Chapter 18: Open-Economy Macroeconomics

If the United States saves $1,000 billion and U.S. net capital outflow is -$200 billion, U.S. domestic investment is

$1,200 billion.

Suppose the nominal exchange rate between the Japanese yen and the U.S. dollar is 100 yen per dollar. Further, suppose that a pound of hamburger costs $2 in the United States and 250 yen in Japan. What is the real exchange rate between Japan and the United States?

0.8 pound of Japanese hamburger/pound of American hamburger

If the nominal exchange rate between British pounds and dollars is 0.5 pound per dollar, how many dollars can you get for a British pound?

2 dollars

Suppose a cup of coffee is 1.5 euros in Germany and $0.50 in the United States. If purchasing-power parity holds, what is the nominal exchange rate between euros and dollars?

3 euros per dollar

Which of the following statements is not true about the relationship between national saving, investment, and net capital outflow?

For a given amount of saving, a decrease in net capital outflow must decrease domestic investment.

If Japan exports more than it imports,

Japan's net capital outflow must be positive.

Which of the following is an example of foreign direct investment?

McDonald's builds a restaurant in Moscow.

Which of the following would directly increase U.S. net capital outflow?

Microsoft builds a new distribution facility in Sweden.

Each of the following is a reason why the U.S. economy continues to engage in greater amounts of international trade except which one? a. There are larger cargo ships and airplanes. b. High-technology goods are more valuable per pound and, thus, more likely to be traded. c. NAFTA imposes requirements for increased trade between countries in North America. d. There have been improvements in technology that have improved telecommunications between countries. e. All of the above are reasons for increased trade by the United States.

NAFTA imposes requirements for increased trade between countries in North America.

Which of the following statements is true about a country with a trade deficit? a. Net capital outflow must be positive. b. Net exports are negative. c. Net exports are positive. d. Exports exceed imports. e. None of the above is true.

Net exports are negative.

Suppose a U.S. resident buys a Jaguar automobile from Great Britain and the British exporter uses the receipts to buy stock in General Electric. Which of the following statements is true from the perspective of the United States?

Net exports fall, and net capital outflow falls.

Suppose the real exchange rate between Russia and the United States is defined in terms of bottles of Russian vodka per bottle of U.S. vodka. Which of the following will increase the real exchange rate (that is, increase the number of bottles of Russian vodka per bottle of U.S. vodka)? a. a decrease in the ruble price of Russian vodka b. an increase in the dollar price of U.S. vodka c. an increase in the number of rubles for which the dollar can be exchanged d. All of the above will increase the real exchange rate.

all of the above

Which of the following people or firms would be pleased by a depreciation of the dollar? a. a U.S. importer of Russian vodka b. a U.S. tourist traveling in Europe c. a French exporter of wine to the United States d. a Saudi Arabian prince exporting oil to the United States e. an Italian importer of U.S. steel

an Italian importer of U.S. steel

Closed Economy

an economy that does not interact with other economies in the world

Open Economy

an economy that interacts freely with other economies around the world

The most accurate measure of the international value of the dollar is

an exchange rate index that accounts for many exchange rates.

An economy that interacts with other economies is known as

an open economy.

When people take advantage of differences in prices for the same good by buying it where it is cheap and selling it where it is expensive, it is known as

arbitrage.

Which of the following products would likely be the least accurate if used to calculate purchasing-power parity? a. automobiles b. gold c. diamonds d. dental services

dental services

If the exchange rate changes from 3 Brazilian reals per dollar to 4 reals per dollar,

the dollar has appreciated.

Suppose the money supply in Mexico grows more quickly than the money supply in the United States. We would expect that

the peso should depreciate relative to the dollar.

Trade Balance

the value of a nation's exports minus the value of its imports; also called net exports

Suppose the inflation rate over the last 20 years has been 10 percent in Great Britain, 7 percent in Japan, and 3 percent in the United States. If purchasing-power parity holds, which of the following statements is true? Over this period,

the yen should have risen in value compared to the pound and fallen compared to the dollar.