Deck 31: Open-Economy Macroeconomics: Basic Concepts

Question 1

If a nation is selling more goods and services to foreigners than it is buying from them,then on net it must be buying assets abroad.

Answer 1

True

Question 2

Perhaps the most dramatic change in the U.S.economy over the past four decades has been the increasing relative importance of international trade and finance.

Answer 2

True

Question 3

Net capital outflow is the purchase of domestic assets by foreign residents minus the purchase of foreign assets by domestic residents.

Answer 3

False

Question 4

If a U.S.firm buys Chinese toys using previously obtained Chinese currency,then both U.S.net exports and U.S.net capital outflow decrease.

Question 5

A rational investor will always purchase the bond that pays the highest real interest rate.

Question 6

If a country's imports exceed its exports it has a trade surplus.

Question 7

By itself,the purchase of a U.S.bond by a foreign resident decreases U.S.net capital outflow and increases foreign capital outflow.

Question 8

When net capital outflow is negative,it means that on net the value of domestic assets purchased by foreigners exceeds the value of foreign assets purchased by domestic residents.

Question 9

Both foreign direct investment and foreign portfolio investment by U.S.residents increase U.S.net capital outflow.

Question 10

When U.S.national saving rises,domestic investment also necessarily rises.

Question 11

A country with negative net exports has a trade surplus.

Question 12

If a country's net exports fall,then its net capital outflow rises.

Question 13

If a country sells more goods and services abroad than it purchases abroad,it has positive net exports and a trade surplus.

Question 14

U.S.exports make up less than 20 percent of GDP.

Question 15

For an economy as a whole,net exports must equal minus one times net capital outflow.

Question 16

Movies are a major export of the U.S.

Question 17

If a nation is selling more goods and services to foreigners than it is buying from them,then on net it must be selling assets abroad.

Question 18

When a company from Germany builds an automobile factory in the United States,the German firm has engaged in foreign direct investment.

Question 19

Reduced barriers to trade help explain an increase in U.S.exports and imports relative to GDP since 1950.

Question 20

In every economy,national saving equals domestic investment plus net capital outflow.

Question 21

Jason plans to buy shrimp in Florida and sell them in Ames,Iowa where the price is higher.Jason plans to engage in arbitrage.

Question 22

Many economists believe that the theory of purchasing-power parity describes the forces that determine exchange rates in the long run.

Question 23

The theory of purchasing-power parity states that a unit of a country's currency should be able to buy the same quantity of goods in foreign countries as it does domestically.

Question 24

Suppose that Bill,a resident of the U.S. ,buys software from a company in Japan.Explain why and in what directions this changes U.S.net exports and U.S.net capital outflow.

Question 25

According to the theory of purchasing-power parity,the real exchange rate defined as foreign goods per unit of U.S.goods will equal the exchange rate defined as units of foreign currency per dollar times the domestic price level divided by the foreign price level.

Question 26

If the exchange rate is 125 yen per dollar,then a hotel room in Tokyo that costs 25,000 yen costs $200.

Question 27

When the central bank of some country prints large quantities of money,that county's currency loses value both in terms of the goods and services it buys and in terms of the amount of foreign currencies it can buy.

Question 28

If prices in the U.S.rise faster than prices in the United Kingdom,then according to the doctrine of purchasing-power parity the U.S.nominal exchange rate should fall.

Question 29

Other things the same,an increase in the foreign price level leads to an increase in the real exchange rate.

Question 30

In the 1970s and 1980s the U.S.dollar depreciated against the German mark and appreciated against the Italian lira because U.S.inflation was lower than in Germany but higher than in Italy.

Question 31

A nation with a trade surplus will necessarily have domestic investment that is greater than domestic saving.

Question 32

Other things the same,an increase in the nominal exchange rate raises the real exchange rate.

Question 33

Purchasing-power parity says that the nominal exchange rate must equal the real exchange rate.

Question 34

According to purchasing-power parity theory,the nominal exchange rate between the U.S.and another country should equal the price level for that country divided by the price level for the U.S..

Question 35

If the exchange rate is 10 pesos per U.S.dollar,it is also 1/10 U.S.dollars per peso.

Question 36

In an open economy,national savings can be less than investment.

