Question 1

Suppose that in 2015 you could purchase about 6 Egyptian pounds for a dollar. In 2019, you could purchase about 13 Egyptian pounds for a dollar. Which statement best explains the changes that could have taken place between 2015 and 2019?

Accepted Answer

A)   The dollar appreciated, increasing the trade balance.
B)   The dollar depreciated, decreasing the trade balance.
C)   The dollar appreciated, decreasing the trade balance.
D)   The dollar depreciated, increasing the trade balance.E) B) and C)
F) A) and B)

Question 2

Assume the exchange rate is about 292 Kazakhstan tenge per dollar. According to purchasing-power parity, when would this exchange rate rise?

Accepted Answer

A)   if the price level in either Canada or Kazakhstan rose
B)   if the price level in either Canada or Kazakhstan fell
C)   if the price level in Canada rose or the price level in Kazakhstan fell
D)   if the price level in Canada fell or the price level in Kazakhstan roseE) A) and D)
F) None of the above

Question 3

When a company from South Korea builds an automobile factory in Canada, the South Korean firm has engaged in foreign direct investment.

Accepted Answer

A) True 
 B)False

Question 4

What type of economy does Canada have?

Accepted Answer

A)   a large closed economy
B)   a small closed economy
C)   a large open economy
D)   a small open economyE) None of the above
F) All of the above

Question 5

Suppose the nominal exchange rate is 95 yen/dollar, the price of beef in Japan is ¥1200, and the price of beef in Canada is $12. Using the purchasing-power parity theory, approximately how much should you expect the exchange rate to change by?

Accepted Answer

A)   -12.6 yen/dollar
B)   -5 yen/dollar
C)   5 yen/dollar
D)   12.6 yen/dollarE) A) and C)
F) None of the above

Question 6

What is the formula for a closed economy's GDP?

Accepted Answer

A)   Y = C + I + G
B)   Y = (C - T)  + I + G
C)   Y = C + I + G + S
D)   Y = C + I + G + NXE) All of the above
F) A) and D)

Question 7

Suppose that a kilogram can of coffee costs about $16 in Canada. Suppose the exchange rate is 0.7 euro per dollar and that a kilogram can of coffee in Belgium costs about 5.6 euros. What is the real exchange rate?

Accepted Answer

A)   3/4 cans of Belgian coffee per can of Canadian coffee
B)   2 cans of Belgian coffee per can of Canadian coffee
C)   2.45 cans of Belgian coffee per can of Canadian coffee
D)   3.5 cans of Belgian coffee per can of Canadian coffeeE) B) and D)
F) A) and B)

Question 8

Which of the following shows that any trade transaction must have a financial counterpart?

Accepted Answer

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

Question 9

According to purchasing-power parity, if prices in Canada increase by a smaller percentage than prices in Kenya, how does the exchange rate change?

Accepted Answer

A)   The real exchange rate, defined as Kenyan goods per unit of Canadian goods, rises.
B)   The real exchange rate, defined as Kenyan goods per unit of Canadian goods, falls.
C)   The nominal exchange rate, defined as Kenyan currency per dollar, rises.
D)   The nominal exchange rate, defined as Kenyan currency per dollar, falls.E) A) and B)
F) A) and C)

Question 10

Canadian exports make up less than 20 percent of GDP.

Accepted Answer

A) True 
 B)False

Question 11

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

Accepted Answer

Real exchange rate =...

Question 12

On behalf of your firm, you make frequent trips to Hong Kong. You notice that you always have to pay more dollars to get enough local currency to get your suits dry-cleaned than you have to pay to get your suits dry-cleaned in Canada. Is this consistent with purchasing-power parity?

Accepted Answer

A)   No, but it might be explained by limited opportunities for arbitrage across international borders.
B)   Yes, if prices in Hong Kong are rising more rapidly than prices in Canada.
C)   Yes, if prices in Hong Kong are rising less rapidly than prices in Canada.
D)   No, but it can be explained by arbitrage across international borders.E) B) and C)
F) A) and D)

Question 13

Which of the following would be Canadian foreign direct investment?

Accepted Answer

A)   Your Canadian-based mutual fund buys shares of stock in Eastern European companies.
B)   A Canadian citizen opens a Tim Hortons franchise in Hong Kong.
C)   A Swiss bank buys a Canadian government bond.
D)   A German tractor factory opens a plant in Victoria, British Columbia.E) None of the above
F) B) and C)

Question 14

In which situation must national saving rise?

Accepted Answer

A)   Both domestic investment and net capital outflow increase.
B)   Domestic investment increases, and net capital outflow decreases.
C)   Domestic investment decreases, and net capital outflow increases.
D)   Net exports decrease, and domestic investment is unchanged.E) B) and D)
F) A) and C)

Question 15

A U.S. textbook publishing company sells texts to Canadian students. What are 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 C)
F) B) and D)

Question 16

How has the introduction of the euro affected arbitrage?

