Macro 18

127. If a country has a trade surplus then a. S > I and Y > C + I + G. b. S > I and Y < C + I + G. c. S < I and Y > C + I + G. d. S < I and Y < C + I + G.

a. S > I and Y > C + I + G.

195. During some year a country had exports of $50 billion, imports of $70 billion, and domestic investment of $100 billion. What was its saving during the year? a. $80 billion b. $100 billion c. $120 billion d. $150 billion

a. $80 billion

72. Which of the following is an example of U.S. foreign direct investment? a. A Greek company opens a cheese factory in the U.S. b. A German mutual fund buys stock issued by a U.S. corporation. c. A U.S. beverage company opens a bottling plant in Russia. d. A U.S. bank buys bonds issued by an Argentinean company.

c. A U.S. beverage company opens a bottling plant in Russia.

119. Which of the following equations is correct? a. S = I + C b. S = I - NX c. S = I + NCO d. S = NX - NCO.

c. S = I + NCO

78. Carl and Carly are American residents. Carl buys stock of a corporation in Austria. Carly opens a coffee shop in Austria. Whose purchase, by itself, decreases Austria's net capital outflow? a. Carl's b. Carly's c. both Carl's and Carly's d. neither Carl's nor Carly's

c. both Carl's and Carly's

173. All saving in the U.S. economy shows up as a. investment in the U.S. economy. b. U.S. net capital outflow. c. either investment in the U.S. economy or U.S. net capital outflow. d. None of the above is correct.

c. either investment in the U.S. economy or U.S. net capital outflow.

174. A country's trade balance will fall if a. either investment or saving rise. b. either investment falls or saving rises. c. either saving falls or investment rises. d. either investment or saving fall.

c. either saving falls or investment rises.

89. If a country changes its corporate tax laws so that foreign businesses build and manage more business in that country, then the net capital outflow of that country a. and the net capital outflow of other countries rise. b. rises and the net capital outflow of other countries fall. c. falls and the net capital outflow of other countries rise. d. None of the above are correct.

c. falls and the net capital outflow of other countries rise.

117. Net capital outflow a. is always greater than net exports. b. is always less than net exports. c. is always equal to net exports. d. could be any of the above.

c. is always equal to net exports.

1. The nominal exchange rate is the a. nominal interest rate in one country divided by the nominal interest rate in the other country. b. the ratio of a foreign country's interest rate to the domestic interest rate. c. rate at which a person can trade the currency of one country for another. d. the real exchange rate minus the inflation rate.

c. rate at which a person can trade the currency of one country for another.

49. If a country had a trade surplus of $50 billion and then its exports rose by $30 billion and its imports rose by $20 billion, its net exports would now be a. $0 billion. b. $20 billion. c. $40 billion. d. $60 billion.

d. $60 billion.

65. 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 a. $100 billion and the U.S. has a trade surplus. b. $100 billion and the U.S has a trade deficit. c. -$100 billion and the U.S. has a trade surplus. d. -$100 billion and the U.S. has a trade deficit.

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

46. 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? a. 1.25 If the value is less than this, it costs more dollars to buy a Big Mac in the U.S. than in the Euro area. b. 1.25 If the value is less than this, it costs fewer dollars to buy a Big Mac in the U.S. then in the Euro area. c. .80 If the value is less than this, it costs more dollars to buy a Big Mac in the U.S. than in the Euro area. d. .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.

d. .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.

128. If a country has a trade deficit then a. S > I and Y > C + I + G. b. S > I and Y < C + I + G. c. S < I and Y > C + I + G. d. S < I and Y < C + I + G.

d. S < I and Y < C + I + G.

2. Purchasing-power parity describes the forces that determine a. prices in the short run. b. prices in the long run. c. exchange rates in the short run. d. exchange rates in the long run.

d. exchange rates in the long run.

175. A country has a trade deficit. Its a. net capital outflow must be positive, and saving is larger than investment. b. net capital outflow must be positive and saving is smaller than investment. c. net capital outflow must be negative and saving is larger than investment. d. net capital outflow must be negative and saving is smaller than investment.

