ECON 110 ch 18

Suppose that a country imports $90 million worth of goods and services and exports $80 million worth of goods and services. What is the value of net exports?

-$10 million

If the exchange rate is 5 Egyptian pounds per U.S. dollar, a watch that costs $25 US dollars costs

125 Egyptian pounds

If a U.S. dollar purchases 4 Argentinean pesos, and a gallon of milk costs $3 in the U.S. and 6 pesos in Argentina what is the real exchange rate?

2

In the U.S. a candy bar costs $1. If the nominal exchange rate were 6 Chinese yuan per dollar and the real exchange rate were 1.2, then, what would be the price of a candy bar in China?

5 yuan

Which of the following is an example of U.S. foreign direct investment?

A U.S. based restaurant chain opens new restaurants in India.

A German mutual fund sells euros to a U.S. bank for $20,000. The mutual fund then uses these dollars to purchase a bond issued by United Express, a U.S. delivery company. As a result of these two transactions, what happened to U.S. net capital outflow?

It was unchanged.

If a country has a trade deficit then

S< I and Y < C+I+G

A country sells more to foreign countries than it buys from them. It has

a trade surplus and positive net exports.

Other things the same, if the exchange rate changes from 6 Chinese yuan per dollar to 7 Chinese yuan per dollar, then the dollar

appreciates and buys more Chinese goods.

Other things the same, if the exchange rate changes from .8 euros per dollar to .9 euros per dollar, the dollar

appreciates so U.S. goods become more expensive relative to foreign goods.

Purchasing-power parity implies that the nominal exchange rate given as foreign currency per unit of U.S. currency must rise if the price level(s) in

foreign countries rise.

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

foreign portfolio investment by Egyptians.

A U.S. firm buys bonds issued by a technology center in India. This purchase is an example of U.S.

foreign portfolio investment. By itself it is an increase in U.S. holdings of foreign bonds and increases U.S. net capital outflow.

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.

A country has a trade deficit. Which of the following must also be true?

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

If a country has Y > C + I + G, then it has

positive net capital outflow and positive net exports.

The ability to profit by purchasing wheat in the U.S. and selling it in China implies that the

real exchange rate is less than 1.

If purchasing-power parity holds, the price level in the U.S. is 250, and the price level in Japan is 260, which of the following is true?

the nominal exchange rate is 260/250

Consider an identical basket of goods in both the U.S. and Taiwan. For a given nominal exchange rate, in which case is it certain that the U.S. real exchange rate with Taiwan falls?

the price of the basket of goods falls in the U.S. and rises in Taiwan.

Which of the following does purchasing-power parity conclude should equal 1?

the real exchange rate but not the nominal exchange rate