Chapter 29 Open-Economy Macroeconomics: Basic Concepts

Test B
1

In 1999 Morocco exported $5.9 billion of goods and services and imported $8.4 billion. Morocco had a trade balance of about a. $14.3 billion. b. $ .5 billion. c. $!. d. "$ .5 billion. #$%&'() d. "$ .5 billion. *+,') M -'+1) . %'/*I0$) 1 012'/*I3') 1 (#$.0M) + &hich of the follo4ing 4ould be consistent 4ith a trade balance of $5 billion5 a. exports and imports each e6ual $ .5 billion. b. exports e6ual $15 billion and imports e6ual $1! billion. c. imports e6ual $1 billion and imports e6ual $17 billion. d. $one of the above is correct. #$%&'() b. exports e6ual $15 billion and imports e6ual $1! billion. *+,') M -'+1) . %'/*I0$) 012'/*I3') (#$.0M) +
3

# %4iss firm opens a 4atch factor8 in the 9nited %tates. a. *his is %4iss foreign direct investment and b8 itself increases %4iss net foreign investment. b. *his is %4iss foreign direct investment and b8 itself decreases %4iss net foreign investment. c. *his is %4iss foreign portfolio investment and b8 itself increases %4iss net foreign investment. d. *his is %4iss foreign portfolio investment and b8 itself decreases %4iss net foreign investment. #$%&'() a. *his is %4iss foreign direct investment and b8 itself increases %4iss net foreign investment. *+,') M -'+1) . %'/*I0$) 1 012'/*I3') (#$.0M) +
4

# 9.%. firm opens a factor8 that produces camping e6uipment in #lbania: b8 itself a. this increases 9.%. net foreign investment and decreases #lbanian net foreign investment. b. this decreases 9.%. net foreign investment and increases #lbanian net foreign investment. c. increases onl8 9.%. net foreign investment. d. increases onl8 #lbanian net foreign investment. #$%&'() a. this increases 9.%. net foreign investment and decreases #lbanian net foreign investment. *+,') M -'+1) . %'/*I0$) 1 012'/*I3') (#$.0M) +
5

%uppose that the real return from operating factories in ;hana decreases relative to the real rate of return in the 9nited %tates. 0ther things the same: a. this increases 9.%. net foreign investment and decreases ;hanan net foreign investment. b. this decreases 9.%. net foreign investment and increases ;hanan net foreign investment. c. increases onl8 9.%. net foreign investment. d. increases onl8 ;hanan net foreign investment. #$%&'() b. this decreases 9.%. net foreign investment and increases ;hanan net foreign investment. *+,') M -'+1) . %'/*I0$) 1 012'/*I3') (#$.0M) +

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>9

7! /hapter 9?0pen@'conom8 Macroeconomics) 1asic /oncepts

# 9.%. computer maAer sells computers to a ;erman firm. *he 9.%. compan8 uses all of the revenues from this sale to purchase automobiles from ;erman firms. *hese transactions a. increase both 9.%. net exports and 9.%. net foreign investment. b. decrease both 9.%. net exports and 9.%. net foreign investment. c. increase 9.%. net exports but do not affect 9.%. net foreign investment. d. $one of the above is correct. #$%&'() d. $one of the above is correct. *+,') M -'+1) . %'/*I0$) 1 012'/*I3') 3 (#$.0M) +
7

1raBil bu8s railroad engines from a 9.%. firm and pa8s for them 4ith bolivianos C1olivian currenc8D. 18 itself this transaction a. increases both 9.%. net exports and 9.%. net foreign investment. b. decreases both 9.%. net exports and 9.%. net foreign investment. c. increases 9.%. net exports but does not affect 9.%. net foreign investment. d. $one of the above is correct. #$%&'() a. increases both 9.%. net exports and 9.%. net foreign investment. *+,') M -'+1) . %'/*I0$) 1 012'/*I3') 3 (#$.0M) +
8

