ECON Q18

39. If the exchange rate is expressed as euros/dollar, the dollar is said to depreciate against the euro if the exchange rate a. falls. Other things the same, it will cost fewer euros to buy U.S. goods. b. falls. Other things the same, it will cost more euros to buy U.S. goods. c. rises. Other things the same, it will cost fewer euros to buy U.S. goods. d. rises. Other things the same, it will cost more euros to buy U.S. goods.

a

1. Domestic saving must equal domestic investment in a. both closed and open economies. b. closed, but not open economies. c. open, but not closed economies. d. neither closed nor open economies.

b

6. Net capital outflow a. is always greater than net exports. b. is always less than net exports. c. is always equal to net exports. d. could be greater than, less than, or equal to net exports.

c

. Henry, a German citizen, pays a German architect to design a country house. Which country's exports increase? a. Germany's b. Gernamy's c. Germany's and Gernamy's d. Neither Germany's nor Gernamy's

a

19. When Bill, a Mexican citizen, sells dresses he desings to Spain, the sale is a. both Spain's and Mexico's import. b. Spain's import and Mexico's export. c. Spain's export and Mexico's import. d. both Spain's and Mexico's export.

b

3. The "law of one price" states that 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

32. If the price levels in the United States and in the United Kingdom are unchanged, but the nominal exchange rate (Pound sterling per U.S. dollar) falls, then the U.S. dollar a. depreciates and so U.S. net exports falls. b. depreciates and so U.S. net exports rises. c. appreciates and so U.S. net exports falls. d. appreciates and so U.S. net exports rises.

b

37. A country's trade balance will fall if either a. investment or saving rise. b. investment falls or saving rises. c. saving falls or investment rises. d. investment or saving fall.

c

24. If purchasing-power parity holds, then the value of the a. real exchange rate is equal to one. b. nominal exchange rate is equal to one. c. real exchange rate is equal to the nominal exchange rate. d. real exchange rate is equal to the difference in inflation rates between the two countries.

a

48. If a country has Y > C + I + G, then it has a. positive net capital outflow and positive net exports. b. positive net capital outflow and negative net exports. c. negative net capital outflow and positive net exports. d. negative net capital outflow and negative net exports.

a

23. A country's trade balance 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

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

c

11. Purchasing-power parity describes the forces that determine a. prices in the short run. b. prices in the long run. c. exchange rates in the short run. d. exchange rates in the long run.

d

34. 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 Rio? a. $34 and your purchase will increase the United Kingdom's net exports. b. $25 and your purchase will increase the United Kingdom's net exports. c. $25 and your purchase will decrease the United Kingdom's net exports. d. $34 and your purchase will decrease the United Kingdom's net exports.

b

28. Suppose that real interest rates in the U.S. rise relative to real interest rates in other countries. This increase would make foreigners a. more willing to purchase U.S. bonds, so U.S. net capital outflow would fall. b. more willing to purchase U.S. bonds, so U.S. net capital outflow would rise. c. less willing to purchase U.S. bonds, so U.S. net capital outflow would fall. d. less willing to purchase U.S. bonds, so U.S. net capital outflow would rise.

a

42. According to purchasing-power parity, inflation in the United States causes the dollar to a. depreciate relative to all other currencies. b. depreciate relative to currencies of countries that have lower inflation rates. c. appreciate relative to all other countries. d. appreciate relative to currencies of countries that have lower inflation rates.

b

45. 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? a. 52 florin b. 25 florin c. 48 florin d. 100 florin

d

26. Suppose that the real return from operating factories in France rises relative to the real rate of return in the United States. Other things the same, this will a. increase U.S. net capital outflow and decrease French net capital outflow. b. decrease U.S. net capital outflow and increase French net capital outflow. c. only increase U.S. net capital outflow. d. only increase French net capital outflow.

a

29. If a country has positive net capital outflows, then its net exports are a. positive, and its saving is larger than its domestic investment. b. positive, and its saving is smaller than its domestic investment. c. negative, and its saving is larger than its domestic investment. d. negative, and its saving is smaller than its domestic investment.

