Question 1

The nominal exchange rate is about 3 Brazilian real per dollar. If a basket of goods in Canada costs $40, how many real must a basket of goods in Brazil cost for purchasing-power parity to hold?

Accepted Answer

A)   20 real
B)   40 real
C)   80 real
D)   120 realE) C) and D)
F) A) and D)

Question 2

Suppose the real exchange rate is 3/5 kilograms of Chilean beef per kilogram of Canadian beef, a kilogram of Canadian beef costs $3, and the nominal exchange rate is 500 Chilean pesos per dollar. What does Chilean beef cost?

Accepted Answer

A)   960 pesos per kilogram
B)   1200 pesos per kilogram
C)   1500 pesos per kilogram
D)   2500 pesos per kilogramE) None of the above
F) A) and B)

Question 3

If the nominal exchange rate e is foreign currency per dollar, the domestic price is P, and the foreign price is P*, what is the definition of the real exchange rate?

Accepted Answer

A)   e(P*/P) 
B)   e(P/P*) 
C)   e + P/P
D)   e - P/P*E) B) and D)
F) A) and D)

Question 4

Consider the following table, adapted from the Big Mac Index computed by The Economist magazine. The table shows prices of a Big Mac in local currencies and the current nominal exchange rate between the local currency and the Canadian dollar.

a. Compute the Big Mac prices in Canadian dollars for each country.
b. Compute the PPP exchange rate.
c. Compute the overvaluation or undervaluation of each country's currency with respect to the Canadian dollar. A currency is considered to be overvalued if the nominal exchange rate is less than the PPP exchange rate. Overvaluation is the percentage difference between the nominal and the PPP exchange rate, computed using the following formula: [(PPP exchange rate - Nominal exchange rate) / Nominal exchange rate]*100.
​

Accepted Answer

The answer of Consider the following table, adapted from the...

Question 5

What is the value of Chile's exports minus the value of Chile's imports called?

Accepted Answer

A)   Chile's net capital inflow
B)   Chile's foreign direct investment
C)   Chile's net exports
D)   Chile's net importsE) B) and D)
F) B) and C)

Question 6

If the exchange rate is 5 pesos per dollar, it is also 0.2 dollars per peso.

Accepted Answer

A) True 
 B)False

Question 7

What is the formula for investment in an open economy?

Accepted Answer

A)   I = Y - C
B)   I = Y - C - NX
C)   I = S - NCO
D)   I = S + NXE) All of the above
F) B) and C)

Question 8

Which of the following best describes the cross-border net flow of dividends and interest payments?

Accepted Answer

A)   part of the current account balance
B)   part of net capital outflow
C)   part of net exports
D)   part of foreign direct investmentE) B) and D)
F) A) and D)

Question 9

Which of the following might part of Canadian savings be counted as?

Accepted Answer

A)   foreign direct investment
B)   foreign portfolio investment
C)   net capital outflow
D)   net exportsE) None of the above
F) B) and D)

Question 10

-Refer to Table 12-1. What countries in the table does purchasing-power parity hold for?

Accepted Answer

A)   Bolivia and Japan
B)   Bolivia and Morocco
C)   Norway and Thailand
D)   Thailand and MoroccoE) A) and B)
F) C) and D)

Question 11

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

Accepted Answer

A) True 
 B)False

Question 12

How do you measure the current account balance?

Accepted Answer

A)   net exports - inflow of interest payments
B)   net exports - net inflow of dividends and interest payments
C)   net exports + net inflow of dividends and interest payments
D)   net inflow of dividends and interest payments - net exportsE) B) and C)
F) All of the above

Question 13

Martin, a Canadian citizen, uses some previously obtained Lithuanian currency (litas)  to purchase a bond issued by a Lithuanian company. How does this transaction affect Canadian net capital outflow?

Accepted Answer

A)   It increases Canadian net capital outflow by more than the value of the bond.
B)   It increases Canadian net capital outflow by the value of the bond.
C)   It does not change Canadian net capital outflow.
D)   It decreases Canadian net capital outflow.E) None of the above
F) A) and D)

Question 14

Through the first half of the 2000s, Canada had positive net exports. What does this fact imply?

Accepted Answer

A)   Canada sold more abroad than it purchased abroad and had a trade surplus.
B)   Canada sold more abroad than it purchased abroad and had a trade deficit.
C)   Canada bought more abroad than it sold abroad and had a trade surplus.
D)   Canada bought more abroad than it sold abroad and had a trade deficit.E) None of the above
F) B) and C)

Question 15

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

Accepted Answer

A) True 
 B)False

Question 16

How can one derive the identity that saving equals the sum of domestic investment and net capital outflow from the national income accounting identity?

Accepted Answer

Start from the national income accountin...

Question 17

The theory of purchasing-power parity states that a unit of any given currency should be able to buy the same quantity of goods in all countries.

Accepted Answer

A) True 
 B)False

Question 18

Suppose a bottle of wine costs 45 euros in France and $30 in Canada. If the exchange rate is 1.50 euros per dollar, what is the real exchange rate?

Accepted Answer

The real exchange rate = Nomin...

Question 19

According to purchasing-power parity theory, if the same fast-food hamburger costs $4.00 in Canada and 8 euros in France, what should the nominal exchange rate be?

Accepted Answer

A)   1/4 euros per dollar
B)   1/2 euro per dollar
C)   1 euro per dollar
D)   2 euros per dollarE) B) and D)
F) B) and C)

Question 20

An Indonesian flour mill buys wheat from Canada and pays for it with rupiah. What are the effects of this transaction?

