ch 18 open economy
11. if a country had a trade surplus of $50 billion and then its exports rose by $30 billion and its imports rise by $20 billion, its net exports would now be
$60 billion
18. 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 US has a trade deficit
17. If domestic residents of France purchase 1.2 trillion euros of foreign assets and foreigners purchase 1.5 trillion euros of French assets, then France's net capital outflow is
-.3 trillion euros, so it must have a trade deficit.
12. If a McDonald's Big Mac cost $4.50 in the United States and 3.60 euros in the Euro area, then purchasing-power parity implies the nominal exchange rate is how many euros per dollar?
.80 If the value is less than this, it costs fewer dollars to buy a Big Mac in the U.S. than in the Euro area.
13. A Starbucks Grande Latte costs $3.75 in the U.S. and 28 yuan in China. The nominal exchange rate is 6.75 yuan per dollar. The real exchange rate is
.904. if purchasing power parity held the nominal exchange rate would be higher
4. If the exchange rate is 2 Brazilian reals per dollar and a meal in Rio costs 20 reals, then how many dollars does it take to buy a meal in Rio?
10 and your purchase will increase brazil's net exports
3. If the exchange rate is 5 Egyptian pounds per U.S. dollar, a watch that costs $25 US dollars costs
125 egyptian pounds
14. In France a loaf of bread costs 3 euros. In Great Britain a loaf of bread costs 4 pounds. If the exchange rate is .9 pounds per euro, what is the real exchange rate?
2.7/4 loaves of British bread per loaf of French bread
8. If purchasing-power parity holds, a bushel of rice costs $10 in the U.S., and the nominal exchange rate is 25 Thai baht per dollar, what is the price of rice in Thailand?
250 bhat
2. if the exchange rate is .60 british pounds = 1 dollar, a bottle of ale that costs 3 pounds costs
5$
37. A U.S. fast food restaurant chain sells dollars for Argentinean pesos and then uses the pesos to buy Argentinean beef. Which of the following do these transactions increase?
Argentinean net capital outflow and Argentinean net exports
29. which of the following equations is always correct in an open economy?
I = S - NCO
31. Which of the following is correct?
NCO = NX
28. which of the following equations is correct?
S = I +NCO
35.A U.S. grocery chain buys bananas from Honduras and pays for them with U.S. dollars.
The purchase of bananas decreases U.S. net exports and the payment with dollars decreases U.S. net capital outflow.
12. The real exchange rate is the nominal exchange rate, defined as foreign currency per dollar, times
U.S. prices divided by foreign prices.
24. A U.S. mutual fund buys stocks issued by a Columbian company. This purchase is an example of
US foreign portfolio investment. it decreases columbia's net capital outflow
16. if US residents purchase $600 billion worth of foreign assets and foreigners purchase $300 billion worth of US assets,
US net capital outflow is $300 billion; capital is flowing out of the US.
4. a farmer in mexico purchases a tractor made in the US. this purchase is an example of
a US export and a mexican import
3. dave, a US citizen buys a bicycle manufactured in china. dave's purchase is
a US import and a chinese export
2. when jamie, a US citizen, purchases a wool jacket made in ireland, the purchase is
a US import and an Irish export
1. the law of one price states that
a good must sell at the same price at all locations
6. a country sells more to foreign countries than it buys from them. it has
a trade surplus and positive net exports
30. Which of the following equations is always correct in an open economy?
a. NX = Y - C - G - I b. NX = S - I c. NX = NCO
32. Which of the following equations is correct?
a. Y = C + I + G + NCO b. NX = NCO c. NCO = S - I
16. 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.
15. According to purchasing-power parity, if it took 58 Indian rupees to buy a dollar today, but it took 55 to buy it a year ago, then the dollar has
appreciated, indicating inflation was lower in the U.S. than in India.
11. If the exchange rate changes from 148 Kazakhstan tenge per dollar to 155 Kazakhstan tenge per dollar, the dollar has
appreciated. Other things the same, it now takes fewer dollars to buy Kazakhstani goods.
7. If you go to the bank and notice that a dollar buys more Japanese yen than it used to, then the dollar has
appreciated. Other things the same, the appreciation would make Americans more likely to travel to Japan.
10. 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.
9. Other things the same, if the exchange rate changes from .8 euros per dollar to .9 euros per dollar, the dollar
appreciates so U.S. goods become more expensive relative to foreign goods.
4. if purchasing-power parity holds, a dollar will buy
as many goods in foreign countries as it does in the united states
34. A U.S. firm exchanges dollars for yen and then uses them to buy Japanese goods. Overall as a result of these transactions
both U.S. net capital outflow and U.S. net exports fall.
39. in which of the following situations MUST national saving rise?
both domestic investment and net capital outflow increase
16. If the Canadian nominal exchange rate does not change, but prices rise faster abroad than in Canada, then the Canadian real exchange rate
declines
17. Suppose that the nominal exchange rate is .80 euro 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 Germany is 400 Euro. Suppose that these values change to .90 euro per dollar, $600, and 600 euro. Then the real exchange rate would
depreciate which by itself would make US net exports rise.
