ECO Chpt. 18 (Pretest)

A U.S. company uses U.K. pounds it already owned to purchase bonds issued by a company in the U.K. Which of these countries has an increase in net capital outflow?

Neither the U.S. nor the U.K.

Jen and Alica are both U.S. citizens. Jen opens a cafe in France. Alicia buys equipment from a company in Canada to use in a U.S.-based factory. Whose action is an example of U.S. foreign direct investment?

Jen's but not Alicia's

Which of the following is correct? Since 1950

U.S. exports and U.S. imports each have increased significantly.

The "law of one price" states that

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

If a country sells fewer goods and services abroad than it buys from other countries, it is said to have a trade

deficit and negative net exports.

According to purchasing-power parity, inflation in the United States causes the dollar to

depreciate relative to currencies of countries that have lower inflation rates.

If a country has Y > C + I + G, then it has

positive net capital outflow and positive net exports.

A country's trade balance will fall if either

saving falls or investment rises.

An open economy's GDP can be expressed by

Y = C + I + G + NX.

A country's trade balance

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

Visitors to a country hosting a world soccer tournament purchase food, souvenirs, and accommodations while attending the tournament. Which of the following should these expenditures raise?

The host country's net exports and its net capital outflow.

If the exchange rate is expressed as euros/dollar, 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.

If you are vacationing in France and the dollar depreciates relative to the euro, then the dollar buys

fewer euros. It will take more dollars to buy a good that costs 50 euros.

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.

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.

The nominal exchange rate is about 2 Aruban florin per dollar. If a basket of goods in the United States costs $40, how many florins must a basket of goods in Aruba cost for purchasing-power parity to hold?

80 florin

In an open economy, gross domestic product equals $2,450 billion, consumption expenditure equals $1,390 billion, government expenditure equals $325 billion, investment equals $510 billion, and net capital outflow equals $225 billion. What is national saving?

$735 billion

Purchasing-power parity describes the forces that determine

exchange rates in the long run.

If the real exchange rate for coal is 1.5, the price of coal in the United States is $50 per ton, and the price of coal in Britain is 20 British pounds per ton, what is the nominal exchange rate?

3/5 or 0.6 pounds per dollar

If the value of goods and services that Australia purchases from the United States are less than the value of goods and services that the United States purchases from Australia, then the United States has

negative net exports with Australia and a trade deficit with Australia.

Suppose exchange rates are defined as foreign currency per dollar and foreign goods per U.S. goods. According to purchasing-power parity, if the price of a basket of goods in the United States rose from $1,500 to $2,000 and the price of the same basket of goods rose from 600 units of some other country's currency to 1,000 units of that country's currency, then the

nominal exchange rate would appreciate.

When Jamie, a U.S. citizen, purchases a wool jacket made in Ireland, the purchase is

the U.S. import and an Irish export.