Macro Econ Final

If the nominal exchange rate falls 10 percent, the domestic price level rises 4 percent, and the foreign price level rises 6 percent, the real exchange rate will fall:

12 percent.

If 5 Swiss francs trade for $1, the U.S. price level equals $1 per good, and the Swiss price level equals 2 francs per good, then the real exchange rate is ______ Swiss goods per U.S. good.

2.5

Assume purchasing-power parity is true. If a Big Mac costs $2 in the United States, and if 10 Mexican pesos trade for $1 dollar, then a Big Mac in Cancun, Mexico, should cost:

20 pesos.

In a small open economy, if exports equal $20 billion, imports equal $30 billion, and domestic national saving equals$25 billion, then net capital outflow equals:

-$10 billion

If a graph is drawn with net exports on the horizontal axis and the real exchange rate on the vertical axis, then the real exchange rate is determined by the intersection of the ______ net-exports schedule and the ______ line representing saving minus investment.

...

If the real exchange rate between the United States and Japan remains unchanged, and the inflation rate in the United States is 6 percent and the inflation rate in Japan is 3 percent, the:

yen will appreciate by 3 percent against the dollar.

A country's exports may be written as equal to

GDP minus consumption of domestic goods and services minus investment of domestic goods and services minus government purchases of domestic goods and services.

Which of the following would decrease the real exchange rate in a small open economy in the long run?

a reduction in government spending

In a small open economy, if the world interest rate is r3, then the economy has:

a trade deficit.

In a small open economy, if the world interest rate is r1, then the economy has:

a trade surplus.

If the purchasing-power parity theory is true, then:

all changes in the nominal exchange rate result from changes in price levels.

Net exports equal GDP minus domestic spending on

all goods and services

The adoption of an investment tax credit in a small open economy is likely to lead to

an increase in domestic investment but no change in domestic saving

An increase in the trade deficit of a small open economy could be the result of:

an increase in government spending

An appreciation of the real exchange rate ( ) in a small open economy could be the result of:

an increase in government spending.

An increase in the trade surplus of a small open economy could be the result of

an increase in the world interest rate

If the price of a yen (dollars per yen) rises, this is called a(n):

appreciation of the yen.

If the real exchange rate ( ) is high, foreign goods:

are relatively cheap and domestic goods are relatively expensive.

If domestic investment (I) exceeds domestic saving (S), then the extra investment will be financed by:

borrowing from abroad.

If the information technology boom increases investment demand in a small open economy (for example, from I = 10 - 5r to I = 17 - 5r), then net exports ______ and the real exchange rate ______.

decrease; appreciates

In a small open economy, if the government adopts a policy that lowers imports, then the quantity of exports:

decreases by exactly the same amount as the quantity of imports decreases.

In a small open economy, if exports equal $5 billion and imports equal $7 billion, then there is a trade ______ and ______ net capital outflow

deficit; negative

The currencies of countries with high inflation rates relative to the United States have tended to ______, and the currencies of countries with low inflation rates relative to the United States have tended to ______.

depreciate; appreciate

One consequence of high inflation is a(n):

depreciating nominal exchange rate.

When exports exceed imports, all of the following are true except:

domestic investment exceeds domestic saving

Net capital outflow is equal to the amount that

domestic investors lend abroad minus the amount that foreign investors lend here

In a small, open economy, if net exports are negative, then

domestic spending is greater than output

In a country with a "small open economy", the real interest rate will always be:

equal to the world real interest rate

When the real exchange rate rises:

exports will decrease and imports will increase.

In a small open economy, if consumer confidence falls (for example, C = 10 + 0.85(Y - T) becomes C = 8 + 0.85(Y - T)) and consumers decide to save more, then the real exchange rate:

falls and net exports rise

In a small open economy, when foreign governments reduce national saving in their countries, the equilibrium real exchange rate:

falls and net exports rise.

