Macro Economics Knowledge Check Ins

Suppose that a bushel of wheat costs $3 in the U.S. and costs 20 pesos in Mexico. If the nominal exchange rate is 10 pesos per dollar, the real exchange rate is 3/2 bushels of Mexican wheat per bushel of American wheat. 2/3 bushels of Mexican wheat per bushel of American wheat. $2.00 per bushel of Mexican wheat $1.50 per bushel of Mexican wheat

3/2 bushels of Mexican wheat per bushel of American Wheat

Maya is a computer programmer residing in the United States. She writes some software and sells it to a French consumer for 5,000 euro. Maya uses the 5,000 euros to buy French wine. Which of the following statements are true? U.S. exports increase by 5,000 euros U.S. imports increase by 5,000 euros U.S. net exports are unchanged. all of the above

All of the above

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 increase in the real interest rate, but not an increase in foreign demand for U.S. goods and services. An increase in foreign demand for U.S. goods and service, but not an increase in the U.S. real interest rate. Neither an increase in the U.S. real interest rate nor an increase in the demand for U.S. goods and services.

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

If U.S. net exports are negative, then net capital outflow is positive, so foreign assets bought by Americans are greater than American assets bought by foreigners. positive, so American assets bought by foreigners are greater than foreign assets bought by Americans. negative, so foreign assets bought by Americans are greater than American assets bought by foreigners. negative, so American assets bought by foreigners are greater than foreign assets bought by Americans.

If U.S. net exports are negative, then net capital outflow is

Which of the following statements is true about a country with a trade surplus? Net exports are negative and net capital outflow must be positive Net exports are negative and net capital outflow must be negative Net exports are positive and net capital outflow must be negative Net exports are positive and net capital outflow must be positive

Net exports are positive and net capital outflow must be positive

A depreciation of the U.S. dollar, causes both U.S. exports and U.S. imports to rise. U.S. exports to rise and U.S. imports to fall. U.S. imports to rise and U.S. exports to fall both U.S. exports and U.S. imports to fall.

U.S. exports to rise and U.S. imports to fall.

The "law of one price" states that a good must sell at the price fixed by law. a good must sell at the same price at all locations. a good cannot sell for a price greater than the legal price ceiling. nominal exchange rates will not vary.

a good must sell at the same price at all locations

Greg's, a U.S. ice cream company, exchanges dollars for Mexican pesos. It then uses these pesos to buy raspberries from Mexico. Which of the following decline? both U.S. net exports and U.S. net capital outflow U.S. net exports but not U.S. net capital outflow U.S. net capital outflow but not U.S. net exports neither U.S. net capital outflow nor U.S. net exports

both U.S. net exports and U.S. net capital outflow

The theory of purchasing-power parity does not always hold in practice because: many goods are not easily traded across borders. tradable goods are not always perfect substitutes when they are produced in different countries. real exchange rates fluctuate over time. both a. and b. are correct

both a. and b. are correct

According to purchasing-power parity, inflation in the United States causes the dollar to depreciate relative to all other currencies. depreciate relative to currencies of countries that have lower inflation rates. appreciate relative to all other countries. appreciate relative to currencies of countries that have lower inflation rates. Answer 4Toggle editing answer text as HTML Answer 4Delete this Answer ...

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

In an open economy, national saving equals domestic investment plus net capital outflow. domestic investment minus net capital outflow. domestic investment. net capital outflow.

domestic investment plus net capital outflow

Purchasing-power parity describes the forces that determine prices in the short run. prices in the long run. exchange rates in the short run. exchange rates in the long run.

exchange rates in the long run.

Other things the same, a higher real interest rate raises the quantity of Americans to buy more foreign assets, which increases U.S. net capital outflow. Americans to buy more foreign assets, which reduces U.S. net capital outflow. foreigners to buy more U.S. assets, which reduces U.S. net capital outflow. foreigners to buy more U.S. assets, which increases U.S. net capital outflow.

foreigners to buy more U.S. assets, which reduces U.S. net capital outflow.