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

87. During a hyperinflation the real domestic value of a country's currency a. falls and its nominal exchange rate depreciates. b. falls and its nominal exchange rate appreciates. c. rises and its nominal exchange rate depreciates. d. rises and its nominal exchange rate appreciates.

a. falls and its nominal exchange rate depreciates.

59. Net capital outflow is defined as the purchase of a. foreign assets by domestic residents minus the purchase of domestic assets by foreign residents. b. foreign assets by domestic residents minus the purchase of foreign goods and services by domestic residents. c. domestic assets by foreign residents minus the purchase of domestic goods and services by foreign residents. d. domestic assets by foreign residents minus the purchase of foreign assets by domestic residents.

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

9. 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 a. it takes fewer dollars to build the factory. By itself building the factory increases U.S. net capital outflow. b. it takes fewer dollars to build the factory. By itself building the factory decreases U.S. net capital outflow. c. it takes more dollars to build the factory. By itself building the factory increases U.S. net capital outflow. d. it takes more dollars to build the factory. By itself building the factory decreases U.S. net capital outflow.

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

64. According to purchasing-power parity which of the following would happen if a country raised its money supply growth rate? a. its nominal exchange rate would fall b. its real exchange rate would fall c. its real net exports would rise d. All of the above would happen.

a. its nominal exchange rate would fall

79. If over the next six months inflation is higher in the U.S. than in foreign countries, then according to purchasing- power parity a. only the nominal exchange rate depreciates. b. both the real and nominal exchange rate appreciate. c. both the real and nominal exchange rate depreciate. d. only the real exchange rate appreciates.

a. only the nominal exchange rate depreciates.

63. If U.S. residents purchase $600 billion worth of foreign assets and foreigners purchase $300 billion worth of U.S. assets, a. U.S. net capital outflow is $300 billion; capital is flowing into the U.S. b. U.S. net capital outflow is $300 billion; capital is flowing out of the U.S. c. U.S. net capital outflow is -$300 billion; capital is flowing into the U.S. d. U.S. net capital outflow is -$300 billion; capital is flowing out of the U.S.

b. U.S. net capital outflow is $300 billion; capital is flowing out of the U.S.

1. The law of one price states that a. a good must sell at the price fixed by law. b. a good must sell at the same price at all locations. c. a good cannot sell for a price greater than the legal price ceiling. d. nominal exchange rates will not vary.

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

63. According to purchasing-power parity, inflation in the U.S. causes the dollar to a. depreciate relative to all other currencies. b. depreciate relative to currencies of countries that have lower inflation rates. c. appreciate relative to all other countries. d. appreciate relative to currencies of countries that have lower inflation rates.

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

21. 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 a. e(P*/P). b. e(P/P*). c. e + P*/P. d. e - P/P*.

b. e(P/P*).

75. According to purchasing-power parity, if prices in the United States increase by a smaller percentage than prices in the United Kingdom, then the a. real exchange rate rises. b. nominal exchange rate rises. c. real exchange rate falls. d. nominal exchange rate falls.

b. nominal exchange rate rises.

80. Mark, a U.S. citizen, buys stock in a British Shipping company. This purchase is an example of a. investment for Mark and U.S. foreign direct investment. b. investment for Mark and U.S. foreign portfolio investment. c. saving for Mark and U.S. foreign direct investment. d. saving for Mark and U.S. foreign portfolio investment.

d. saving for Mark and U.S. foreign portfolio investment.

13. According to purchasing-power parity what should the nominal exchange rate between the U.S. and another country be equal to? a. 1 b. the real exchange rate between the U.S. and that country c. the price level in the U.S. divided by the price level in the other country d. the price level in the other country divided by the price level in the U.S.

d. the price level in the other country divided by the price level in the U.S.

58. Net capital outflow equals a. the value of domestic assets purchased by foreigners. b. the value of foreign assets purchased by domestic residents. c. the value of domestic assets purchased by foreigners - the value of foreign assets purchased by domestic residents. d. the value of foreign assets purchased by domestic residents - the value of domestic assets purchased by foreigners.

d. the value of foreign assets purchased by domestic residents - the value of domestic assets purchased by foreigners.