If the United States had negative net exports last year, then it
bought more abroad than it sold abroad and had a trade deficit.
Purchasing-power parity describes the forces that determine
exchange rates in the long run.
The U.S. has a trade surplus. Which of the following is correct?
capital is flowing out of the U.S. and S > I
If the exchange rate is .70 euro per dollar, the price of an MP3 player in Paris is 150 euros and the price of an MP3 player in the U.S. is $150, then what is the real exchange rate?
.70 French MP3 players per U.S. MP3 player.
Which of the following both reduce net exports?
imports rise, exports fall
A Japanese flour mill buys wheat from the United States and pays for it with pesos. Other things the same, Japanese
net exports decrease, and U.S. net capital outflow increases.
Suppose that because of legal and financial reforms in the country of Belats, foreigners find business opportunities there more attractive. We would expect the more attractive opportunities would cause Belats'
net exports and net capital outflow to decrease.
If a Starbucks tall latte cost $3.20 in the United States and 3 euros in the Euro area, then purchasing-power parity implies the nominal exchange rate is how many euros per dollar?
.938 If the exchange rate is less than this, it costs more dollars to buy a tall latte in the U.S. than in the Euro area.
If a dollar buys more potatoes in the U.S. than in France, then
the real exchange rate is less than 1; a profit might be made by buying potatoes in the U.S. and selling them in France.
If a U.S. textbook publishing company sells texts overseas, U.S. net exports
increase, and U.S. net capital outflow increases.
A country has net capital outflow of $20 billion. Which of the following is consistent with this net capital outflow?
It has $20 billion of net exports.
If a country has a trade deficit
it has negative net exports and negative net capital outflow.
Stacey, a U.S. citizen, buys a bond issued by an Italian pasta manufacturer.
This purchase is foreign portfolio investment. By itself it increases U.S. net capital outflow.
A haircut costs 200 pesos in Mexico and $20 in the U.S. The exchange rate is 12.5 pesos per dollar. The real exchange rate is
greater than one. Haircuts in Mexico are cheaper than in the U.S.
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
Mike, a U.S. citizen, buys $1,000 worth of olives from Greece. By itself this purchase
ncreases U.S. imports by $1,000 and decreases U.S. net exports by $1,000.
According to purchasing power parity, if over the course of a year the price level in the U.S. rises more than in Japan, then which of the following falls?
the U.S. nominal exchange rate, but not the U.S. real exchange rate
If Ireland's domestic investment exceeds national saving, then Ireland has
negative net capital outflows and negative net exports.
If a country has a trade surplus
it has positive net exports and positive net capital outflow.
Other things the same, if the dollar depreciates relative to the Japanese yen, then
the exchange rate falls. It will cost fewer yen to travel in the U.S.
Which of the following does purchasing-power parity imply?
The purchasing power of the dollar is the same in the U.S. as in foreign countries.
Which of the following does purchasing-power parity conclude should equal 1?
the real exchange rate but not the nominal exchange rate
If purchasing-power parity holds, a dollar will buy
enough foreign currency to buy as many goods as it does in the United States.
A U.S. based company sells semiconductors to an Italian firm. The U.S. company uses all of the revenues from this sale to purchase automobiles from Italian firms. These transactionsA U.S. based company sells semiconductors to an Italian firm. The U.S. com
None of the above is correct.
If the real exchange rate between the U.S. and Argentina is 1, then
purchasing power parity holds, and the amount of dollars needed to buy goods in the U.S. is the same as the amount needed to buy enough Argentinean bolivars to buy the same goods in Argentina.
If the U.S. government imposed a quota on toy imports, then
imports and exports would both fall.
Other things the same, a lower real interest rate decreases the quantity of
loanable funds supplied.
Other things the same, an increase in the U.S. interest rate causes the quantity of loanable funds supplied to
rise because national saving rises.
If there is a surplus in the U.S. loanable funds market, then the interest rate
falls, which increases the quantity of loanable funds demanded.
When a country's government budget deficit decreases,
the real exchange rate of its currency decreases and its net exports increase.
If U.S. citizens decide to purchase more foreign assets at each interest rate, the U.S. real interest rate
increases, the real exchange rate of the dollar depreciates, and U.S. net capital outflow increases.
A large and sudden movement of funds out of a country is called
capital flight.
When a country imposes an import quota, its
imports fall and its net exports are unchanged.
If a country institutes policies that lead domestic firms to desire more capital stock
net capital outflows fall and the real exchange rate rises.
Which of the following is correct concerning the open-economy macroeconomic model?
The net-capital-outflow curve slopes downward.
In the open economy macroeconomic model, the price that balances supply and demand in the market for foreign-currency exchange model is the
real exchange rate.
An increase in real interest rates in the United States changes the quantity of loanable funds demanded because
Foreign residents will want to buy fewer foreign assets.
If the world thought that many banks in a certain country were at or near the point of bankruptcy, then that country's real exchange rate
and net exports would rise.
A tax on imported goods is called a(n)
tariff.
Suppose that the U.S. imposes an import quota on lumber. The quota makes the real exchange rate of the U.S. dollar
appreciate but does not change the real interest rate in the United States.
The explanation for the slope of
the supply of loanable funds curve is based on the logic that a higher real interest rate leads to higher saving.
In the open-economy macroeconomic model, if a country's interest rate rises, then its
net capital outflow and net exports fall.
Which of the following is included in the demand for dollars in the market for foreign-currency exchange in the open-economy macroeconomic model?
A firm in Canada wants to buy rice from a U.S. company.
When a country experiences capital flight, its net capital outflow,
which is part of the demand for loanable funds, increases.
Which of the following would make both the equilibrium real interest rate and the equilibrium quantity of loanable funds decrease?