The percentage change in the nominal exchange rate equals the percentage change in the real exchange rate plus the:

foreign inflation rate minus the domestic inflation rate.

If domestic spending exceeds output, we ______ the difference—net exports are ______

import; negative

An effective policy to reduce a trade deficit in a small open economy would be to:

increase taxes.

If the real exchange rate depreciates (or, decreases) from 1 Japanese good per U.S. good to 0.5 Japanese good per U.S. good, then U.S. exports ______ and U.S. imports ______.

increase; decrease

Starting from trade balance, if the world interest rate falls, then, in a small open economy, the amount of domestic investment will _____ and net exports will _____.

increase; decrease

In a small open economy, if the world real interest rate (r*) falls, domestic investment will _____ and the real exchange rate will _____, holding all else constant.

increase; increase

In a small open economy with perfect capital mobility, a reduction in the government's budget deficit (G - T) ______ net exports and the real exchange rate ______.

increases; depreciates

If the government of a small open economy wishes to reduce its trade deficit, which policy action will be successful in achieving this goal?

increasing taxes

In a small open economy, policies that increase

investment tend to cause a trade deficit.

The world real interest rate (r*):

is defined as the real interest rate prevailing in world financial markets

The real exchange rate ( ):

is equal to the nominal exchange rate multiplied by the domestic price level divided by the foreign price level (eP/P*).

If domestic saving exceeds domestic investment, then the extra saving will be used to:

make loans to foreigners.

If a country has a high rate of inflation relative to the United States, the dollar will buy:

more of the foreign currency over time

Net capital outflow is equal to

national saving minus domestic investment

If domestic saving is less than domestic investment, then net exports are ______ and net capital outflows are ______

negative; negative

Consider a small open economy. If large foreign countries increase their domestic government purchases, this policy will tend to increase:

net exports by the small open economy

If purchasing-power parity holds, then changes in domestic saving will _____ the real exchange rate.

not change

Protectionist policies (these are policies that unfairly discourage imports) implemented in a small open economy with a trade deficit have the effect of ______ the trade deficit and ______ the quantity of imports and exports.

not changing; decreasing

The nominal exchange rate between the U.S. dollar and the Japanese yen (e) is the:

number of yen you can get for one dollar

If domestic saving exceeds domestic investment, then net exports are ______ and net capital outflows are ______

positive; positive

The doctrine of purchasing-power parity:

provides a reason to expect that movements in the real exchange rate will typically be small or temporary

In a small open economy, if the government adopts a policy that lowers imports (for example, the government might impose a tariff or a quota limit on imported goods), then that policy:

raises the real exchange rate and does not change net exports.

Holding other factors constant, legislation to cut taxes in an open economy will:

reduce national saving and lead to a trade deficit.

In a small open economy, if consumers shift their preferences toward Japanese cars, then net exports:

remain unchanged but the real exchange rate falls.

In a small open economy, when the government reduces taxes, domestic demand increase but domestic production remains unchanged. Therefore, the price of domestic goods relative to foreign goods (which is the equilibrium real exchange rate):

rises and net exports fall.

According to purchasing power-parity, if the dollar price of oil is higher in New York than in London, arbitrageurs (traders who buy something and then sell it at a higher price) will _____ oil in New York and _____ oil in London to drive _____ the price of oil in New York.

sell; buy; down

In a small open economy, if exports equal $15 billion and imports equal $8 billion, then there is a trade ______ and ______ net capital outflow.

surplus; positive

The value of net exports is also the value of:

the excess of national saving over domestic investment.

If net capital outflow is positive, then

the trade balance must be positive

An "open" economy is one in which:

there is trade in goods and services with the rest of the world.

If a dollar bought 1,000 Chilean pesos ten years ago and 1,500 pesos now, and inflation for that period was 25 percent in the United States and 100 percent in Chile, then:

traveling in Chile is more expensive now than it was ten years ago.