Econ unit 7

If a nation's currency doubles in value on foreign exchange markets, the currency is said to ........ , reflecting a change in the ........ exchange rate. a) appreciate; nominal b) appreciate; real c) depreciate; nominal d) depreciate; real

a) appreciate; nominal

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 servic

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.

If a country has positive net capital outflows, then its net exports are a) positive, and its saving is larger than its domestic investment. b) positive, and its saving is smaller than its domestic investment. c) negative, and its saving is larger than its domestic investment. d) negative, and its saving is smaller than its domestic investment.

a) positive, and its saving is larger than its domestic investment.

Jen and Alica are both U.S. citizens. Jen opens a cafe in France. Alicia buys equipment from a company in Canada to use in a U.S.-based factory. Whose action is an example of U.S. foreign direct investment? a) Jen's and Alica's b) Jen's but not Alicia's c) Alicia's but not Jen's d )Neither Alicia's nor Jen's

b) Jen's but not Alica

If the real exchange rate for coal is 1.5, the price of coal in the United States is $50 per ton, and the price of coal in Britain is 20 British pounds per ton, what is the nominal exchange rate? a) 15/4 or 3.75 pounds per dollar b) 5/3 or 1.67 pounds per dollar c) 3/5 or 0.6 pounds per dollar d) 4/15 or 2.67 pounds per dollar

c) 3/5 or 0.6 pounds per dollar

Which of the following equations is correct? a) S = I + C b) S = I − NX c) S = I + NCO d) S = NX − NCO .

c) S = I + NCO

If the U.S. dollar appreciates and prices remain the same at home and abroad, foreign goods become........... expensive relative to American goods, pushing the U.S. trade balance toward ............. a) more; surplus b) more; deficit c) less; surplus d) less; deficit

d) less; deficit

If the value of a nation's imports exceeds the value of its exports, which of the following is NOT true? a. Net exports are negative. b. GDP is less than the sum of consumption, investment, and government purchases. c. Domestic investment is greater than national saving. d. The nation is experiencing a net outflow of capital.

d. The nation is experiencing a net outflow of capital.

Purchasing-power parity theory does not hold at all times because a) many goods are not easily transported and the same goods produced in different countries may be imperfect substitutes. b) the same goods produced in different countries are perfect substitutes for each other. c) consumer preferences are different across countries. d) prices are different across countries.

a) many goods are not easily transported and the same goods produced in different countries may be imperfect substitutes.

Suppose that real interest rates in the U.S. rise relative to real interest rates in other countries. This increase would make foreigners a) more willing to purchase U.S. bonds, so U.S. net capital outflow would fall. b) more willing to purchase U.S. bonds, so U.S. net capital outflow would rise. c) less willing to purchase U.S. bonds, so U.S. net capital outflow would fall. d) less willing to purchase U.S. bonds, so U.S. net capital outflow would rise.

a) more willing to purchase U.S. bonds, so U.S. net capital outflow would fall.

If a country has Y > C + I + G, then it has a) positive net capital outflow and positive net exports. b) positive net capital outflow and negative net exports. c) negative net capital outflow and positive net exports. d) negative net capital outflow and negative net exports.

a) positive net capital outflow and positive net exports.

As a percentage of U.S. GDP, today exports are ........ and imports are ......... than they were in 1950. a. higher; higher b. lower; lower c. higher; lower d. lower; higher

a. higher; higher

The dollar-yen exchange rate falls from 100 to 80 yen per dollar. At the same time, the price level in the United States rises from 180 to 200, and the price level in Japan remains the same. As a result, a) American goods have become more expensive relative to Japanese goods. b) American goods have become less expensive relative to Japanese goods. c) the relative price of American and Japanese goods has not changed. d) both American and Japanese goods have become relatively less expensive.

b) American goods have become less expensive relative to Japanese goods.

Which of the following is correct? Since 1950 a) U.S. exports and U.S. imports each have increased slightly. b) U.S. exports and U.S. imports each have increased significantly. c) U.S. exports increased only slightly and U.S. imports have increased significantly. d) U.S. exports have decreased and U.S. imports have increased.

b) U.S. exports and U.S. imports each have increased significantly.

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) a good must sell at the same price at all locations.

A depreciation 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.

b) more domestic goods and fewer foreign goods.

When Jamie, a U.S. citizen, purchases a wool jacket made in Ireland, the purchase is a) both the U.S. and Irish import. b) the U.S. import and an Irish export. c) the U.S. export and an Irish import. d) both the U.S. and Irish export.

b) the U.S. import and an Irish export.

Suppose a Starbucks tall latte costs $4.00 in the United States and 2.50 euros in the Euro area. Also, suppose a McDonald's Big Mac costs $4.50 in the United States and 3.60 euros in the Euro area. If the nominal exchange rate is 0.80 euros per dollar, which goods have prices that are consistent with purchasing-power parity? a) Both the tall latte and the Big Mac b) the tall latte but not the Big Mac c) The Big Mac but not the tall latte d) Neither the Big Mac nor the tall latte

c) The Big Mac but not the tall latte

You are planning a graduation trip to Mexico. Other things the same, if the dollar appreciates relative to the peso, then the dollar buys a) fewer pesos. Your hotel room in Mexico will require fewer dollars. b) fewer pesos. Your hotel room in Mexico will require more dollars. c) more pesos. Your hotel room in Mexico will require fewer dollars. d) more pesos. Your hotel room in Mexico will require more dollars.

c) more pesos. Your hotel room in Mexico will require fewer dollars.

In an open economy, national saving equals domestic investment a. plus the government's budget deficit. b. minus the net exports of goods and services. c. plus the net outflow of capital. d. minus foreign portfolio investment.

c. plus the net outflow of capital.

Suppose that a country imports $90 million worth of goods and services and exports $80 million worth of goods and services. What is the value of net exports? a )$170 million b) $80 million c) $10 million d) -$10 million

d) -$10 million

The theory of purchasing-power parity says that higher inflation in a nation causes the nation's currency to ........., leaving the ........ exchange rate unchanged. a) appreciate; nominal b) appreciate; real c) depreciate; nominal d) depreciate; real

d) depreciate; real

If a cup of coffee costs 2 euros in Paris and $6 in New York and purchasing-power parity holds, what is the exchange rate? a) 1/4 euro per dollar b) 1/3 euro per dollar c) 3 euros per dollar d) 4 euros per dollar

b) 1/3 euro per dollar

When Microsoft, a U.S. company, establishes a distribution center in France, U.S. net capital outflow a) increases because Microsoft makes a foreign portfolio investment in France. b )decreases because Microsoft makes a foreign portfolio investment in France. c )increases because Microsoft makes a foreign direct investment in France. d) decreases because Microsoft makes a foreign direct investment in France.

c )increases because Microsoft makes a foreign direct investment in France.

Last year a country had exports of $100 billion, imports of $70 billion, and purchased $60 billion worth of foreign assets. What was the value of domestic assets purchased by foreigners? a) $70 billion b) $40 billion c) $30 billion d) $10 billion

c) $30 billion

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) exchange rates in the long run.

If you are vacationing in France and the dollar depreciates relative to the euro, then the dollar buys a) more euros. It will take fewer dollars to buy a good that costs 50 euros. b) more euros. It will take more dollars to buy a good that costs 50 euros. c) fewer euros. It will take fewer dollars to buy a good that costs 50 euros. d) fewer euros. It will take more dollars to buy a good that costs 50 euros.

d) fewer euros. It will take more dollars to buy a good that costs 50 euros.