Macroeconomics Homework Ch. 18

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?

3/5 or 0.6 pounds per dollar

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

The nominal exchange rate, but not the real exchange rate.

Both foreign direct investment and foreign portfolio investment by U.S. residents increase U.S. net capital outflow. True or False?

True

If Walmart buys $50 million worth of consumer goods from China and sells them in the U.S., and China uses the $50 million to purchase U.S. bonds, U.S. net exports and U.S. net capital outflow both fall. True or False?

True

If purchases of foreign assets by U.S. exceed purchases of U.S. assets by foreign residents, the U.S. net capital outflow is positive. True or False?

True

The "law of one price" states that

a good must sell at the same price at all locations

Domestic saving must equal domestic investment in

closed, but not open economies.

According to the purchasing-power parity, inflation in the United States causes the dollar to

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

The purchase of U.S. government bonds by Egyptians is an example of

foreign portfolio investment by Egyptians

Net exports of a country are the value of

goods and services exported minus the value of goods and services imported.

Net Capital Outflow

is always equal to net exports

Purchasing-power parity theory does not hold at all times because

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

You are planning a graduation trip to Mexico. Other things the same, if the dollar appreciates relative to the peso, then the dollar buys

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

If a country has positive net capital outflow, then its net exports are

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

The nominal exchange rate is the

rate at which a person can trade the currency of one country for another

If purchasing-power parity holds, then the value of the

real exchange rate is equal to one.

It is possible for a country to have domestic investment that exceeds national saving. True or False?

True

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?

80 florin

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

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

Net capital outflow is the purchase of domestic assets by foreign residents minus the purchase of foreign assets by domestic residents. True or False?

False

Other things the same, if U.S. net capital outflow rises, so does U.S. saving. True or False?

False

Movies are a major export of the U.S. True or False?

True

Other things the same, an increase in U.S. real exchange rate makes U.S. goods more expensive relative to foreign goods. True or False?

True

If the exchange rate is expressed as euros/dollar, the dollar is said to depreciate against the euro if the exchange rate

falls. Other things the same, it will cost fewer euros to buy U.S. goods.

If saving is greater than domestic investment, then there is a trade

surplus and Y>C+I+G

In an economy, gross domestic product equals $2,450 billion, consumption equals $1,390 billion, government expenditure equals $325 billion, investment equals $510 billion, and net capital outflow equals $225 billion. What is national saving?

$735 billion

Which of the following equation is correct?

S=I+NCO

Bill, a U.S. citizen, pays a Spanish architect to design a metal casting factory. Which country's exports increase?

Spain's

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?

The Big Mac but not the tall latte

If the exchange rate is 12.5 pesos per U.S. dollar, it is also 1/12.5 U.S. dollars per peso. True or False?

True

Other things the same, an increase in domestic prices raises the real exchange rate. True or False?

True

The theory of purchasing-power parity states that a unit of a country's currency should be able to buy that same quantity of goods in foreign countries as it does in the domestic economy. True or False?

True

When the central bank of some country prints large quantities of money, that country's currency loses value both in terms of the goods and services it buys and in terms of the amount of foreign currencies it can buy. True or False?

True

A country's trade balance

is greater than zero only if exports are greater than imports

Suppose that the real return from operating factories in Canada rises relative to the real rate of return in the United States. Other things the same, this will

only increase Canadian net capital outflow