In 4hich of the follo4ing situations must national saving rise5 a. domestic investment increases and net foreign investment decreases. b. domestic investment decreases and net foreign investment increases. c. both domestic investment and net foreign investment increase. d. net exports decrease and domestic investment is unchanged. #$%&'() c. both domestic investment and net foreign investment increase. *+,') M -'+1) . %'/*I0$) 1 012'/*I3') 4 (#$.0M) +
9

*he difference bet4een savings in an open and closed econom8 e6uals a. net exports. b. net foreign investment. c. 1oth of the above are correct. d. $one of the above is correct. #$%&'() c. 1oth of the above are correct. *+,') M -'+1) . %'/*I0$) 1 012'/*I3') 4 (#$.0M) +
1!

/onsider the follo4ing t4o actions. 1. -ohlEs: a 9.%. department store chain: builds ne4 stores in %4eden. . (ud8: a 9.%. citiBen: bu8s ne4l8 issued bonds from /ampmore.com 4ho uses the mone8 to build additional 4arehouse space in the 9nited %tates. a. 1oth 1. and . increase 9.%. savings. b. $either 1. nor . increase 9.% savings. c. 1. increases 9.%. savings: but . does not. d. . increases 9.%. savings: but 1. does not. #$%&'() a. 1oth 1. and . increase 9.%. savings. *+,') M -'+1) . %'/*I0$) 1 012'/*I3') 4 (#$.0M) +
11

.uring the t4ent8 8ears or so before this text 4as 4ritten the 9nited %tates had a. both positive net exports and net foreign investment. b. both negative net exports and net foreign investment. c. positive net exports and negative net foreign investment. d. negative net exports and positive net foreign investment. #$%&'() b. both negative net exports and net foreign investment. *+,') M -'+1) . %'/*I0$) 1 012'/*I3') 4 (#$.0M) +

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/hapter 9?0pen@'conom8 Macroeconomics) 1asic /oncepts 71 NOTE: THE FOLLOWING QUESTION IS REPEATED FROM THE ON LINE QUI!!ES" #OUR STUDENTS MA# HA$E ALREAD# SEEN THIS QUESTION AND ITS ANSWER"
1

&hich of the follo4ing is a true statement5 a. $et foreign investment al4a8s e6uals a nationEs net exports. b. $et foreign investment e6uals a nationEs exports plus national saving. c. $ational saving e6uals net foreign investment minus domestic investment. d. $ational saving e6uals domestic investment minus net foreign investment. #$%&'() a. $et foreign investment al4a8s e6uals a nationEs net exports. *+,') M -'+1) . %'/*I0$) 1 012'/*I3') 4 (#$.0M) +
13

If a countr8 has business opportunities that are relativel8 attractive compared to other countries: 4e 4ould expect it to have a. both positive net exports and positive net foreign investment. b. both negative net exports and negative net foreign investment. c. positive net exports and negative net foreign investment. d. negative net exports and positive net foreign investment. #$%&'() b. both negative net exports and negative net foreign investment. *+,') M -'+1) . %'/*I0$) 1 012'/*I3') 4 (#$.0M) +
14

In late 1999 8ou could purchase about 3 5 ;reeA drachma C;reeA currenc8D for a dollar. In late !!! 8ou could purchase about 4!! drachma for a dollar. *hese exchange rates are given in a. real terms: and over this period the dollar appreciated. b. real terms: and over this period the dollar depreciated. c. nominal terms: and over this period the dollar appreciated. d. nominal terms: and over this period the dollar depreciated. #$%&'() c. nominal terms: and over this period the dollar appreciated. *+,') M -'+1) . %'/*I0$) 012'/*I3') 5 (#$.0M) +
15

