Chapter 31 Open-Economy Macroeconomics: Basic Concepts
If you were told that the exchange rate was 1.5 U.S. dollars per 1 Canadian dollar (CDN), that would mean that Canadians would have to spend __________ to by a $12 watch in New York City.
$18 CDN
Suppose the same basket of goods costs $100 in the U.S. and 50 pounds in Britain. According to PPP, if the prices do not change, what will be the exchange rate?
2 dollars/pound
What does a positive U.S. capital inflow signify?
That more funds were invested in the United States by foreigners than the United States invested abroad.
Which of the following would be recorded as an U.S. merchandise export?
France purchases a new jet fighter aircraft from the Boeing Company in the net capital inflow
Currencies depreciate and appreciate all the time. Who gains and who loses when the Mexican peso depreciates?
Mexican exporters gain, Mexican importers lose.
Which of the following is a reason why exchange rates may deviate from their purchasing power parity values for many years?
Some goods are not tradable. In some cases, a foreign-produced good is not a perfect substitute for a domestically-produced version of the same thing.
If U.S. imports total $100 billion and U.S. exports total $150 billion, which of the following would be true?
The U.S. has a trade surplus of $50 billion.
Which of the following is equivalent to the trade deficit?
The U.S. has a trade surplus of $50 billion.
When fewer U.S. dollars are needed to buy a unit of Japanese yen, the dollar...
appreciates.
Which of the following would be classified as a direct foreign investment?
building a new Pizza Hut in St. Petersburg, Russia
If one country has a lower inflation rate than other countries, its...
currency tends to appreciate.
If the U.S. price level is increasing by 3 percent annually and the Swiss price level is increasing by 5 percent annually, by what percent would the dollar price of francs need to change according to...
depreciate by 2 percent.
Foreign direct investment differs from foreign portfolio investment in that...
direct investments involve physical capital; portfolio investments involve financial capital.
A country's balance of international trade is positive when...
exports exceed imports.
It must always be true that net capital outflow...
is equal to net exports.
If interest rates in Canada rise above those in the rest of the world, then...
it raises Canada's exchange rate and this may result in a deficit on Canada's current account.
Which of the following is a statement of the purchasing power parity theory of exchange rate determination? The exchange rate will adjust in the...
long run until the average price of goods is roughly the same in both countries.
The exchange rate is the...
number of units of a foreign currency that can be bought with one unit of your own currency
U.S. trade deficits are a sign of...
reduced national savings.
International trade in financial assets...
reduces risk by allowing for increased diversification.
Arbitrage refers to...
simultaneously buying and selling a currency in order to profit from a difference in exchange rates.
Net capital outflow measures...
the flow of assets between countries.
When Italy devalues its currency...
the price of imported Italian olive oil in the United States will fall.
If savings in Germany is $300 billion and investment in Germany is $550 billion, then...
there must be net capital outflow of -$250 billion.
In he long run, exchange rates...
will adjust until the price of a bundle of goods is the same in both countries.