Chapter 18

The country of Sylvania has a GDP of $900, investment of $200, government purchases of $200, and net capital outflow of -$100. What is consumption?

$600

Other things the same, if the U.S. real exchange rate appreciates, U.S. net exports

and U.S. net capital outflow both decrease.

If purchasing-power parity holds, a dollar will buy

as many goods in foreign countries as it does in the United States.

If a lobster in Maine costs $10 and that the same type of lobster in Massachusetts costs $30, then people could make a profit by

buying lobsters in Maine and selling them in Massachusetts. This action would decrease the price of lobster in Massachusetts.

When Ghana sells chocolate to the United States, U.S. net exports

decrease, and U.S. net capital outflow decreases.

Other things the same, if the exchange rate changes from 41 Thai bhat per dollar to 35 Thai bhat per dollar, then the dollar has

depreciated and so buys fewer Thai goods.

A country's trade balance

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

You are the CEO of a U.S. firm considering building a factory in Chile. If the dollar appreciates relative to the Chilean peso, then other things the same

it takes fewer dollars to build the factory. By itself building the factory increases U.S. net capital outflow.

Suppose that foreign citizens decide to purchase more U.S. pharmaceuticals and U.S. citizens decide to buy more stock in foreign corporations. Other things the same, these actions

raise both U.S. net exports and U.S. net capital outflows.

Mary, a U.S. citizen, buys stock in an Italian railroad. This purchase is an example of

saving for Mary and U.S. foreign portfolio investment.

According to purchasing power parity, if the same basket of goods costs $100 in the U.S. and 50 pounds in Britain, then what is the nominal exchange rate?

1/2 pound per dollar

If purchasing power parity holds, a bushel of rice costs $10 in the U.S., and the nominal exchange rate is 2 Thai bhat per dollar, what is the price of rice in Thailand?

20 bhat

In which of the following situations must national saving rise?

Both domestic investment and net capital outflow increase.

Which of the following statements is correct for an open economy with a trade surplus?

The trade surplus implies that the country's national saving is greater than domestic investment.

A country purchases $3 billion of foreign-produced goods and services and sells $2 billion dollars of domestically produced goods and services to foreign countries. It has

exports of $2 billion and a trade deficit of $1 billion.

Net capital outflow is defined as the purchase of

foreign assets by domestic residents minus the purchase of domestic assets by foreign residents.

Paul, a U.S. citizen, builds a telescope factory in Israel. His expenditures

increase U.S. net capital outflow, but decrease Israeli net capital outflow.

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

more domestic goods and fewer foreign goods.

12. A country has a trade deficit. Its

net capital outflow must be negative and saving is smaller than investment.

. If a country has a trade surplus, then its

saving is greater than domestic investment and Y > C + I + G.

If there is a trade deficit, then

saving is less than domestic investment and Y < C + I + G.

Catherine, a citizen of Spain, decides to purchase bonds issued by Chile instead of ones issued by the United States even though the Chilean bonds have a higher risk of default. An economic reason for her decision might be that

the Chilean bonds pay a higher rate of interest.

You are planning a graduation trip to Nepal. Other things the same, if the dollar appreciates relative to the Nepalese rupee, then

the dollar buys more rupees. Your purchases in Nepal will require fewer dollars.

20. You are staying in London over the summer and you have a number of dollars with you. If the dollar depreciates relative to the British pound, then other things the same,

the dollar would buy fewer pounds. The depreciation would discourage you from buying as many British goods and services.

Other things the same, if the dollar depreciates relative to the British pound, then

the exchange rate falls. It will cost fewer pounds to travel in the U.S.

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

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

Suppose that the real profit from operating factories in Ghana rises relative to the real rate of return in the United States. Other things the same,

this will increases U.S. net capital outflow and decrease Ghanan net capital outflow.