value compared to the German mark because inflation was higher in Germany. d. lost value compared to the German mark because inflation was lower in Germany.

d

21. You buy a new car built in Sweden. Other things the same, your purchase by itself a. raises both U.S. exports and U.S. net exports. b. raises U.S. exports and lowers U.S. net exports. c. raises both U.S. imports and U.S. net exports. d. raises U.S. imports and lowers U.S. net exports.

d

23. Purchasing-power parity describes the forces that determine a. prices in the short run. b. prices in the long run. c. exchange rates in the short run. d. exchange rates in the long run.

d

25. In an open economy, gross domestic product equals $1,650 billion, government expenditure equals $250 billion, and savings equals $550 billion. What is consumption expenditure? a. $250 billion b. $300 billion c. $550 billion d. $850 billion

d

27. Bob, a Greek citizen, opens a restaurant in Chicago. His expenditures a. increase U.S. net capital outflow and have no affect on Greek net capital outflow. b. increase U.S. net capital outflow and increase Greek net capital outflow. c. increase U.S. net capital outflow, but decrease Greek net capital outflow. d. decrease U.S. net capital outflow, but increase Greek net capital outflow.

d

28. The dollar is said to appreciate against the euro if a. the exchange rate falls. Other things the same, it will cost fewer euros to buy U.S. goods. b. the exchange rate falls. Other things the same, it will cost more euros to buy U.S. goods. c. the exchange rate rises. Other things the same, it will cost fewer euros to buy U.S. goods. d. the exchange rate rises. Other things the same, it will cost more euros to buy U.S. goods.

d

35. A U.S. retailer buys shoes from an Italian company. The Italian firm then uses all of the revenues to buy leather from the U.S. These transactions a. increase both U.S. net exports and U.S. net capital outflow. b. decrease both U.S. net exports and U.S. net capital outflow. c. increase U.S. net exports and do not affect U.S. net capital outflow. d. None of the above is correct.

d

5. A U.S. firm buys apples from New Zealand with New Zealand dollars it got in exchange for U.S. dollars. New Zealand residents then use these dollars to purchase oranges from the U.S. Which of the following increases? a. New Zealand's net capital outflow and New Zealand's net exports b. only New Zealand's net exports c. only New Zealand's net capital outflow d. neither New Zealand's net exports nor New Zealand's capital outflow

d