Question 1

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

Accepted Answer

An increase in the nominal exchange rate (the price of one currency in terms of another currency) means that a currency has appreciated in value relative to the other currency. This means that it now takes less of the domestic currency to purchase a unit of foreign currency. As a result, the purchasing power of the domestic currency increases and the real exchange rate (the relative price of domestic and foreign goods) also increases.

Question 2

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

Accepted Answer

An increase in U.S. national saving does not necessarily lead to an increase in domestic investment. The relationship depends on various factors, including interest rates, economic conditions, and the global financial market. Increased savings can lead to higher investment, but it can also result in increased capital outflows to foreign investments.

Question 3

The increase in the trade deficit in the 1980's reflected a decrease in national saving that is associated with an increase in the government budget deficit.

Accepted Answer

The increase in the trade deficit in the 1980's was due to various factors, including a decrease in national saving and an increase in the government budget deficit. These two factors are linked, as a decrease in national saving can lead to an increase in borrowing by the government to finance its budget deficit, which in turn can lead to an increase in the trade deficit.

Question 4

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

Accepted Answer

A trade surplus means the country is exporting more than it is importing, resulting in a net inflow of foreign currency. This increases the country's savings, as it is receiving more income than it is spending. However, it does not necessarily mean that domestic investment is low or non-existent. It is possible for a country to have both a trade surplus and a high level of domestic investment.

Question 5

Other things the same, an increase in the real exchange rate raises U.S. net exports.

Accepted Answer

An increase in the real exchange rate actually lowers U.S. net exports as domestic goods become relatively more expensive for foreign consumers, while foreign goods become relatively cheaper for U.S. consumers.

Question 6

If the exchange rate is 80 yen per dollar, then a hotel room in Tokyo that costs 25,000 yen costs $200.

Accepted Answer

If the exchange rate is 80 yen per dollar, then 25,000 yen is equivalent to $312.50 (25,000 divided by 80). Therefore, the hotel room in Tokyo that costs 25,000 yen would cost $312.50, not $200.

Question 7

Other things the same, an increase in the U.S. real exchange rate makes U.S. goods more expensive relative to foreign goods.

Accepted Answer

An increase in the U.S. real exchange rate means that the value of the US dollar has appreciated relative to other currencies. This makes U.S. goods more expensive when compared to foreign goods as it requires more units of foreign currencies to purchase 1 unit of the US dollar.

Question 8

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

Accepted Answer

The answer of To increase domestic investment, a country must...

Question 9

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

Accepted Answer

In an open economy, national saving can be less than investment because the difference can be made up by borrowing from foreign sources or attracting foreign investment. This is possible because capital and financial markets are integrated globally.

Question 10

It is possible for a country to have domestic investment that exceeds national saving.

Accepted Answer

This situation can occur if the country borrows from foreign sources to finance the excess of domestic investment over national saving. In this case, the country has a current account deficit, which means that it's importing more goods and services than it's exporting. The excess of imports over exports results in a net outflow of money to foreign countries, which can be covered by borrowing or by selling assets to foreign investors.

Question 11

The large trade deficits in the U.S. during the 1990's were primarily associated with a rise in domestic investment spending rather than a rise in the budget deficit.

Accepted Answer

The large trade deficits in the U.S. during the 1990's were primarily due to increased domestic investment spending, such as companies investing in new factories or equipment, rather than an increase in the budget deficit. The budget deficit refers to the difference between government spending and revenue, which can also impact the overall economy but is not directly related to trade deficits.

Question 12

The theory of purchasing­power 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 in the domestic economy.

Accepted Answer

The theory of purchasing-power parity (PPP) is based on the idea that the exchange rate between two countries should adjust to equalize the price levels of a representative basket of goods and services in each country. This means that if the price of a basket of goods in one country is higher than in another, the currency of the first country should depreciate to restore purchasing power parity. Therefore, a unit of a country's currency should be able to buy the same quantity of goods in foreign countries as it does in the domestic economy under PPP.

Question 13

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

Accepted Answer

A higher domestic price level implies a higher cost of production, which leads to higher prices for domestically produced goods relative to foreign goods. This makes foreign goods relatively cheaper, causing an increase in demand for foreign goods and a decrease in demand for domestic goods, leading to an increase in the real exchange rate.

Question 14

If the price of a good in the U.S. is $10, the exchange rate is 2 units of foreign currency per dollar, and the foreign price of the same good is 30 units of foreign currency, then the real exchange rate is 2/3.

