Question 1

Which of the following does net capital outflow measure?

Accepted Answer

A)  foreign assets held by domestic residents minus domestic assets held by foreign residents
B)  the imbalance between the amount of domestic assets bought by domestic residents and the amount of foreign assets bought by foreigners
C)  the imbalance between the amount of foreign assets bought by domestic residents and the amount of domestic goods and services sold to foreigners
D)  domestic assets held by foreigners minus foreign assets held by domestic residentsE) C) and D)
F) All of the above

Question 2

Suppose that the exchange rate is 10 Moroccan dirhams per Canadian dollar. Also suppose that you can buy a crate of oranges for 300 dirhams in the Moroccan capital of Rabat and can buy a similar crate of oranges in Ottawa for $35. Which of the following is consistent with these facts?

Accepted Answer

A)  The real exchange rate is greater than one, and arbitrageurs could profit by buying oranges in the United States and selling them in Morocco.
B)  The real exchange rate is greater than one, and arbitrageurs could profit by buying oranges in Morocco and selling them in the United States.
C)  The real exchange rate is less than one, and arbitrageurs could profit by buying oranges in the United States and selling them in Morocco.
D)  The real exchange rate is less than one, and arbitrageurs could profit by buying oranges in Morocco and selling them in the United States.E) A) and C)
F) B) and D)

Question 3

Suppose that the real exchange rate between Canada and Kenya is defined in terms of baskets of goods. Which of the following will increase the real exchange rate (that is, increase the number of baskets of Kenyan goods a basket of Canadian goods buys) ?

Accepted Answer

A)  an increase in the number of Kenyan shillings that can be purchased with a dollar
B)  an increase in the price in Canadian dollars of Kenyan goods
C)  an increase in the price in Kenyan shillings of Kenyan goods
D)  a decrease in the number of Kenyan shillings that can be purchased with a dollarE) All of the above
F) C) and D)

Question 4

Part of Canadian savings may be counted as which of the following?

Accepted Answer

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

Question 5

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

Accepted Answer

If purchasing-power ...

Question 6

According to purchasing-power parity theory, if a McDonald's Big Mac cost U.S. $2.50 in the United States and 10 Tunisian dinars, what should the exchange rate be?

Accepted Answer

A)  1/4 Tunisian dinars per U.S. dollar
B)  1 Tunisian dinar per U.S. dollar
C)  4 Tunisian dinars per U.S. dollar
D)  25 Tunisian dinars per U.S. dollarE) None of the above
F) A) and B)

Question 7

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

Accepted Answer

Purchasing-power parity works well in he...

Question 8

If a U.S. textbook publishing company sells texts to Canadian students, which of the following correctly identifies the effects of these sales?

Accepted Answer

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

Question 9

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

Accepted Answer

A) True 
 B)False

Question 10

Which of the following terms refers to the process of taking advantage of different prices for a good in different markets?

Accepted Answer

A)  arbitrage
B)  absolute advantage
C)  capitalism
D)  the law of one priceE) A) and B)
F) C) and D)

Question 11

According to the theory of purchasing-power parity, the real exchange rate defined as foreign goods per unit of Canadian goods will equal the domestic price level divided by the foreign price level.

Accepted Answer

A) True 
 B)False

Question 12

Suppose that a Canadian dollar buys more gold in Australia than it buys in Burkina Faso. What does purchasing-power parity imply should happen?

Accepted Answer

People can make a profit by buying gold ...

Question 13

If it took as many dollars to buy goods in Canada as it did to buy enough currency to buy the same goods in India, the real exchange rate would be computed as how many Indian goods per Canadian goods?

Accepted Answer

A)  one
B)  the number of dollars needed to buy Canadian goods divided by the number of rupees needed to buy Indian goods
C)  the number of rupees needed to buy Indian goods divided by the number of dollars needed to buy Canadian goods
D)  a number equal to the nominal exchange rateE) C) and D)
F) All of the above

Question 14

A Canadian firm opens a factory that produces camping equipment in Albania. Which of the following correctly identifies the effects of this transaction?

Accepted Answer

A)  Canadian net capital outflow increases, and Albanian net capital outflow decreases.
B)  Canadian net capital outflow decreases, and Albanian net capital outflow increases.
C)  Only Canadian net capital outflow increases.
D)  Only Albanian net capital outflow increases.E) A) and C)
F) All of the above

Question 15

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

Accepted Answer

a.the tastes of consumers for domestic a...

Question 16

Jill, a Canadian citizen, uses some previously obtained euros to purchase a bond issued by a French vineyard. 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) B) and C)
F) None of the above

Question 17

Suppose the nominal exchange rate between the yen and the U.S. dollar is 220 yen per U.S. dollar, and that the nominal exchange rate between the Canadian dollar and the U.S. dollar is 1.10 Canadian dollars per U.S. dollar. How many yen would it take to buy a Canadian dollar?

