Macroeconomics Chapter 18 True/False

Arbitrage tends to cause prices for the same good to diverge from one another

False; arbitrage causes prices to converge

If a company based in the United States prefers a strong dollar (a dollar with a high exchange value), then the company likely exports more than it imports

False; companies preferring a strong dollar import more than they export

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

False; if exports exceed imports, the country has a trade surplus

Net exports are defined as imports minus exports

False; net exports are exports minus imports

If a case of Pepsi cots $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; the exchange rate should be 90 yen/dollar

If Great Britain's money supply grows faster than Mexico's, the value of the British pound should rise relative to the value of the peso

False; the value of the British pound should fall relative to the peso

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

False; they are more likely to be traded because shipping costs are a small portion of the total cost of the good

Arbitrage is the process of taking advantage of differences in prices of the same good by buying where the good is cheap and selling where it is expensive

True

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

True

If the nominal exchange rate is 2 British pounds to the dollar, and if the price of a Big Mac is $2 in the United States and 6 pounds in Great Britain, then the real exchange rate is 2/3 British Big Mac per American Big Mac

True

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

True

In order to increase domestic investment, a country must either increase its saving or decrease its net foreign investment

True

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

True