Chapter 29 Open-Economy Macroeconomics: Basic Concepts

Test A
1

Who is worse-off when countries trade? a. both the exporting and importing county b. only the exporting country c. only the importing country d. neither the exporting nor importing country ANSWE ! d. neither the exporting nor importing country "#$E! % &E#1! ' ()*E+",-E! 1 AN'(%! #
.

,nternational trade is of ma/or importance for understanding a. the nature of inflation. b. the basics of the natural unemployment rate. c. macroeconomics in closed economies. d. None of the abo0e is correct. ANSWE ! d. None of the abo0e is correct. "#$E! % &E#1! ' ()*E+",-E! 1 AN'(%! #
1

Net exports of a country are the 0alue of goods a. exported minus the 0alue of goods imported. b. imported minus the 0alue of goods exported. c. and ser0ices imported minus the 0alue of goods and ser0ices exported. d. and ser0ices exported minus the 0alue of goods and ser0ices imported. ANSWE ! d. and ser0ices exported minus the 0alue of goods and ser0ices imported. "#$E! % &E#1! ' SE+",(N! 1 ()*E+",-E! 1 AN'(%! #
2

$eter3 a +anadian citi4en3 sells se0eral hundred cases of smo5ed salmon to a restaurant chain in the 6nited States. )y itself this sale a. decreases 6.S. net exports and has no effect on +anadian net exports. b. decreases 6.S. net exports and increases +anadian net exports. c. increases 6.S. net exports and has no effect on +anadian net exports. d. increases 6.S. net exports and decreases +anadian net exports. ANSWE ! b. decreases 6.S. net exports and increases +anadian net exports. "#$E! % &E#1! ' SE+",(N! 1 ()*E+",-E! 1 AN'(%! #
7

6.S. imports account for about what percentage of 8'$? a. less than 1 percent b. about 2 percent c. about 9 percent d. o0er 1: percent ANSWE ! d. o0er 1: percent "#$E! % &E#1! ' SE+",(N! 1 ()*E+",-E! 1 AN'(%! #

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=1

=2 +hapter .>?(pen-Economy %acroeconomics! )asic +oncepts

=

,f a resident of the 6nited States buys stoc5 in a *apanese corporation3 this is an example of 6.S. a. foreign portfolio in0estment. b. foreign direct in0estment. c. exports. d. imports. ANSWE ! a. foreign portfolio in0estment. "#$E! % &E#1! ' SE+",(N! 1 ()*E+",-E! . AN'(%! #
9

)rad3 a 6.S. resident3 builds and operates a boxing gym in "hailand. "he purchase represents a. 6.S. foreign direct in0estment and 6.S. domestic in0estment. b. 6.S. foreign portfolio in0estment and 6.S. domestic in0estment. c. in0estment for )rad and 6.S. foreign direct in0estment. d. in0estment for )rad and 6.S. foreign portfolio in0estment. ANSWE ! c. in0estment for )rad and 6.S. foreign direct in0estment. "#$E! % ',@@,+6A"#! 1 &E#1! + SE+",(N! 1 ()*E+",-E! . AN'(%! #
B

$aul3 a 6.S. citi4en3 opens a textboo5 company in )ra4il. <is expenditures a. decrease 6.S. and )ra4ilian net foreign in0estment. b. increase 6.S. and )ra4ilian net foreign in0estment. c. increase 6.S. net foreign in0estment3 but decrease )ra4ilian net foreign in0estment. d. decrease 6.S. net foreign in0estment3 but increase )ra4ilian net foreign in0estment. ANSWE ! c. increase 6.S. net foreign in0estment3 but decrease )ra4ilian net foreign in0estment. "#$E! % ',@@,+6A"#! 1 &E#1! + SE+",(N! 1 ()*E+",-E! . AN'(%! #
>

While ma5ing in0estment decisions3 in0estors a. compare the nominal3 but not the real3 interest rates offered on different bonds. b. compare the real interest rates offered on different bonds. c. purchase the highest-priced bond a0ailable. d. All of the abo0e are correct. ANSWE ! b. compare the real interest rates offered on different bonds. "#$E! % &E#1! + SE+",(N! 1 ()*E+",-E! . AN'(%! #
1:

Which of the following is correct? a. ,n many countries3 the go0ernment finances a much larger share of in0estment pro/ects than they used to. b. @oreign stoc5 mar5ets ma5e up an increasing share of the 0alue of stoc5 worldwide. c. "he 6.S. stoc5 mar5et accounts for less than 1?1 of the 0alue of stoc5s worldwide. d. None of the abo0e is correct. ANSWE ! b. @oreign stoc5 mar5ets ma5e up an increasing share of the 0alue of stoc5 worldwide. "#$E! % &E#1! ' SE+",(N! 1 ()*E+",-E! . AN'(%! #
11

Which of the following is true? a. NC D N@, E # b. # E N@, F NC c. N@, E NC d. N@, D , E NC ANSWE ! c. N@, E NC "#$E! % &E#1! E SE+",(N! 1 ()*E+",-E! 1 AN'(%! #
1.

