ec 111 test 3

If the exchange rate is 9 Pound sterlings per U.S. dollar and a meal in London costs 225 Pound sterlings, then how many U.S. dollars does it take to buy a meal in London?

$25 and your purchase will increase the United Kingdom's net exports.

Suppose that a country imports $120 million worth of goods and services and exports $160 million worth of goods and services. What is the value of net exports?

$40 million (160-120)

A country has national saving of $60 billion, government expenditures of $40 billion, domestic investment of $10 billion, and net capital outflow of $45 billion. What is its supply of loanable funds?

$60 billion

If the relevant money-demand curve is the one labeled MD2, then the equilibrium value of money is

0.61 and the equilibrium price level is 1.6.

If M = 5,000, P = 5.5, and Y = 9,000, what is velocity?

10 V=(PxY)/M

The nominal exchange rate is about 2 Aruban florin per dollar. If a basket of goods in the United States costs $50, how many florins must a basket of goods in Aruba cost for purchasing-power parity to hold?

100 florin (50x2)

If the price level increased from 130 to 150, then what was the inflation rate?

15.4% subtract the starting price (A) from the later price (B), and divide it by the starting date (A). Then multiply the result by 100 150-130/150

Katarina puts money into an account. One year later she sees that she has 6 percent more dollars and that her money will buy 4 percent more goods. The nominal interest rate was

6 percent and the inflation rate was 2 percent. nominal rate = real interest rate + inflation rate real interest rate= nominal-inflation

Other things the same, which of the following would cause the real exchange rate to rise?

Both an increase in the real interest rate and an increase in foreign demand for U.S. goods and services.

An associate professor of physics gets a $200 a month raise. With her new monthly salary she can buy more goods and services than she could buy last year.

Her real and nominal salary have risen.

Which of the following statements about a country with a trade deficit is NOT true?

Investment<Savings

A U.S. citizen uses euros it already owned to purchase bonds issued by a company in Germany. Which of these countries has an increase in net capital outflow?

Neither Germany nor the U.S.

In the open-economy macroeconomic model, the market for loanable funds identity can be written as

S(savings) = I(investment) + NCO(net capital outflow)

According to the classical dichotomy, which of the following increases when the money supply increases?

The nominal wage

If real interest rates rose more in Canada than in the United States, then other things the same

U.S. citizens would buy more Canadian bonds and Canadians would buy fewer U.S. bonds.

The "law of one price" states that

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

You bought some shares of stock and, over the next year, the price per share increased by 5 percent, as did the price level. Before taxes, you experienced

a nominal gain, but no real gain, and you paid taxes on the nominal gain.

When Mexico suffered from capital flight in 1994, Mexico's net capital outflow

and net exports increased.

Refer to the figure. The initial effect of an increase in the budget deficit in the loanable funds market shown in graph (a) can be illustrated as a move from

b to a

Domestic saving must equal domestic investment in

closed, but not open economies.

Suppose a country's net capital outflow does not change, but its investment declines by $420 billion. Its saving must have

fallen by $420 billion, but its net exports are unchanged.

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

foreign portfolio investment by Japanese.

Net exports of a country are the value of

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

If the real exchange rate for the dollar is above the equilibrium level, the quantity of dollars supplied in the market for foreign-currency exchange is

greater than the quantity demanded and the dollar will depreciate.

James took out a fixed-interest-rate loan when the CPI was 200. He expected the CPI to increase to 206 but it actually increased to 204. The real interest rate he paid is

higher than he had expected, and the real value of the loan is higher than he had expected.

A country's trade balance

is greater than zero only if exports are greater than imports.

Refer to the figure. In the market for foreign-currency exchange, the effects of an increase in the budget surplus shown in graph (c) can be illustrated as a move from j to

k (decrease would be i)

Suppose that real interest rates in the U.S. rise relative to real interest rates in other countries. This increase would make foreigners

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

According to the assumptions of the quantity theory of money, if the money supply increases by 7 percent, then

nominal GDP would rise by 7 percent; real GDP would be unchanged.

If a country has a positive net capital outflow, then

on net it is purchasing assets from abroad. This adds to its demand for domestically generated loanable funds.

The dollar is said to appreciate against the euro if the exchange rate

rises. Other things the same, it will cost more euros to buy U.S. goods.

A country's trade balance will fall if either

saving falls or investment rises.

If the United States raised its tariff on tires, then at the original exchange rate there would be a

shortage in the market for foreign-currency exchange, so the real exchange rate would appreciate.

In the market for foreign-currency exchange, capital flight shifts the

supply curve right

The explanation for the slope of the

supply of loanable funds curve is based on the logic that a higher real interest rate leads to higher saving

If the money supply is MS2 and the value of money is 5, then there is an excess

supply of money that is represented by the distance between points D and A.

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

surplus and Y > C + I + G.

The inflation tax refers to

the revenue a government creates by printing money.

In the long run, money demand and money supply determine

the value of money but not the real interest rate.

A country has domestic investment of $235 billion. Its citizens purchase $610 billion of foreign assets and foreign citizens purchase $300 billion of its assets. What is national saving?

$545 billion Explanation : National savings = Domestic investment + ( Purchase of foreign assets - assets purchase by foreigners ) National savings = 235 + ( 610 - 300 )