The demand for loanable funds shifts left.
Other things the same, people in the U.S. would want to save more if the real interest rate in the U.S.
rose. The increased saving would increase the quantity of loanable funds supplied.
In the open-economy macroeconomic model, if for some reason foreign citizens want to purchase more U.S. goods and services at each exchange rate, then
the demand for dollars in the market for foreign-currency exchange shifts right.
If saving is greater than domestic investment, then
there is a trade surplus and Y > C + I + G.
Other things the same, if the exchange rate changes from .30 Kuwaiti dinar per dollar to .35 Kuwaiti dinar per dollar, then the dollar has
appreciated and so buys more Kuwaiti goods.
If the Mexican nominal exchange rate does not change, but prices rise faster abroad than in Mexico, then the Mexican real exchange rate
declines.
Mark, a U.S. citizen, buys stock in a British Shipping company. This purchase is an example of
saving for Mark and U.S. foreign portfolio investment.
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
$60 billion.
When Ghana sells chocolate to the United States, U.S. net exports
decrease, and U.S. net capital outflow decreases.
According to purchasing-power parity, if a basket of goods costs $100 in the U.S. and the same basket costs 800 pesos in Argentina, then what is the nominal exchange rate?
8 pesos per dollar
If there is a trade deficit, then
saving is less than domestic investment and Y < C + I + G.
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
During some year a country had exports of $50 billion, imports of $35 billion, and purchased $30 billion of foreign assets. What was the value of domestic assets purchased by foreigners?
$15 billion
If sales of Saudi Arabian oil to the rest of the world increase and Saudis use the proceeds to buy foreign goods, which of the following increases?
neither Saudi Arabian net exports nor net capital outflow
Which of the following does purchasing-power parity conclude should equal 1?
the real exchange rate but not the nominal exchange rate
A ton of scrap iron sells for $150 in the U.S. and 1400 yuan in China. The nominal exchange rate is 6.7 yuan per dollar.
A profit could be made by buying scrap iron in the U.S. and selling it in China. This would tend to drive down the price of Chinese scrap iron.
If U.S. consumers decrease their demand for cellphones from Finland, then other things the same Finland's
exports and net exports fall.
John, a U.S. citizen, opens up a Sports bar in Tokyo. This is an example of U.S.
foreign direct investment.
When Microsoft establishes a distribution center in France, U.S. net capital outflow
increases because Microsoft makes a direct investment in capital in France.
A Canadian manufacturing company opens a factory the produces air conditioners in the United States. This is an example of Canadian
foreign direct investment that increases Canadian net capital outflow.
An appreciation of the U.S. real exchange rate induces U.S. consumers to buy
fewer domestic goods and more foreign goods.
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
You buy a new car built in Sweden. Other things the same, your purchase by itself
raises U.S. imports and lowers U.S. net exports.
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.
If U.S. exports are $300 billion and U.S. imports total $350 billion, which of the following is correct?
The U.S. has a trade deficit of $50 billion.
The real exchange rate is the nominal exchange rate, defined as foreign currency per dollar, times
prices in the United States divided by foreign prices.
In the open-economy macroeconomic model, if the supply of loanable funds increases, net capital outflow
increases and the real exchange rate decreases.
In the open-economy macroeconomic model, the demand for dollars shifts right if at any given exchange rate
foreign residents want to buy more U.S. goods and services. and U.S. residents want to buy fewer foreign goods and services.
When Mexico suffered from capital flight in 1994, Mexico's real interest rate
rose and the peso depreciated.
If a country experiences capital flight, which of the following curves shift right?
the demand for loanable funds, the net capital outflow curve, and the supply of dollars in the market for foreign currency exchange.
An increase in the budget deficit causes domestic interest rates
to rise and investment to fall.
A country has national saving of $60 billion, government expenditures of $30 billion, domestic investment of $40 billion, and net capital outflow of $20 billion. What is its supply of loanable funds?
$60 billion
According to the open-economy macroeconomic model, import quotas increase which of the following
neither net exports nor net capital outflow.
Which of the following is consistent with moving from a shortage to equilibrium in the market for foreign currency exchange?
the exchange rate rises so foreign residents want to buy fewer U.S. goods and services
Suppose the U.S. imposes an import quota on steel. U.S. exports
decrease, the real exchange rate of the U.S. dollar appreciates, and U.S. net capital outflow is unchanged.
Other things the same, which of the following would shift the supply of dollars in the market for foreign exchange to the right?
foreigners want to buy fewer U.S. bonds
Which of the following is most likely to increase the exports of a country?
Political instability within the country increases modestly.
The country of Frequencia is politically very stable and has a long tradition of respecting property rights. If several other countries suddenly became politically unstable, we would expect Frequencia's
net exports to fall.
In the open-economy macroeconomic model, the market for loanable funds equates national saving with
None of the above is correct.
If the U.S. government imposes a quota on toy imports, then
the exchange rate rises.
A firm produces manufacturing equipment, some of which it exports. Which of the following effects of a budget deficit would likely reduce the quantity of equipment it sells?
the change in the interest rate and the change in the exchange rate
When Mexico suffered from capital flight in 1994, Mexico's net exports
increased.
If a country had capital flight, then the real exchange rate would
fall. To offset this fall the government could increase the budget deficit.
At a given real exchange rate, which of the following, by itself, would increase the supply of dollars in the market for foreign-currency exchange?
U.S. citizens want to buy more foreign bonds
If a tariff on lumber were implemented, for the country as a whole which of the following would rise?
neither exports nor net exports
In the open-economy macroeconomic model, the supply of dollars in the market for foreign-currency exchange comes from
net capital outflow