Accepted Answer

A)   It has eliminated the possibility of arbitrage within Europe.
B)   It has eliminated the possibility of arbitrage based on exchange-rate differences within Europe.
C)   It has increased the possibilities for arbitrage within Europe.
D)   It has not affected the possibilities for arbitrage within Europe.E) A) and C)
F) All of the above

Question 17

Alberto, an Italian citizen, opens and operates a motorcycle parts plant in Canada. What is this an example of?

Accepted Answer

A)   Italian foreign direct investment that increases Italian net capital outflow
B)   Italian foreign direct investment that decreases Italian net capital outflow
C)   Italian foreign portfolio investment that increases Italian net capital outflow
D)   Italian foreign portfolio investment that decreases Italian net capital outflowE) All of the above
F) C) and D)

Question 18

Hungary buys railroad engines from a Canadian firm and pays for them with forints (Hungarian currency) . What happens to Canadian net exports and net foreign investment due to this transaction?

Accepted Answer

A)   It increases both Canadian net exports and Canadian net foreign investment.
B)   It decreases both Canadian net exports and Canadian net foreign investment.
C)   It increases Canadian net exports and decreases Canadian net foreign investment.
D)   It decreases Canadian net exports and increases Canadian net foreign investment.E) All of the above
F) B) and D)

Question 19

If the exchange rate changes from 57 Indian rupee per dollar to 53 Indian rupee per dollar, what has happened to the dollar?

Accepted Answer

A)   It has appreciated and so buys more Indian goods.
B)   It has appreciated and so buys fewer Indian goods.
C)   It has depreciated and so buys more Indian goods.
D)   It has depreciated and so buys fewer Indian goods.E) A) and C)
F) A) and B)

Question 20

An American pharmacy buys drugs from a Canadian company and pays for them with American dollars. What are the effects of this transaction?

Accepted Answer

A)   It increases American net exports and increases Canadian capital outflow.
B)   It increases American net exports and decreases Canadian capital outflow.
C)   It decreases American net exports and increases Canadian capital outflow.
D)   It decreases American net exports and decreases Canadian capital outflow.E) B) and D)
F) A) and C)

Exam 12: Open-Economy Macroeconomics: Basic Concepts

If the exchange rate changes from 57 Indian rupee per dollar to 53 Indian rupee per dollar, what has happened to the dollar?

Correct AnswerverifiedShow Answer

Canadian exports make up less than 20 percent of GDP.

Correct AnswerverifiedShow Answer

When a company from South Korea builds an automobile factory in Canada, the South Korean firm has engaged in foreign direct investment.

Correct AnswerverifiedShow Answer

A U.S. textbook publishing company sells texts to Canadian students. What are the effects of these sales?

Correct AnswerverifiedShow Answer

What is the formula for a closed economy's GDP?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedReal exchange rate =...View AnswerShow Answer

On behalf of your firm, you make frequent trips to Hong Kong. You notice that you always have to pay more dollars to get enough local currency to get your suits dry-cleaned than you have to pay to get your suits dry-cleaned in Canada. Is this consistent with purchasing-power parity?

Correct AnswerverifiedShow Answer

According to purchasing-power parity, if prices in Canada increase by a smaller percentage than prices in Kenya, how does the exchange rate change?

Correct AnswerverifiedShow Answer

What type of economy does Canada have?

Correct AnswerverifiedShow Answer

Hungary buys railroad engines from a Canadian firm and pays for them with forints (Hungarian currency) . What happens to Canadian net exports and net foreign investment due to this transaction?

Correct AnswerverifiedShow Answer

How has the introduction of the euro affected arbitrage?

Correct AnswerverifiedShow Answer

Which of the following shows that any trade transaction must have a financial counterpart?

Correct AnswerverifiedShow Answer

Alberto, an Italian citizen, opens and operates a motorcycle parts plant in Canada. What is this an example of?

Correct AnswerverifiedShow Answer

Suppose that in 2015 you could purchase about 6 Egyptian pounds for a dollar. In 2019, you could purchase about 13 Egyptian pounds for a dollar. Which statement best explains the changes that could have taken place between 2015 and 2019?

Correct AnswerverifiedShow Answer

In which situation must national saving rise?

Correct AnswerverifiedShow Answer

Suppose that a kilogram can of coffee costs about $16 in Canada. Suppose the exchange rate is 0.7 euro per dollar and that a kilogram can of coffee in Belgium costs about 5.6 euros. What is the real exchange rate?

Correct AnswerverifiedShow Answer

Which of the following would be Canadian foreign direct investment?

Correct AnswerverifiedShow Answer

Suppose the nominal exchange rate is 95 yen/dollar, the price of beef in Japan is ¥1200, and the price of beef in Canada is $12. Using the purchasing-power parity theory, approximately how much should you expect the exchange rate to change by?

Correct AnswerverifiedShow Answer

Assume the exchange rate is about 292 Kazakhstan tenge per dollar. According to purchasing-power parity, when would this exchange rate rise?

Correct AnswerverifiedShow Answer

An American pharmacy buys drugs from a Canadian company and pays for them with American dollars. What are the effects of this transaction?

Correct AnswerverifiedShow Answer

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Real exchange rate =...
View Answer

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