Question 37

If the real exchange rate of the U.S.dollar falls,U.S.net exports will fall.

Question 38

The large trade deficits in the United States in the 1990s were primarily associated with a rise in domestic investment rather than a rise in the budget deficit.

Question 39

If the purchasing power of the dollar is always the same at home and abroad,then the nominal exchange rate defined as units of foreign currency per dollar decreases if the U.S.price level rises more than the price level in foreign countries.

Question 40

List the factors that might influence a country's exports,imports,and trade balance.

Question 41

Suppose a lobster supper in Maine costs fewer dollars than a Lobster supper in Paris,France.Explain why this is inconsistent with purchasing-power parity and explain why the inconsistency may exist.

Question 42

Suppose that a country has $120 billion of national saving,and $80 billion of domestic investment.Is this possible? Where did the other $40 billion of national savings go?

Question 43

Under what circumstances does purchasing-power parity explain how exchange rates are determined,and why is it not completely accurate?

Question 44

What is the logic behind the theory of purchasing-power parity?

Question 45

When Claudia,a U.S.citizen,purchases a handbag made in France,the purchase is

A) both a U.S.and French import.
B) a U.S.export and a French import.
C) a U.S.import and a French export.
D) neither an export nor an import for either country.

Question 46

Foreign-produced goods and services that are sold domestically are called

A) imports.
B) exports.
C) net imports.
D) net exports.

Question 47

Colonial America had little industry and so had mostly raw materials to export.At the same time,there were many opportunities to purchase capital goods and earn a high rate of return because there was little existing capital so that the marginal product of capital was relatively high.What does this suggest about net exports and net capital outflow in colonial America?

Question 48

Suppose that money supply growth continues to be higher in Turkey than it is in the United States.What does purchasing-power parity imply will happen to the real and to the nominal exchange rate?

Question 49

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

Question 50

Suppose a bottle of wine costs 25 euros in France and 20 dollars in the United States.If the exchange rate is 1.25 euros per dollar,what is the real exchange rate?

Question 51

Can purchasing-power parity be used to explain the fact that the U.S.dollar has depreciated by more than 50 percent against the German mark between 1970 and 1998,but appreciated by more than 100 percent against the Italian lira during the same period? Defend your answer.

Question 52

Suppose that a U.S.dollar buys more gold in Australia than it buys in Russia.What does purchasing-power parity imply should happen?

Question 53

Which type(s)of economies interact with other economies?

A) only closed economies
B) only open economies
C) closed economies and open economies
D) neither closed nor open economies

Question 54

How do the nominal exchange rate and the real exchange rate differ?

Question 55

What does purchasing-power parity imply about the real exchange rate?

Question 56

How do we find the real exchange rate from the nominal exchange rate?

Question 57

Assuming all other things equal,what would happen to the U.S.dollar real exchange rate under each of the following circumstances?
a.
The U.S.nominal exchange rate depreciates.
b.
U.S.domestic prices increase.
c.
Prices in the rest of the world rise.

Question 58

Why are net exports and net capital outflow always equal?

Question 59

International trade

A) raises the standard of living in all trading countries.
B) lowers the standard of living in all trading countries.
C) leaves the standard of living unchanged.
D) raises the standard of living for importing countries and lowers it for exporting countries.

Question 60

Derive the relation between savings,domestic investment,and net capital outflow using the national income accounting identity.

Question 61

If a country has $2.4 billion of net exports and purchases $4.8 billion of goods and services from foreign countries,then it has

A) $7.2 billion of exports and $4.8 billion of imports.
B) $7.2 billion of imports and $4.8 billion of exports.
C) $4.8 billion of exports and $2.4 billion of imports.
D) $4.8 billion of imports and $2.4 billion of exports.

Question 62

Which of the following both raise net exports?

A) exports rise,imports rise
B) exports rise,imports fall
C) imports rise,exports rise
D) imports rise,exports fall

Question 63

A country's trade balance

A) must be zero.
B) must be greater than zero.
C) is greater than zero only if exports are greater than imports.
D) is greater than zero only if imports are greater than exports.

Question 64

If the U.S.has exports of $1.5 trillion and imports of $2.2 trillion,then the U.S.

