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Exam 18: Open-Economy Macroeconomics: Basic Concepts

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Question 21

Multiple Choice

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The law of one price states that

A) a good must sell at the price fixed by law.
B) a good must sell at the same price at all locations.
C) a good cannot sell for a price greater than the legal price ceiling.
D) nominal exchange rates will not vary.

E) A) and C)
F) All of the above

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Question 22

Multiple Choice

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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.

E) C) and D)
F) A) and D)

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Question 23

Multiple Choice

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If the exchange rate is 60 Indian rupees per dollar and a bushel of rice costs 200 rupees in India and $3 in the U.S., then the real exchange rate is

If the real exchange rate between the U.S. and Japan is 1, the nominal exchange rate is 100 yen per U.S. dollar and the price of chicken in the U.S. is $2.50 per pound, what is the price of chicken in Japan?

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?

A Turkish firm exchanges lira Turkish currency) for dollars. It then uses these dollars to purchase computers from the U.S. These actions decrease U.S. net capital outflow and increase U.S. net exports.

A country recently had $800 billion worth of domestic investment and its residents purchased $400 billion worth of foreign assets. If foreigners purchased $100 billion of this country's assets, what was this country's saving? Explain how your found your answer.

The price of a basket of goods and services in the U.S. is $600. In Canada the same basket of goods costs 700 Canadian dollars. If the nominal exchange rate were 1.2 Canadian dollars per U.S. dollar, what would be the real exchange rate?

If over the next six months inflation is higher in the U.S. than in foreign countries, then according to purchasing- power parity

A bushel of apples costs $15.00 in the U.S. The same apples cost 1,600 yen in Japan. If the exchange rate is 80 yen per dollar, is there a possibility for arbitrage? Explain and defend your answer. As part of your defense, find the real exchange rate.

If citizens of a country are not saving much, it is better to

Over the last 5 years the amount of country A's currency it took to buy a unit of country B's currency more than doubled. A. Did country A's currency depreciate or appreciate? B. According to purchasing­power parity, what explains the change in the value of country B's currency?

The nominal exchange rate is 4 Saudi Arabian riyals, 8 Moroccan dirham, 60 Indian rupees, or .8 euros per U.S. dollar. A fast food breakfast costs $5 in the U.S., 30 riyals in Saudi Arabia, 40 Moroccan dirham in Morocco, 250 Indian rupees in India, and 5 euros in France. According to these numbers, where is the real exchange rate between American and foreign goods the lowest?

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

Paine Pharmaceuticals produces medicines in the U.S. Its overseas sales

Table 31-2 -Refer to Table 31-2. In real terms, U.S. goods are less expensive than goods in which countryies) ?

If the exchange rate is .60 British pounds = $1, a bottle of ale that costs 3 pounds costs

If a country has business opportunities that are relatively attractive to other countries, we would expect it to have

Ann, a U.S. citizen, uses some previously obtained euros to purchase a bond issued by a Spanish company. This transaction

If a country exports more than it imports, then it has