Accepted Answer

The answer of If the price of a good in...

Question 15

From 2008 to 2012 both U.S. saving and U.S. investment fell.

Accepted Answer

According to data from the Bureau of Economic Analysis, U.S. gross saving and U.S. gross private domestic investment both decreased from 2008 to 2012.

Question 16

In an open economy national saving equals domestic investment plus net capital outflow.

Accepted Answer

This is the basic equation of an open economy in the context of the balance of payments. National saving can be used domestically for investment or can flow abroad as net capital outflow. Therefore, the sum of domestic investment and net capital outflow will equal national saving in an open economy.

Question 17

If the exchange rate is 12.5 pesos per U.S. dollar, it is also 1/12.5 U.S. dollars per peso.

Accepted Answer

This is true because the exchange rate is a ratio of two currencies, and the reciprocal of that ratio will give us the equivalent ratio in the other direction. In this case, if 1 U.S. dollar is equivalent to 12.5 pesos, then 1 peso is equivalent to 1/12.5 U.S. dollars.

Question 18

If a country's trade surplus falls, its net capital outflow rises.

Accepted Answer

A country's trade surplus falling does not necessarily mean its net capital outflow rises. Trade surplus is the difference between a country's exports and imports, while net capital outflow is the difference between domestic investments abroad and foreign investments in the domestic economy. These two are related but not directly proportional; changes in one do not automatically lead to specific changes in the other.

Question 19

Other things the same, if U.S. net capital outflow rises, so does U.S. saving.

Accepted Answer

The answer of Other things the same, if U.S. net...

Question 20

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

Accepted Answer

An increase in foreign prices relative to domestic prices would actually lower the real exchange rate, making domestic goods relatively more expensive compared to foreign goods.

Quiz 13: Open-Economy Macroeconomics: Basic Concepts

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

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

The increase in the trade deficit in the 1980's reflected a decrease in national saving that is associated with an increase in the government budget deficit.

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

Other things the same, an increase in the real exchange rate raises U.S. net exports.

If the exchange rate is 80 yen per dollar, then a hotel room in Tokyo that costs 25,000 yen costs $200.

Other things the same, an increase in the U.S. real exchange rate makes U.S. goods more expensive relative to foreign goods.

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

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

It is possible for a country to have domestic investment that exceeds national saving.

The large trade deficits in the U.S. during the 1990's were primarily associated with a rise in domestic investment spending rather than a rise in the budget deficit.

The theory of purchasingpower 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 in the domestic economy.

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

If the price of a good in the U.S. is $10, the exchange rate is 2 units of foreign currency per dollar, and the foreign price of the same good is 30 units of foreign currency, then the real exchange rate is 2/3.

From 2008 to 2012 both U.S. saving and U.S. investment fell.

In an open economy national saving equals domestic investment plus net capital outflow.

If the exchange rate is 12.5 pesos per U.S. dollar, it is also 1/12.5 U.S. dollars per peso.

If a country's trade surplus falls, its net capital outflow rises.

Other things the same, if U.S. net capital outflow rises, so does U.S. saving.

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

Quiz 13: Open-Economy Macroeconomics: Basic Concepts

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

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

The increase in the trade deficit in the 1980's reflected a decrease in national saving that is associated with an increase in the government budget deficit.

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

Other things the same, an increase in the real exchange rate raises U.S. net exports.

If the exchange rate is 80 yen per dollar, then a hotel room in Tokyo that costs 25,000 yen costs $200.

Other things the same, an increase in the U.S. real exchange rate makes U.S. goods more expensive relative to foreign goods.

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

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

It is possible for a country to have domestic investment that exceeds national saving.

The large trade deficits in the U.S. during the 1990's were primarily associated with a rise in domestic investment spending rather than a rise in the budget deficit.

The theory of purchasing­power 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 in the domestic economy.

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

If the price of a good in the U.S. is $10, the exchange rate is 2 units of foreign currency per dollar, and the foreign price of the same good is 30 units of foreign currency, then the real exchange rate is 2/3.

From 2008 to 2012 both U.S. saving and U.S. investment fell.

In an open economy national saving equals domestic investment plus net capital outflow.

If the exchange rate is 12.5 pesos per U.S. dollar, it is also 1/12.5 U.S. dollars per peso.

If a country's trade surplus falls, its net capital outflow rises.

Other things the same, if U.S. net capital outflow rises, so does U.S. saving.

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

The theory of purchasingpower 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 in the domestic economy.