a

49. Suppose that foreign citizens decide to purchase more U.S. pharmaceuticals and U.S. citizens decide to buy stock in foreign corporations. Other things the same, these actions a. raise both U.S. net exports and U.S. net capital outflows. b. raise U.S. net exports and lower U.S. net capital outflows. c. lower both U.S. net exports and U.S. net capital outflows. d. lower U.S. net exports and raise U.S. net capital outflows.

a

27. A depreciation of the U.S. real exchange rate induces U.S. consumers to buy 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

13. A company in Panama pays a U.S. architect to design a factory building. By itself this transaction a. increases Panama's imports and so decreases the Panama's trade balance. b. increases Panama's exports and so decreases the Panama's trade balance. c. decreases Panama's imports and so increases the Panama's trade balance. d. decreases Panama's exports and so increases the Panama's trade balance.

a

21. Purchasing-power parity theory does not hold at all times because a. many goods are not easily transported and the same goods produced in different countries may be imperfect substitutes. b. the same goods produced in different countries are perfect substitutes for each other. c. consumer preferences are different across countries. d. prices are different across countries.

a

25. Visitors to a country hosting a world soccer tournament purchase food, souvenirs, and accommodations while attending the tournament. Which of the following should these expenditures raise? a. The host country's net exports and its net capital outflow. b. The host country's net exports but not its net capital outflow. c. The host country's net capital outflow but nor its net exports. d. Neither the host country's net exports not its net capital outflow.

a

30. 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? a. 2 gallons of Argentinean milk/1 gallon of U.S. milk b. 3 gallons of Argentinean milk/2 gallon of U.S. milk c. 2 gallons of Argentinean milk/3 gallon of U.S. milk d. 1 gallons of Argentinean milk/2 gallon of U.S. milk

a

16. Net exports of a country are the value of a. goods and services imported minus the value of goods and services exported. b. goods and services exported minus the value of goods and services imported. c. goods exported minus the value of goods imported. d. goods imported minus the value of goods exported.

b

17. If the nominal exchange rate e is foreign currency per dollar, the domestic price is P, and the foreign price is P*, then the real exchange rate is defined as a. (eP*)/P. b. (eP)/P*. c. e + P*/P. d. e − P/P*.

b

2. Maria and Michael are both U.S. citizens. Maria opens a café in Spain. Michael builds a U.S.-based factory using equipment from Japan. Whose action is an example of U.S. foreign direct investment? a. Maria's and Michael's b. Maria's but not Michael's c. Michael's but not Maria's d. Neither Michael's nor Maria's

b

38. According to purchasing-power parity, which of the following necessarily equals the ratio of the foreign price level divided by the domestic price level? a. The real exchange rate, but not the nominal exchange rate. b. The nominal exchange rate, but not the real exchange rate. c. The real exchange rate and the nominal exchange rate. d. Neither the real exchange rate nor the nominal exchange rate.

b

5. Which of the following is an example of U.S. foreign portfolio investment? a. Albert, a German citizen, buys stock in a U.S. computer company. b. Erica, a U.S. resident, buys bonds issued by the Swiss government. c. A U.S. based restaurant chain opens new restaurants in India. d. A U.S. citizen builds and operates a coffee shop in the Netherlands.

b

7. Which of the following is correct? Since 1950 a. U.S. exports and U.S. imports each have increased slightly. b. U.S. exports and U.S. imports each have increased significantly. c. U.S. exports increased only slightly and U.S. imports have increased significantly. d. U.S. exports have decreased and U.S. imports have increased.

b

10. An open economy's GDP can be expressed by a. Y = C + I + G. b. Y = C + I + G + T. c. Y = C + I + G + S. d. Y = C + I + G + NX.

d

12. If the value of goods and services that Mexico purchases from the United States is greater than the value of goods and services that the United States purchases from Mexico, then the United States has a. negative net exports and a trade deficit with Mexico. b. negative net exports and a trade surplus with Mexico. c. positive net exports and a trade deficit with Mexico. d. positive net exports and a trade surplus with Mexico.

