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Exam 31: Open-Economy Macroeconomics: Basic Concepts

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Question 61

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According to purchasing-power parity, what is the relationship between changes in price levels between two countries and changes in nominal exchange rates?

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Purchasing-power parity asserts that the...

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Question 62

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A country sells more goods and services to foreign countries than it buys from them. It has

A) a trade surplus and positive net exports.
B) a trade surplus and negative net exports.
C) a trade deficit and positive net exports.
D) a trade deficit and negative net exports.

E) A) and B)
F) B) and C)

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Question 63

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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

Suppose a Starbucks tall latte costs $4.00 in the United States and 2.50 euros in the Euro area. Also, suppose a McDonald's Big Mac costs $4.50 in the United States and 3.60 euros in the Euro area. If the nominal exchange rate is .80 euros per dollar, which goods have prices that are consistent with purchasing-power parity?

A basket of goods cost $800 in the U.S. The same basket of goods costs $1,000 in France and the exchange rate is .80 euros per dollar. The same basket of goods costs 960 Australian dollars and the exchange rate is 1.2 Australian dollars per U.S. dollar. Purchasing power parity with the U.S. holds in

A particular brand of shampoo costs 6 Canadian dollars in Toronto. The nominal exchange rate is about 1.2 and the real exchange rate is .90. These numbers imply that the U.S. dollar price of the same shampoo is about

The exchange rate is 1.5 Bosnian markas per U.S. dollar. The price of a refrigerator in Bosnia is 1,200 markas while in the U.S. it is $1,000. The real exchange rate is

When Microsoft establishes a distribution center in France, U.S. net capital outflow

Suppose a country's net capital outflow does not change, but its investment rises by $250 billion.

In the United States, a cup of hot chocolate costs $5. In a foreign country, the same hot chocolate costs 6.5 units of that country's currency. If the exchange rate were 1.3 units of foreign currency per U.S. dollar, what is the real exchange rate?

A country had a net capital outflow of $1.5 trillion and imports of $0.5 trillion. What was the value of its exports?

While on vacation in Europe you notice that a tablet computer is selling for 600 euros in France and for 533 pounds in Britain. You also know that the exchange rates are .75 euros per dollar and .65 British pounds per dollar. Where is the number of dollars you would pay for the tablet lower? How many dollars would you have to pay to buy it there?

A U.S. retailer buys shoes from an Italian company. The Italian firm then uses all of the revenues to buy leather from the U.S. These transactions

A farm equipment retailer in Azerbaijan exchanges Azerbaijan manats (the currency of Azerbaijan) for $300,000 a bank in Azerbaijan was holding. It uses the $300,000 to buy farm equipment from a U.S. company. The U.S. company deposits half of these funds in a U.S. bank and exchanges the other half for euros from a bank in London. As a result of these transactions, by how much, if at all, and in which direction did: A. U.S. net exports change? B. U.S. net capital outflow change?

Other things the same, an increase in the foreign price level

Good that cost one half dollar in the U.S. cost one euro in Germany, the real exchange rate would be computed as how many German goods per U.S. goods?

To increase domestic investment, a country must increase its saving.

If Norway sold more goods and services abroad than it purchased from abroad, then it had

Last year a country had $700 billion of saving and $900 of investment. This year it had $1000 billion of saving and $800 billion of investment. By how much did net capital outflow change? By how much did net exports change? How is it possible for a country to have saving that is greater than investment?

According to the doctrine of purchasing-power parity, which of the following should depreciate if over the next year the inflation rate is higher in the U.S. than in the Euro area?