macro chapter 31

If a bushel of wheat costs $6.40 in the United States, costs 40 pesos in Mexico, and the nominal exchange rate is 10 pesos per dollar, then the real exchange rate is Select one: a. 1.60 b. 1.25 c. .625 d. None of the above is correct.

a. 1.60

If a country has Y > C + I + G, then Select one: a. S > I and it has a trade surplus. b. S > I and it has a trade deficit. c. S < I and it has a trade surplus. d. S < I and it has a trade deficit.

a. S > I and it has a trade surplus.

According to purchasing-power parity which of the following would happen if a country raised its money supply growth rate? Select one: a. its nominal exchange rate would fall b. its real exchange rate would fall c. its real net exports would rise d. All of the above would happen.

a. its nominal exchange rate would fall

A country's saving is greater than its domestic investment. This difference means that its Select one: a. net capital outflow and net exports are positive. b. net capital outflow and net exports are negative. c. net capital outflow is positive and net exports are negative. d. net capital outflow is negative and net exports are positive.

a. net capital outflow and net exports are positive.

A Big Mac in Japan costs 400 yen while it costs $4.50 in the U.S.. The nominal exchange rate is 100 yen per dollar. Which of the following would both make the real exchange rate move towards purchasing-power parity? Select one: a. the price of Big Macs in the U.S. falls, the nominal exchange rate falls b. the price of Big Macs in the U.S. falls, the nominal exchange rate rises c. the price of Big Macs in the U.S. rises, the nominal exchange rate falls d. the price of Big Macs in the U.S. rises, the nominal exchange rate rises

a. the price of Big Macs in the U.S. falls, the nominal exchange rate falls

The law of one price states that Select one: 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.

If purchasing-power parity holds, a dollar will buy Select one: a. more goods in foreign countries than in the United States. b. as many goods in foreign countries as it does in the United States. c. fewer goods in foreign countries than it does in the United States. d. None of the above is implied by purchasing-power parity.

b. as many goods in foreign countries as it does in the United States.

Net capital outflow measures the imbalance between the amount of Select one: a. foreign assets held by domestic residents and domestic assets held by foreign residents. b. foreign assets bought by domestic residents and the amount of domestic assets bought by foreigners. c. foreign assets bought by domestic residents and the amount of domestic goods and services sold to foreigners. d. None of the above is correct.

b. foreign assets bought by domestic residents and the amount of domestic assets bought by foreigners.

A depreciation of the U.S. real exchange rate induces U.S. consumers to buy Select one: 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.

Net exports measures the difference between a country's Select one: a. income and expenditures. b. sale of goods and services abroad and purchase of foreign goods and services. c. sale of domestic assets abroad and purchase of foreign assets. d. All of the above are correct.

b. sale of goods and services abroad and purchase of foreign goods and services.

Nominal exchange rates Select one: a. vary little over time. b. vary substantially over time. c. appreciate over time for most countries. d. depreciate over time for most countries.

b. vary substantially over time.

A country has $100 million of net exports and $170 million of saving. Net capital outflow is Select one: a. $70 million and domestic investment is $170 million. b. $70 million and domestic investment is $270 million. c. $100 million and domestic investment is $70 million. d. None of the above is correct.

c. $100 million and domestic investment is $70 million.

The nominal exchange rate is .80 euros per dollar and the real exchange rate is 4/3. Which of the following prices for a particular good are consistent with these exchange rates? Select one: a. $4 in the U.S. and 3 euros in Italy. b. $4 in the U.S. and 3.75 euros in Italy. c. $5 in the U.S. and 3 euros in Italy. d. $6 in the U.S. and 2.50 euros in Italy

c. $5 in the U.S. and 3 euros in Italy.

If the exchange rate is .70 euro per dollar, the price of an MP3 player in Paris is 150 euros and the price of an MP3 player in the U.S. is $150, then what is the real exchange rate? Select one: a. 1/.70 French MP3 players per U.S. MP3 player b. 1 French MP3 players per U.S. MP3 player c. .70 French MP3 players per U.S. MP3 player. d. None of the above are correct.

c. .70 French MP3 players per U.S. MP3 player.

A country's trade balance Select one: a. must be zero. b. must be greater than zero. c. is greater than zero only if exports are greater than imports. d. is greater than zero only if imports are greater than exports.

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

A country has a trade deficit. Which of the following must also be true? Select one: a. net capital outflow is positive and domestic investment is larger than saving b. net capital outflow is positive and saving is larger than domestic investment c. net capital outflow is negative and domestic investment is larger than saving d. net capital outflow is negative and saving is larger than domestic investment

c. net capital outflow is negative and domestic investment is larger than saving

The price of a basket of goods and services in the U.S. is $600. In Canada the same basket of goods costs 700 Canadian dollars. If the nominal exchange rate were 1.2 Canadian dollars per U.S. dollar, what would be the real exchange rate? Select one: a. 700/600 b. 600/700 c. 700/720 d. None of the above is correct.

d. None of the above is correct.

If sales of Saudi Arabian oil to the rest of the world increase and Saudis use the proceeds to buy foreign goods, which of the following increases? Select one: a. Saudi Arabian net exports but not Saudi Arabian net capital outflow b. Saudi Arabian net capital outflow but not Saudi Arabian net exports c. both Saudi Arabian net exports and net capital outflow d. neither Saudi Arabian net exports nor net capital outflow

d. neither Saudi Arabian net exports nor net capital outflow

A country has a trade deficit. Its Select one: a. net capital outflow must be positive, and saving is larger than investment. b. net capital outflow must be positive and saving is smaller than investment. c. net capital outflow must be negative and saving is larger than investment. d. net capital outflow must be negative and saving is smaller than investment.

d. net capital outflow must be negative and saving is smaller than investment.

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

d. the dollar buys more pesos. Your hotel room in Mexico will require more dollars.