d

18. Which of the following is an example of U.S. foreign direct investment? a. A Swedish car manufacturer opens a plant in Tennessee. b. A Swiss bank buys a U.S. government bond. c. A U.S. bank buys bonds issued by an Australian corporation. d. A U.S. based restaurant chain opens new restaurants in India.

d

20. If a country sells fewer goods and services abroad than it buys from other countries, it is said to have a trade a. surplus and positive net exports. b. surplus and negative net exports. c. deficit and positive net exports. d. deficit and negative net exports.

d

33. One year a country has negative net exports. The next year it still has negative net exports and imports have risen more than exports. a. Its trade surplus fell. b. Its trade surplus rose. c. Its trade deficit fell. d. Its trade deficit rose.

d

41. A country purchases $110 billion of foreign-produced goods and services and sells $120 billion of domestically produced goods and services to foreign countries. It has imports of a. $120 billion and a trade deficit of $10 billion. b. $120 billion and a trade surplus of $10 billion. c. $110 billion and a trade deficit of $10 billion.

d

43. A U.S. company uses pound sterlings it already owned to purchase bonds issued by a company in Germany. Which of these countries has an increase in net capital outflow? a. Germany and the U.S. b. Germany but not the U.S. c. The U.S. but not Germany d. Neither Germany nor the U.S.

d

44. If you are vacationing in Spain and the dollar depreciates relative to the euro, then the dollar buys a. more euros. It will take fewer dollars to buy a good that costs 50 euros. b. more euros. It will take more dollars to buy a good that costs 50 euros. c. fewer euros. It will take fewer dollars to buy a good that costs 50 euros. d. fewer euros. It will take more dollars to buy a good that costs 50 euros.

d

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

d

8. 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? a. $10.0 million b. $20 million c. −$40 million d. $40 million

d

9. Other things the same, if the exchange rate changes from 35 Thai bhat per dollar to 21 Thai bhat per dollar, then the dollar has a. appreciated and so buys more Thai goods. b. appreciated and so buys fewer Thai goods. c. depreciated and so buys more Thai goods. d. depreciated and so buys fewer Thai goods.

d

46. 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 a. nominal exchange rate would appreciate. b. nominal exchange rate would depreciate. c. real exchange rate would appreciate. d. real exchange rate would depreciate.

a

14. The nominal exchange rate is the a. nominal interest rate in one country divided by the nominal interest rate in the other country. b. ratio of a foreign country's interest rate to the domestic interest rate. c. rate at which a person can trade the currency of one country for another. d. real exchange rate minus the inflation rate.

c

15. The purchase of U.S. government bonds by Japanese is an example of a. U.S. imports. b. U.S. exports. c. foreign portfolio investment by Japanese. d. foreign direct investment by Japanese.

c

22. Which of the following equations is correct? a. S = I + C b. S = I − NX c. S = I + NCO d. S = NX − NCO .

c

35. When Microsoft, a U.S. company, establishes a distribution center in Canada, U.S. net capital outflow a. increases because Microsoft makes a foreign portfolio investment in Canada. b. decreases because Microsoft makes a foreign portfolio investment in Canada. c. increases because Microsoft makes a foreign direct investment in Canada. d. decreases because Microsoft makes a foreign direct investment in Canada.

c

36. When exchange rates are defined as foreign currency per dollar and foreign goods per US goods, the ability to profit by purchasing wheat in the United States and selling it in China implies that the a. nominal exchange rate is less than 1. b. nominal exchange rate is greater than 1. c. real exchange rate is less than 1. d. real exchange rate is greater than 1.

c

40. If the nominal exchange rate is expressed as foreign currency per dollar, which of the following would both make Americans more willing to buy Italian goods? The nominal exchange rate a. falls, the price of goods in Italy falls. b. falls, the price of goods in Italy rises. c. rises, the price of goods in Italy falls. d. rises, the price of goods in Italy rises.

c