In 2anuar8 !!! the exchange rate 4as 5.> ne4 A4anBa C#ngolan currenc8D per dollar. In 2anuar8 !!1 it 4as > ne4 A4anBa per dollar. a. *he dollar appreciated and so other things the same 4as 4orth more #ngolan goods. b. *he dollar appreciated and so other things the same 4as 4orth fe4er #ngolan goods. c. *he dollar depreciated and so other things the same 4as 4orth more #ngolan goods. d. *he dollar depreciated and so other things the same 4as 4orth fe4er #ngolan goods. #$%&'() a. *he dollar appreciated and so other things the same 4as 4orth more #ngolan goods. *+,') M -'+1) . %'/*I0$) 012'/*I3') 5 (#$.0M) +
1>

In the 9nited %tates a three@pound can of coffee costs about $>. %uppose the exchange rate is about 5! 1elgian francs per dollar and that a three@pound can of coffee in 1elgium costs about 4!! francs. &hat is the real exchange rate5 a. 4?3 cans of 1elgian coffee per can of 9.%. coffee. b. 3? cans of 1elgian coffee per can of 9.%. coffee. c. 3?4 cans of 1elgian coffee per can of 9.%. coffee. d. ?3 cans of 1elgian coffee per can of 9.%. coffee. #$%&'() c. 3?4 cans of 1elgian coffee per can of 9.%. coffee. *+,') M -'+1) . %'/*I0$) 012'/*I3') 5 (#$.0M) +

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7 /hapter 9?0pen@'conom8 Macroeconomics) 1asic /oncepts

%uppose the nominal exchange rate is 1!!: the domestic price index is 5!: and the foreign price index is 1!. *he real exchange rate is) a. 1:!!!. b. 5!!. c. 1!!. d. 5!. #$%&'() b. 5!!. *+,') M -'+1) . %'/*I0$) 3 012'/*I3') > (#$.0M) +
18

%uppose that the exchange rate is 5! 1angladesh taAa per dollar: that a bushel of rice costs !! taAa in 1angladesh and $3 in the 9nited %tates. *hen the real exchange rate is a. greater than one and arbitragers could profit b8 bu8ing rice in the 9nited %tates and selling it in 1angladesh. b. greater than one and arbitragers could profit b8 bu8ing rice in 1angladesh and selling it in the 9nited %tates. c. less than one and arbitragers could profit b8 bu8ing rice in the 9nited %tates and selling it in 1angladesh. d. less than one and arbitragers could profit b8 bu8ing rice in 1angladesh and selling it in the 9nited %tates. #$%&'() c. less than one and arbitragers could profit b8 bu8ing rice in the 9nited %tates and selling it in 1angladesh. *+,') M -'+1) . %'/*I0$) 3 012'/*I3') > (#$.0M) +
19

&hich of the follo4ing does purchasing@po4er parit8 impl85 a. the purchasing po4er of the dollar is the same in the 9nited %tates as in foreign countries. b. the price of domestic goods relative to foreign goods cannot change. c. the nominal exchange rate is the ratio of 9.%. prices to foreign prices. d. #ll of the above are correct. #$%&'() a. the purchasing po4er of the dollar is the same in the 9nited %tates as in foreign countries. *+,') M -'+1) / .IFFI/9G*+) 3 %'/*I0$) 3 012'/*I3') > (#$.0M) + *he nominal exchange rate is about #ruban florin per dollar. If a basAet of goods in the 9nited %tates costs $4!: ho4 man8 florins must a basAet of goods in #ruba cost for purchasing@po4er parit8 to hold5 a. ! florin. b. 4! florin. c. 8! florin. d. 1!! florin. #$%&'() c. 8! florin. *+,') M -'+1) . %'/*I0$) 3 012'/*I3') > (#$.0M) + *he exchange rate is about !! -aBaAhstan tenge per dollar. #ccording to purchasing po4er parit8 this exchange rate 4ould rise if the price level in a. either the 9nited %tates or -aBaAhstan rose. b. either the 9nited %tates or -aBaAhstan fell. c. the 9nited %tates rose or the price level in -aBaAhstan fell. d. the 9nited %tates fell or the price level in -aBaAhstan rose. #$%&'() d. the 9nited %tates fell or the price level in -aBaAhstan rose. *+,') M -'+1) . %'/*I0$) 3 012'/*I3') > (#$.0M) +
1 !