A) sells more overseas then it buys from overseas;it has a trade deficit.
B) sells more overseas then it buys from overseas;it has a trade surplus.
C) buys more from overseas then it sells overseas;it has a trade deficit.
D) buys more from overseas then it sells overseas;it has a trade surplus.

Question 65

If the United States had negative net exports last year,then it

A) sold more abroad than it purchased abroad and had a trade surplus.
B) sold more abroad than it purchased abroad and had a trade deficit.
C) bought more abroad than it sold abroad and had a trade surplus.
D) bought more abroad than it sold abroad and had a trade deficit.

Question 66

Oceania buys $40 of wine from Escudia and Escudia buys $100 of wool from Oceania.Supposing this is the only trade that these countries do.What are the net exports of Oceania and Escudia in that order?

A) $140 and $140
B) $100 and $40
C) $60 and -$60
D) None of the above is correct.

Question 67

If Saudi Arabia had positive net exports last year,then it

A) sold more abroad than it purchased abroad and had a trade surplus.
B) sold more abroad than it purchased abroad and had a trade deficit.
C) bought more abroad than it sold abroad and had a trade surplus.
D) bought more abroad than it sold abroad and had a trade deficit.

Question 68

If Germany purchased more abroad than it sold abroad last year,then it had

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

Question 69

If a country has net exports of $9 billion and sold $50 billion of goods and services abroad,then it has

A) $59 billion of imports and $50 billion of exports.
B) $59 billion of exports and $50 billion of imports.
C) $50 billion of imports and $41 billion of exports.
D) $50 billion of exports and $41 billion of imports.

Question 70

One year a country has positive net exports.The next year it still has positive but larger net exports

A) its trade surplus fell.
B) its trade surplus rose.
C) its trade deficit fell.
D) its trade deficit rose

Question 71

One year a country has negative net exports.The next year it still has negative net exports and imports have risen more than exports.

A) its trade surplus fell.
B) its trade surplus rose.
C) its trade deficit fell.
D) its trade deficit rose

Question 72

Suppose that a country imports $75 million of goods and services and exports $100 million of goods and services.What is the value of net exports?

A) $175 million
B) $75 million
C) $25 million
D) -$25 million

Question 73

A country sells more 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.

Question 74

A country purchases $3 billion of foreign-produced goods and services and sells $2 billion dollars of domestically produced goods and services to foreign countries.It has

A) exports of $3 billion and a trade surplus of $1 billion.
B) exports of $3 billion and a trade deficit of $1 billion.
C) exports of $2 billion and a trade surplus of $1 billion.
D) exports of $2 billion and a trade deficit of $1 billion.

Question 75

If U.S.exports are $150 billion and U.S.imports are $100 billion,which of the following is correct?

A) The U.S.has a trade surplus of $100 billion.
B) The U.S.has a trade surplus of $50 billion.
C) The U.S.has a trade deficit of $100 billion.
D) The U.S.has a trade deficit of $50 billion.

Question 76

If U.S.exports are $300 billion and U.S.imports total $350 billion,which of the following is correct?

A) The U.S.has a trade surplus of $350 billion.
B) The U.S.has a trade surplus of $50 billion.
C) The U.S.has a trade deficit of $350 billion.
D) The U.S.has a trade deficit of $50 billion.

Question 77

The value of Peru's exports minus the value of Peru's imports is called

A) Peru's foreign portfolio investment.
B) Peru's foreign direct investment.
C) Peru's net exports.
D) Peru's net imports.

Question 78

Table 31-1


-Refer to Table 31-1.What are Argentina's exports?

A) $60 billion
B) $35 billion
C) $10 billion
D) None of the above are correct.

Question 79

Juan lives in Ecuador and purchases a motorcycle manufactured in the United States.The motorcycle is

A) both a U.S.and Ecuadorian export.
B) both a U.S.and Ecuadorian import.
C) a U.S.import and an Ecuadorian export.
D) a U.S.export and an Ecuadorian import.

Question 80

Net exports of a country are the value of

A) goods and services imported minus the value of goods and services exported.
B) goods and services exported minus the value of goods and services imported.
C) goods exported minus the value of goods imported.
D) goods imported minus the value of goods exported.