Accepted Answer

A)   Indonesian net exports increase, and Canadian net capital outflow increases.
B)   Indonesian net exports increase, and Canadian net capital outflow decreases.
C)   Indonesian net exports decrease, and Canadian net capital outflow increases.
D)   Indonesian net exports decrease, and Canadian net capital outflow decreases.E) A) and B)
F) None of the above

Exam 12: Open-Economy Macroeconomics: Basic Concepts

Correct Answer
verified

How do you measure the current account balance?

Correct Answer
verified

An Indonesian flour mill buys wheat from Canada and pays for it with rupiah. What are the effects of this transaction?

Correct Answer
verified

If the exchange rate is 5 pesos per dollar, it is also 0.2 dollars per peso.

Correct Answer
verified

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

Correct Answer
verified

How can one derive the identity that saving equals the sum of domestic investment and net capital outflow from the national income accounting identity?

Correct Answer
verified
Start from the national income accountin...
View Answer

-Refer to Table 12-1. What countries in the table does purchasing-power parity hold for?

Correct Answer
verified

Suppose a bottle of wine costs 45 euros in France and $30 in Canada. If the exchange rate is 1.50 euros per dollar, what is the real exchange rate?

Correct Answer
verified
The real exchange rate = Nomin...
View Answer

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

Correct Answer
verified

Which of the following might part of Canadian savings be counted as?

Correct Answer
verified

Through the first half of the 2000s, Canada had positive net exports. What does this fact imply?

Correct Answer
verified

What is the value of Chile's exports minus the value of Chile's imports called?

Correct Answer
verified

According to purchasing-power parity theory, if the same fast-food hamburger costs $4.00 in Canada and 8 euros in France, what should the nominal exchange rate be?

Correct Answer
verified

What is the formula for investment in an open economy?

Correct Answer
verified

If the nominal exchange rate e is foreign currency per dollar, the domestic price is P, and the foreign price is P*, what is the definition of the real exchange rate?

Correct Answer
verified

Suppose the real exchange rate is 3/5 kilograms of Chilean beef per kilogram of Canadian beef, a kilogram of Canadian beef costs $3, and the nominal exchange rate is 500 Chilean pesos per dollar. What does Chilean beef cost?

Correct Answer
verified

Martin, a Canadian citizen, uses some previously obtained Lithuanian currency (litas) to purchase a bond issued by a Lithuanian company. How does this transaction affect Canadian net capital outflow?

Correct Answer
verified

Which of the following best describes the cross-border net flow of dividends and interest payments?

Correct Answer
verified

The theory of purchasing-power parity states that a unit of any given currency should be able to buy the same quantity of goods in all countries.

Correct Answer
verified

The nominal exchange rate is about 3 Brazilian real per dollar. If a basket of goods in Canada costs $40, how many real must a basket of goods in Brazil cost for purchasing-power parity to hold?

Correct Answer
verified

Exam 12: Open-Economy Macroeconomics: Basic Concepts

Correct AnswerverifiedShow Answer

How do you measure the current account balance?

Correct AnswerverifiedShow Answer

An Indonesian flour mill buys wheat from Canada and pays for it with rupiah. What are the effects of this transaction?

Correct AnswerverifiedShow Answer

If the exchange rate is 5 pesos per dollar, it is also 0.2 dollars per peso.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

How can one derive the identity that saving equals the sum of domestic investment and net capital outflow from the national income accounting identity?

Correct AnswerverifiedStart from the national income accountin...View AnswerShow Answer

-Refer to Table 12-1. What countries in the table does purchasing-power parity hold for?

Correct AnswerverifiedShow Answer

Suppose a bottle of wine costs 45 euros in France and $30 in Canada. If the exchange rate is 1.50 euros per dollar, what is the real exchange rate?

Correct AnswerverifiedThe real exchange rate = Nomin...View AnswerShow Answer

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

Correct AnswerverifiedShow Answer

Which of the following might part of Canadian savings be counted as?

Correct AnswerverifiedShow Answer

Through the first half of the 2000s, Canada had positive net exports. What does this fact imply?

Correct AnswerverifiedShow Answer

What is the value of Chile's exports minus the value of Chile's imports called?

Correct AnswerverifiedShow Answer

According to purchasing-power parity theory, if the same fast-food hamburger costs $4.00 in Canada and 8 euros in France, what should the nominal exchange rate be?

Correct AnswerverifiedShow Answer

What is the formula for investment in an open economy?

Correct AnswerverifiedShow Answer

If the nominal exchange rate e is foreign currency per dollar, the domestic price is P, and the foreign price is P*, what is the definition of the real exchange rate?

Correct AnswerverifiedShow Answer

Suppose the real exchange rate is 3/5 kilograms of Chilean beef per kilogram of Canadian beef, a kilogram of Canadian beef costs $3, and the nominal exchange rate is 500 Chilean pesos per dollar. What does Chilean beef cost?

Correct AnswerverifiedShow Answer

Martin, a Canadian citizen, uses some previously obtained Lithuanian currency (litas) to purchase a bond issued by a Lithuanian company. How does this transaction affect Canadian net capital outflow?

Correct AnswerverifiedShow Answer

Which of the following best describes the cross-border net flow of dividends and interest payments?

Correct AnswerverifiedShow Answer

The theory of purchasing-power parity states that a unit of any given currency should be able to buy the same quantity of goods in all countries.

Correct AnswerverifiedShow Answer

The nominal exchange rate is about 3 Brazilian real per dollar. If a basket of goods in Canada costs $40, how many real must a basket of goods in Brazil cost for purchasing-power parity to hold?

Correct AnswerverifiedShow Answer

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Start from the national income accountin...
View Answer

Correct Answer
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The real exchange rate = Nomin...
View Answer

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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