Question 1

In 2011 the U.S. began with a trade deficit. During the year exports rose by more than imports. What should have happened to the U.S. trade deficit?

Accepted Answer

The answer of In 2011 the U.S. began with a...

Question 2

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

Accepted Answer

The answer of What is the logic behind the theory...

Question 3

A U.S. mutual fund buys stock issued by a corporation in Colombia. A U.S. grocery store chain builds and manages a new warehouse in Honduras. Which one(s) of these is foreign direct investment? Which one(s) would be taken into account when computing U.S. net capital outflows?

Accepted Answer

The answer of A U.S. mutual fund buys stock issued...

Question 4

Last year a country sold $500 billion euros worth of goods to foreigners and had a trade deficit of $100 billion euros. What was the value of its imports?

Accepted Answer

The answer of Last year a country sold $500 billion...

Question 5

A U.S. grocery store chain bought $800,000 worth of Kenyan currency from a bank in Kenya. It then used these funds to buy $800,000 worth of coffee from Kenyan coffee growers.
As a result of this exchange, by how much and in which direction did:
A. U.S. net exports change?
B. U.S. net capital outflow change?

Accepted Answer

The answer of A U.S. grocery store chain bought $800,000...

Question 6

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

Accepted Answer

The answer of Under what circumstances does purchasing-power parity explain...

Question 7

What does purchasing-power parity imply about the real exchange rate? Explain what this means.

Accepted Answer

The answer of What does purchasing-power parity imply about the...

Question 8

A U.S. mutual fund uses $1 million to buy yen from a Japanese bank. It then uses these yen to buy stocks in a Japanese electronics firm. The Japanese electronic firm then exchanges the $1 million dollars of yen for dollars from a U.S. bank. It uses these dollars to buy equipment manufactured by a company located in the U.S. As a result of these exchanges, by how much, if at all, and in which direction does:
A. U.S. net exports change?
B. U.S. net capital outflow change?

Accepted Answer

The answer of A U.S. mutual fund uses $1 million...

Question 9

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

Accepted Answer

The answer of How do we find the real exchange...

Question 10

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?

Accepted Answer

The answer of Suppose that money supply growth continues to...

Question 11

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

Accepted Answer

The answer of According to purchasing-power parity, what is the...

Question 12

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

Accepted Answer

The answer of Suppose that a U.S. dollar buys more...

Question 13

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.

Accepted Answer

The answer of Suppose a lobster supper in Maine costs...

Question 14

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.

Accepted Answer

The answer of Assuming all other things equal, what would...

Question 15

If a country's exports were 500 billion pesos and its imports were 300 billion pesos, what would its trade balance be?

Accepted Answer

The answer of If a country's exports were 500 billion...

Question 16

A U.S. firm called EcoWind produces windmills for households to generate electricity. It uses 25,000 recently obtained pesos to buy copper from a mining company in Argentina. As a result of this exchange, by how much, if at all, and in which direction did:
A. U.S. net exports change?
B. U.S. net capital outflow change?

Accepted Answer

The answer of A U.S. firm called EcoWind produces windmills...

Question 17

Can purchasing-power parity be used to explain the fact that the U.S. dollar 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.

Accepted Answer

The answer of Can purchasing-power parity be used to explain...

Question 18

Suppose a bottle of wine costs 20 euros in France and 25 dollars in the United States. If the exchange rate is .80 euros per dollar, what is the real exchange rate?

Accepted Answer

The answer of Suppose a bottle of wine costs 20...

Question 19

Last month a country sold more goods and services to residents of foreign countries than it purchased from them. What does this imply about this country's trade balance?

Accepted Answer

The answer of Last month a country sold more goods...

Question 20

As measured by the amount of trade it does, has the U.S. economy become more internationalized? Provide two reasons for this change.

Accepted Answer

The answer of As measured by the amount of trade...

Quiz 31: Open-Economy Macroeconomics: Basic Concepts