Accepted Answer

A)  200
B)  20
C)  0.5
D)  0.005E) None of the above
F) All of the above

Question 18

If goods in Canada cost the same number of dollars as German goods cost in euros, the real exchange rate would be computed as how many German goods per Canadian goods?

Accepted Answer

A)  one
B)  the price of the Canadian goods
C)  the amount of German currency that can be bought with one unit of Canadian currency
D)  the amount of Canadian currency that can be bought with one unit of German currencyE) None of the above
F) A) and B)

Question 19

In Canada, a cup of hot chocolate costs $6. In Australia, the same hot chocolate costs $6 Australian dollars. If the exchange rate is $3 Australian dollars per Canadian dollar, what is the real exchange rate?

Accepted Answer

A)  1/2 cup of Australian hot chocolate per cup of Canadian hot chocolate
B)  1 cup of Australian hot chocolate per cup of Canadian hot chocolate
C)  2 cups of Australian hot chocolate per cup of Canadian hot chocolate
D)  3 cups of Australian hot chocolate per cup of Canadian hot chocolateE) A) and B)
F) None of the above

Question 20

Suppose Bob, a Greek citizen, opens a restaurant in Vancouver. Which of the following correctly identifies the effects of this action?

Accepted Answer

A)  It increases Canadian net capital outflow and has no affect on Greek net capital outflow.
B)  It increases both Canadian and Greek net capital outflows.
C)  It increases Canadian net capital outflow, but decreases Greek net capital outflow.
D)  It decreases Canadian net capital outflow, but increases Greek net capital outflow.E) B) and D)
F) B) and C)

Exam 12: Open-Economy Macroeconomics: Basic Concepts

Suppose that the exchange rate is 10 Moroccan dirhams per Canadian dollar. Also suppose that you can buy a crate of oranges for 300 dirhams in the Moroccan capital of Rabat and can buy a similar crate of oranges in Ottawa for $35. Which of the following is consistent with these facts?

Correct AnswerverifiedShow Answer

Jill, a Canadian citizen, uses some previously obtained euros to purchase a bond issued by a French vineyard. How does this transaction affect Canadian net capital outflow?

Correct AnswerverifiedShow Answer

If a U.S. textbook publishing company sells texts to Canadian students, which of the following correctly identifies the effects of these sales?

Correct AnswerverifiedShow Answer

In Canada, a cup of hot chocolate costs $6. In Australia, the same hot chocolate costs $6 Australian dollars. If the exchange rate is $3 Australian dollars per Canadian dollar, what is the real exchange rate?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedIf purchasing-power ...View AnswerShow Answer

Part of Canadian savings may be counted as which of the following?

Correct AnswerverifiedShow Answer

Which of the following terms refers to the process of taking advantage of different prices for a good in different markets?

Correct AnswerverifiedShow Answer

If it took as many dollars to buy goods in Canada as it did to buy enough currency to buy the same goods in India, the real exchange rate would be computed as how many Indian goods per Canadian goods?

Correct AnswerverifiedShow Answer

Which of the following does net capital outflow measure?

Correct AnswerverifiedShow Answer

Suppose Bob, a Greek citizen, opens a restaurant in Vancouver. Which of the following correctly identifies the effects of this action?

Correct AnswerverifiedShow Answer

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

Correct Answerverifieda.the tastes of consumers for domestic a...View AnswerShow Answer

A Canadian firm opens a factory that produces camping equipment in Albania. Which of the following correctly identifies the effects of this transaction?

Correct AnswerverifiedShow Answer

If goods in Canada cost the same number of dollars as German goods cost in euros, the real exchange rate would be computed as how many German goods per Canadian goods?

Correct AnswerverifiedShow Answer

According to the theory of purchasing-power parity, the real exchange rate defined as foreign goods per unit of Canadian goods will equal the domestic price level divided by the foreign price level.

Correct AnswerverifiedShow Answer

According to purchasing-power parity theory, if a McDonald's Big Mac cost U.S. $2.50 in the United States and 10 Tunisian dinars, what should the exchange rate be?

Correct AnswerverifiedShow Answer

Suppose that a Canadian dollar buys more gold in Australia than it buys in Burkina Faso. What does purchasing-power parity imply should happen?

Correct AnswerverifiedPeople can make a profit by buying gold ...View AnswerShow Answer

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

Correct AnswerverifiedShow Answer

Suppose the nominal exchange rate between the yen and the U.S. dollar is 220 yen per U.S. dollar, and that the nominal exchange rate between the Canadian dollar and the U.S. dollar is 1.10 Canadian dollars per U.S. dollar. How many yen would it take to buy a Canadian dollar?

Correct AnswerverifiedShow Answer

Suppose that the real exchange rate between Canada and Kenya is defined in terms of baskets of goods. Which of the following will increase the real exchange rate (that is, increase the number of baskets of Kenyan goods a basket of Canadian goods buys) ?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedPurchasing-power parity works well in he...View AnswerShow Answer

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If purchasing-power ...
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a.the tastes of consumers for domestic a...
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People can make a profit by buying gold ...
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Purchasing-power parity works well in he...
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