13. 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
e(P/P*)
5. if purchasing-power parity holds, a dollar will buy
enough foreign currency to buy as many goods as it does in the united states
14. 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
13. net capital outflow is defined as the purchase of
foreign assets by domestic residents minus the purchase of domestic assets by foreign residents
21. John, a U.S. citizen, opens up a Sports bar in Tokyo. This is an example of U.S.
foreign direct investment
23. A Swiss watchmaker opens a factory in the United States. This is an example of Swiss
foreign direct investment
26. a US citizen buys bonds issued by an automobile manufacturer in japan. her expenditures are US
foreign portfolio investment that increases US net capital outflow
25. A U.S. firm buys bonds issued by a technology center in India. This purchase is an example of U.S.
foreign portfolio investment. By itself it is an increase in U.S. holdings of foreign bonds and increases U.S. net capital outflow.
11. If purchasing-power parity holds but then U.S. prices rise, which of the following move the exchange rate back towards purchasing-power parity?
foreign prices rise or the US nominal exchange rate falls
5. net exports of a country are the value of
goods and services exported minus the value of goods and services imported
1. foreign produced good and services that are produced domestically are called
imports
12. US international trade has
increased because of an increase in trade of goods with a high value per pound
36. 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.
20. Susan, a U.S. citizen, builds and operates a kennel in France. This action is an example of
investment for Susan and U.S. foreign direct investment
9. a country's trade balance
is greater than zero only if exports are greater than imports
7. one year, a country has negative net exports.the next year it still has negative net exports and imports have risen more than exports.
its trade deficit rose
8. one year a country has positive net exports. the next year it still has positive but larger net exports
its trade surplus rose
38. If Israel's domestic investment exceeds its national saving, then Israel has
negative net capital outflows and negative net exports
10. if germany purchased more goods and services abroad than it sold last year, then it had
negative net exports which is trade deficit
40. other things the same, if a country saves less, then
net capital outflow falls, so net exports fall
41. other things the same, if a country saves more, then
net capital outflow rises, so net exports rise
42. if a country's domestic investment decreases, then
net capital outflow rises, so net exports rise
43. other things the same, if a country has a trade deficit and saving rises,
net capital outflow rises, so the trade deficit decreases
18. According to purchasing-power parity, if prices in the United States increase by a larger percentage than prices in the United Kingdom, then the
nominal exchange rate falls
15. net capital outflow equals the difference between a country's
purchases of foreign assets and sales of domestic assets abroad
2. if the real exchange rate between the US and Argentina is 1, then
purchasing power parity holds, and the amount of dollars needed to buy goods in the US is the same as the amount needed to buy enough argentinean bolivars to buy the same goods in argentina.
1. the nominal exchange rate is the
rate at which a person can trade the currency of one country for another
3. if purchasing-power parity holds, then the value of the
real exchange rate is equal to 1
17. If the Mexican nominal exchange rate does not change, but prices rise faster in Mexico than in all other countries, then the Mexican real exchange rate
rises
19. Mark, a US citizen, buys stock in a British shipping company. this purchase is an example of
saving for Mark, and US foreign portfolio investment
44. a country could move from having a trade deficit to having a trade surplus if either
saving rose OR domestic investment rose
15. When the Mexican peso gets "stronger" relative to the dollar,
the US trade deficit with mexico falls
8. You are planning a graduation trip to Mexico. Other things the same, if the dollar appreciates relative to the peso, then
the dollar buys more pesos. Your hotel room in Mexico will require fewer dollars.
5. The dollar is said to depreciate against the euro if
the exchange rate falls. Other things the same, it will cost fewer euros to buy U.S. goods.
6. The dollar is said to appreciate against the euro if
the exchange rate rises. Other things the same, it will cost more euros to buy U.S. goods.
9. If purchasing-power parity holds, the price level in the U.S. is 140, and the price level in Canada is 120, which of the following is true?
the nominal exchange rate is 120/140
10. If purchasing-power parity holds, the price level in the U.S. is 250, and the price level in Japan is 260, which of the following is true?
the nominal exchange rate is 260/250
7. which of the following does purchasing-power parity imply?
the nominal exchange rate is the ratio of foreign prices to US prices
6. which of the following does purchasing-power parity imply?
the purchasing power of the dollar is the same in the US as in foreign countries
14. net capital outflow equals
the value of foreign assets purchased by domestic residents--the value of domestic assets purchased by foreigners
33. If saving is greater than domestic investment, then
there is a trade surplus and Y > C + I + G.
22. Suppose that the real return from operating factories in Canada rises relative to the real rate of return in the United States. Other things the same
this will increase US net capital outflow and decrease canadian net capital outflow.
27. an open economy's gdp is always given by
y = C + I + G + NX