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/hapter 9?0pen@'conom8 Macroeconomics) 1asic /oncepts 73 If inflation in other countries is higher than inflation in the 9nited %tates over the next fe4 months and exchange rates are given in terms of ho4 much foreign currenc8 a dollar bu8s and ho4 man8 foreign goods 9.%. goods bu8: according to purchasing@po4er parit8 4e should expect to see a. both the real and nominal exchange rate appreciate. b. both the real and nominal exchange rate depreciate. c. onl8 the real exchange rate depreciate. d. onl8 the nominal exchange rate appreciate. #$%&'() d. onl8 the nominal exchange rate appreciate. *+,') M -'+1) . %'/*I0$) 3 012'/*I3') > (#$.0M) + NOTE: THE FOLLOWING QUESTION IS REPEATED FROM THE ON LINE QUI!!ES" #OUR STUDENTS MA# HA$E ALREAD# SEEN THIS QUESTION AND ITS ANSWER" %uppose the dollar depreciates relative to the 1ritish pound. &e Ano4 that) a. prices in the 9nited %tates are falling. b. prices in the 9nited %tates are rising. c. prices in ;reat 1ritain are rising. d. 9nited %tates dollars 4ill bu8 more 1ritish pounds. #$%&'() b. prices in the 9nited %tates are rising. *+,') M -'+1) . %'/*I0$) 3 012'/*I3') > (#$.0M) + If exchange rates are given in terms of ho4 much foreign currenc8 a dollar bu8s and ho4 man8 foreign goods 9.%. goods bu8: then if the Fed increased the 9.%. mone8 suppl8 other things the same: purchasing@po4er parit8 implies a. both the real and nominal exchange rate depreciate. b. onl8 the real exchange rate depreciates. c. onl8 the nominal exchange rate depreciates. d. $one of the above is correct. #$%&'() c. onl8 the nominal exchange rate depreciates. *+,') M -'+1) . %'/*I0$) 3 012'/*I3') > (#$.0M) + &hich of the follo4ing 4ould be inconsistent 4ith purchasing@po4er parit85 a. *om is traveling in 'uropeH he notices that he 4ill have to give up the same amount of 9.%. currenc8 to obtain foreign currenc8 to eat breaAfast 4hether he eats in Gondon or ,aris. b. +ou observe that the exchange rate is 4! French francs per dollar. 0ver the next 8ear inflation is higher in France than in the 9nited %tates and the exchange rate is still 4! French francs per dollar. c. 1oth of the above are inconsistent 4ith purchasing@po4er parit8. d. $either of the above is inconsistent 4ith purchasing@po4er parit8. #$%&'() b. +ou observe that the exchange rate is 4! French francs per dollar. 0ver the next 8ear inflation is higher in France than in the 9nited %tates and the exchange rate is still 4! French francs per dollar. *+,') M -'+1) . %'/*I0$) 3 012'/*I3') > (#$.0M) +
5 4 3

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#$%&'() d. "$ .5 billion. *+,') M -'+1) . %'/*I0$) 1 012'/*I3') 1 (#$.0M) + #$%&'() b. exports e6ual $15 billion and imports e6ual $1! billion. *+,') M -'+1) . %'/*I0$) 012'/*I3') (#$.0M) +
3

#$%&'() a. *his is %4iss foreign direct investment and b8 itself increases %4iss net foreign investment. *+,') M -'+1) . %'/*I0$) 1 012'/*I3') (#$.0M) +
4

#$%&'() a. this increases 9.%. net foreign investment and decreases #lbanian net foreign investment. *+,') M -'+1) . %'/*I0$) 1 012'/*I3') (#$.0M) +
5