According to purchasing-power parity, when a country's central bank decreases the money supply, a unit of money gains value both in terms of the domestic goods and services it can buy and in terms of the foreign currency it can buy. gains value in terms of the domestic goods and services it can buy, but loses value in terms of the foreign currency it can buy. loses value in terms of the domestic goods and services it can buy, but gains value in terms of the foreign currency it can buy. loses value both in terms of the domestic goods and services it can buy and in terms of the foreign currency it can buy.

gains value both in terms of the domestic goods and services it can buy and in terms of the foreign currency it can buy.

When Microsoft, a U.S. company, establishes a distribution center in France, U.S. net capital outflow increases because Microsoft makes a foreign portfolio investment in France. decreases because Microsoft makes a foreign portfolio investment in France. increases because Microsoft makes a foreign direct investment in France. decreases because Microsoft makes a foreign direct investment in France.

increases because Microsoft makes a foreign direct investment in France.

If there is a surplus of loanable funds, the quantity demanded is greater than the quantity supplied and the real interest rate will rise. greater than the quantity supplied and the real interest rate will fall. less than the quantity supplied and the real interest rate will rise. less than the quantity supplied and the real interest rate will fall.

less than the quantity supplied and the real interest rate will fall.

Other things the same, a higher real interest rate raises the quantity of domestic investment. net capital outflow. loanable funds demanded. loanable funds supplied.

loanable funds supplied.

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

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

Suppose exchange rates are defined as foreign currency per dollar and foreign goods per U.S. goods. According to purchasing-power parity, if the price of a basket of goods in the United States rose from $1,500 to $2,000 and the price of the same basket of goods rose from 600 units of some other country's currency to 1,000 units of that country's currency, then the nominal exchange rate would appreciate. nominal exchange rate would depreciate. real exchange rate would appreciate. real exchange rate would depreciate.

nominal exchange rate would appreciate.

In the open-economy macroeconomic model, the key determinant of net capital outflow is the real exchange rate. When the real exchange rate rises, net capital outflow rises. real exchange rate. When the real exchange rate rises, net capital outflow falls. real interest rate. When the real interest rate rises, net capital outflow rises. real interest rate. When the real interest rate rises, net capital outflow falls.

real interest rate. When the real interest rate rises, net capital outflow falls.

An increase in the U.S. interest rate raises U.S. net capital outflow so the supply of dollars increases. raises U.S. net capital outflow so the demand for dollars increases. reduces U.S. net capital outflow so the supply of dollars decreases. reduces U.S. net capital outflow so the demand for dollars decreases.

reduces U.S. net capital outflow so the supply of dollars decreases.

If the supply of dollars in the market for foreign-currency exchange shifts left, then the exchange rate rises and the quantity of dollars exchanged for foreign currency falls. rises and the quantity of dollars exchanged for foreign currency does not change. rises and the quantity of dollars exchanged for foreign currency rises. falls and the quantity of dollars exchanged for foreign currency does not change.

rises and the quantity of dollars exchanged for foreign currency falls.

The dollar is said to appreciate against the euro if the exchange rate falls. Other things the same, it will cost fewer euros to buy U.S. goods. falls. Other things the same, it will cost more euros to buy U.S. goods. rises. Other things the same, it will cost fewer euros to buy U.S. goods. rises. Other things the same, it will cost more euros to buy U.S. goods.

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

If saving is greater than domestic investment, then there is a trade deficit and Y > C + I + G. deficit and Y < C + I + G. surplus and Y > C + I + G. surplus and Y < C + I + G.

surplus and Y > C + I + G.

Suppose the money supply grows faster in Mexico than Canada. Other things constant, the Canadian dollar will appreciate relative to the Mexican peso. the Canadian dollar will depreciate relative to the Mexican peso. the Canadian dollar will maintain constant value relative to the Mexican peso because of purchasing power parity. the Canadian dollar will maintain constant value relative to the Mexican peso because of the theory of one price.

the Canadian dollar will appreciate relative to the Mexican peso.

If for some reason Americans desired to increase their purchases of foreign assets, then other things the same both the real exchange rate and the quantity of dollars exchanged in the market for foreign currency would fall. both the real exchange rate and the quantity of dollars exchanged in the market for foreign currency would rise. the real exchange rate would rise and the quantity of dollars exchanged in the market for foreign currency would fall. the real exchange rate would fall and the quantity of dollars exchanged in the market for foreign currency would rise.

the real exchange rate would fall and the quantity of dollars exchanged in the market for foreign currency would rise.