Principle of Macroeconomics - Chapter 18

During some year a country had exports of $85 billion, imports of $60 billion, and domestic investment of $130 billion. What was its saving during the year? A. $155 billion B. $45 billion C. $70 billion D. $105 billion

A. $155 billion

If a country sells more goods and services abroad than it purchases abroad, it has positive net exports and a trade surplus. A. True B. False

A. True

If prices in Mexico rise at a higher rate than prices in the U.S., then according to purchasing-power parity the U.S. nominal exchange rate with Mexico should rise. A. True B. False

A. True

If the exchange rate is 12.5 pesos per U.S. dollar, it is also 1/12.5 U.S. dollars per peso. A. True B. False

A. True

It is possible for a country to have domestic investment that exceeds national saving. A. True B. False

A. True

Jason plans to buy shrimp in Florida and sell them in Manhattan, Kansas where the price is higher. Jason plans to engage in arbitrage. A. True B. False

A. True

The large trade deficits in the U.S. during the 1990's were primarily associated with a rise in domestic investment spending rather than a rise in the budget deficit. A. True B. False

A. True

When net capital outflow is negative, it means that on net the value of domestic assets purchased by foreigners exceeds the value of foreign assets purchased by domestic residents. A. True B. False

A. True

When the central bank of some country prints large quantities of money, that county's currency loses value both in terms of the goods and services it buys and in terms of the amount of foreign currencies it can buy. A. True B. False

A. True

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

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

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. positive net capital outflow and positive net exports.

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. positive, and its saving is larger than its domestic investment.

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. real exchange rate is equal to one.

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. $25 and your purchase will increase the United Kingdom's net exports.

A Turkish firm exchanges lira (Turkish currency) for dollars. It then uses these dollars to purchase computers from the U.S. These actions decrease U.S. net capital outflow and increase U.S. net exports. A. True B. False

B. False

According to purchasing-power parity theory, the nominal exchange rate between the U.S. and another country should equal the U.S. price level divided by the price level in the foreign country. A. True B. False

B. False

Other things the same, an increase in the foreign price level leads to an increase in the real exchange rate. A. True B. False

B. False

Purchasing-power parity says that the nominal exchange rate must equal the real exchange rate. A. True B. False

B. False

When Bill, a Mexican citizen, sells dresses he designs 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. Spain's import and Mexico's export.

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. a good must sell at the same price at all locations.

If the Chinese nominal exchange rate (foreign currency per Chinese Yuan) does not change, but prices rise slower in China than in all other countries, then the Chinese real exchange rate A. does not change. B. falls. C. rises. D. cannot be determined without more information.

B. falls.

In an open economy, gross domestic product equals $2,460 billion, consumption expenditure equals $1,435 billion, government expenditure equals $325 billion, investment equals $560 billion, and net capital outflow equals $375 billion. What is national saving? A. $1,260 billion B. $2,135 billion C. $935 billion D. $1,900 billion

C. $935 billion

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. increases because Microsoft makes a foreign direct investment in Canada.

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

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. Y = C + I + G + NX.