#$%&'() b. this decreases 9.%. net foreign investment and increases ;hanan net foreign investment. *+,') M -'+1) . %'/*I0$) 1 012'/*I3') (#$.0M) +
>

#$%&'() d. $one of the above is correct. *+,') M -'+1) . %'/*I0$) 1 012'/*I3') 3 (#$.0M) +
7

#$%&'() a. increases both 9.%. net exports and 9.%. net foreign investment. *+,') M -'+1) . %'/*I0$) 1 012'/*I3') 3 (#$.0M) +
8

#$%&'() c. both domestic investment and net foreign investment increase. *+,') M -'+1) . %'/*I0$) 1 012'/*I3') 4 (#$.0M) +
9

#$%&'() c. 1oth of the above are correct. *+,') M -'+1) . %'/*I0$) 1 012'/*I3') 4 (#$.0M) +
1!

#$%&'() a. 1oth 1. and . increase 9.%. savings. *+,') M -'+1) . %'/*I0$) 1 012'/*I3') 4 (#$.0M) +
11

#$%&'() b. both negative net exports and net foreign investment. *+,') M -'+1) . %'/*I0$) 1 012'/*I3') 4 (#$.0M) +
1

#$%&'() a. $et foreign investment al4a8s e6uals a nationIs net exports. *+,') M -'+1) . %'/*I0$) 1 012'/*I3') 4 (#$.0M) +
13

#$%&'() b. both negative net exports and negative net foreign investment. *+,') M -'+1) . %'/*I0$) 1 012'/*I3') 4 (#$.0M) +
14

#$%&'() c. nominal terms: and over this period the dollar appreciated. *+,') M -'+1) . %'/*I0$) 012'/*I3') 5 (#$.0M) +

15

#$%&'() a. *he dollar appreciated and so other things the same 4as 4orth more #ngolan goods. *+,') M -'+1) . %'/*I0$) 012'/*I3') 5 (#$.0M) +
1>

#$%&'() c. 3?4 cans of 1elgian coffee per can of 9.%. coffee. *+,') M -'+1) . %'/*I0$) 012'/*I3') 5 (#$.0M) +
17

#$%&'() b. 5!!. *+,') M -'+1) . %'/*I0$) 3 012'/*I3') > (#$.0M) +

#$%&'() c. less than one and arbitragers could profit b8 bu8ing rice in the 9nited %tates and selling it in 1angladesh. *+,') M -'+1) . %'/*I0$) 3 012'/*I3') > (#$.0M) +
19

#$%&'() a. the purchasing po4er of the dollar is the same in the 9nited %tates as in foreign countries. *+,') M -'+1) / .IFFI/9G*+) 3 %'/*I0$) 3 012'/*I3') > (#$.0M) + #$%&'() c. 8! florin. *+,') M -'+1) . %'/*I0$) 3 012'/*I3') > (#$.0M) + #$%&'() d. the 9nited %tates fell or the price level in -aBaAhstan rose. *+,') M -'+1) . %'/*I0$) 3 012'/*I3') > (#$.0M) + #$%&'() d. onl8 the nominal exchange rate appreciate. *+,') M -'+1) . %'/*I0$) 3 012'/*I3') > (#$.0M) + #$%&'() b. prices in the 9nited %tates are rising. *+,') M -'+1) . %'/*I0$) 3 012'/*I3') > (#$.0M) + #$%&'() c. onl8 the nominal exchange rate depreciates. *+,') M -'+1) . %'/*I0$) 3 012'/*I3') > (#$.0M) + #$%&'() b. +ou observe that the exchange rate is 4! French francs per dollar. 0ver the next 8ear inflation is higher in France than in the 9nited %tates and the exchange rate is still 4! French francs per dollar. *+,') M -'+1) . %'/*I0$) 3 012'/*I3') > (#$.0M) +
5 4 3 1 !