ECON Quiz

If domestic residents of other countries purchase $600 billion of U.S. assets and U.S residents purchase $500 billion of foreign assets, then U.S. net capital outflow is

-$100 billion and the U.S. has a trade deficit.

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

A U.S. citizen builds and operates a coffee shop in the Netherlands.

The value of Austria's exports minus the value of Austria's imports is called

Austria's net exports

Suppose that the real exchange rate between the United States and Kenya is defined in terms of baskets of goods. Other things the same, which of the following will increase the real exchange rate (that is increase the number of baskets of Kenyan goods a basket of U.S. goods buys)?

an increase in the number of Kenyan shillings that can be purchased with a dollar an increase in the price of U.S. goods a decrease in the price in Kenyan shillings of Kenyan goods

Suppose that the nominal exchange rate is 80 yen per dollar, that the price of a basket of goods in the U.S. is $500 and the price of a basket of goods in Japan is 50,000 yen. Suppose that these values change to 100 yen per dollar, $600, and 70,000 yen. Then the real exchange rate would

appreciate which by itself would make U.S. net exports fall.

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.

If the number of South Korean Won it takes to buy a U.S. dollar rises and the prices of U.S. goods rise more than the prices of South Korean goods. then the US real exchange rate

appreciates and so U.S. net exports fall

An Italian company exchanges euros for dollars from U.S. residents and then uses the dollars to buy U.S. products to sell in its stores in Rome. U.S. residents who exchanged their dollars for euros use the euros to buy bonds issued by French corporations. At this point

both U.S. net exports and U.S. net capital outflows have risen.

If business opportunities in a country become relatively less attractive relative to those of other countries, then

both its net exports and net capital outflows rise.

Other things the same, if the exchange rate changes from 30 Thai bhat per dollar to 25 Thai bhat per dollar, then the dollar has

depreciated and so buys fewer Thai goods

According to purchasing-power parity, if it took 55 Indian rupees to buy a dollar today, but it took 58 to buy it a year ago, then the dollar has

depreciated, indicating inflation was higher in the U.S. than in India.

If purchasing-power parity holds, a dollar will buy

enough foreign currency to buy as many goods as it does in the United States.

Which of the following both reduce net exports?

exports fall, imports rise

You hold currency from a foreign country. If that country has a higher rate of inflation than the United States, then over time the foreign currency will buy

fewer goods in that country and buy fewer dollars.

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

According to purchasing-power parity, when a country's central bank decreases the money supply, a unit of money

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 citizens of a country are not saving much, it is better to

have foreigners invest in the domestic economy than no one at all.

A U.S. bakery buys wheat from Canada and pays for it with US dollars. This transaction

increases Canadian net exports, and decreases U.S. net capital outflow.

Other things the same, if a country saves less, then

net capital outflow falls, so net exports fall.

If the real exchange rate is less than 1, then the

nominal exchange rate x U.S. price < foreign price. The dollars required to purchase a good in the U.S. would buy more than enough foreign currency to buy the same good overseas.

If it took as many dollars to buy goods in the United States as it did to buy enough currency to buy the same goods in India, the real exchange rate would be computed as how many Indian goods per U.S. goods?

one

Other things the same, the real exchange rate between American and Chinese goods would be higher if

prices of Chinese goods were lower, or the number of yuan a dollar purchased was higher.

If the exchange rate rises from .65 British pounds per dollar to .70 pounds per dollar, then compared to British goods, U.S. goods become

relatively more expensive for both British and U.S. residents.

If purchasing power parity holds, then if the price of a basket of goods in the U.S. rose from $1.000 to $1,200 and the price of the same basket in Poland rose from 6,400 Polish zloty to 8,000 zloty, then

the U.S. dollar would appreciate and the real exchange rate would stay the same.

If over the next few years inflation is higher in Mexico than in the U.S., then according to purchasing-power parity which of the following should rise?

the U.S. nominal exchange rate but not the U.S. real exchange rate

Goods that cost 1/5 of one dollar in the U.S. cost one kroner in Denmark, the real exchange rate would be computed as how many Danish goods per U.S. goods?

the amount of kroner that can be bought with twenty U.S. cents

According to purchasing-power parity, if two countries have the same price level because they have the same prices for all goods and services, then which of the following would equal 1?

the real exchange rate and the nominal exchange rate

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

the real exchange rate but not the nominal exchange rate

If a dollar buys less coffee in the U.S. than in Kenya, then

the real exchange rate is greater than 1; a profit might be made by buying coffee in Kenya and selling it in the U.S.