,f a 6.S. shirtma5er purchases cotton from Egypt3 6.S. net exports a. decrease3 and 6.S. net foreign in0estment increases. b. decrease3 and 6.S. net foreign in0estment decreases. c. increase3 and 6.S. net foreign in0estment increases. d. increase3 and 6.S. net foreign in0estment decreases. ANSWE ! b. decrease3 and 6.S. net foreign in0estment decreases. "#$E! % ',@@,+6A"#! 1 &E#1! + SE+",(N! 1 ()*E+",-E! 1 AN'(%! #

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+hapter .>?(pen-Economy %acroeconomics! )asic +oncepts =7

11

Which of the following is incorrect? a. "he total mo0ement of capital from ad0anced to de0eloping nations is a large fraction of the worldGs total in0estment. b. 8rowing exports of manufactured goods from South to North will lead to a net loss of northern industrial /obs only if they are not matched by growth in exports from North to South. c. Exports from "hird World countries of manufactured goods eHual about 1 percent of @irst World income. d. 8rowing exports to the newly industriali4ed countries ha0e created about as many /obs as growing imports ha0e displaced. ANSWE ! a. "he total mo0ement of capital from ad0anced to de0eloping nations is a large fraction of the worldGs total in0estment. "#$E! % &E#1! ' SE+",(N! 1 ()*E+",-E! 1 AN'(%! #
12

Which of the following eHuations is correct? a. S E , D + b. S E , D N@, c. S E , F NC d. All of the abo0e are correct. ANSWE ! b. S E , D N@, "#$E! % &E#1! E SE+",(N! 1 ()*E+",-E! 2 AN'(%! #
17

After 1>B:3 6.S. Net @oreign ,n0estment fell dramatically3 but the 6.S. economy did not experience a similar fall in domestic in0estment. <ence3 sa0ing in the 6nited States must a. ha0e decreased dramatically. b. ha0e increased dramatically. c. ha0e been about unchanged. d. not necessarily ha0e done any of the abo0e. ANSWE ! a. ha0e decreased dramatically. "#$E! % &E#1! ' SE+",(N! 1 ()*E+",-E! 2 AN'(%! #
1=

,f the exchange rate changes from 1: "hai bhat per dollar to 27 "hai bhat per dollar3 the dollar has a. depreciated and so buys more "hai goods. b. depreciated and so buys fewer "hai goods. c. appreciated and so buys fewer "hai goods. d. appreciated and so buys more "hai goods. ANSWE ! d. appreciated and so buys more "hai goods. "#$E! % &E#1! + SE+",(N! . ()*E+",-E! 7 AN'(%! #
19

Suppose that a ton of coal costs 17:: )ritish pounds in the 6& and I.::: in the 6nited States. ,f the nominal exchange rate is .97 )ritish pounds per dollar3 the real exchange rate is a. 2?1 tons of )ritish coal per ton of 6.S. coal. b. 1 ton of )ritish coal per ton of 6.S. coal. c. 2?1 tons of 6.S. coal per ton of )ritish coal. d. None of the abo0e are correct. ANSWE ! b. 1 ton of )ritish coal per ton of 6.S. coal. "#$E! % &E#1! E SE+",(N! . ()*E+",-E! 7 AN'(%! #
1B

,f the nominal exchange rate e is foreign currency per dollar3 the domestic price is $3 and the foreign price is $J3 the real exchange rate is defined as a. eK$?$JL. b. eK$J?$L. c. e D $?$. d. e F $?$J. ANSWE ! a. eK$?$JL. "#$E! % &E#1! E SE+",(N! . ()*E+",-E! 7 AN'(%! #

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== +hapter .>?(pen-Economy %acroeconomics! )asic +oncepts

1>

A depreciation of the 6.S. real exchange rate induces 6.S. consumers to buy a. fewer domestic goods and fewer foreign goods. b. fewer domestic goods and more foreign goods. c. more domestic goods and fewer foreign goods. d. more domestic goods and more foreign goods. ANSWE ! c. more domestic goods and fewer foreign goods. "#$E! % &E#1! ' SE+",(N! . ()*E+",-E! 7 AN'(%! #
.:

,f the 6.S. real exchange rate appreciates relati0e to the @rench franc3 6.S. exports to @rance a. rise3 and @rench exports to the 6nited States fall. b. fall3 and @rench exports to the 6nited States rise. c. and @rench exports to the 6nited States rise. d. and @rench exports to the 6nited States fall. ANSWE ! b. fall3 and @rench exports to the 6nited States rise. "#$E! % ',@@,+6A"#! 1 &E#1! + SE+",(N! . ()*E+",-E! 7 AN'(%! #
.1

Suppose that the dollar buys more coffee in &enya than in )ra4il. "raders could ma5e a profit by buying coffee in a. &enya and selling it in )ra4il3 which would tend to raise the price of coffee in &enya. b. &enya and selling it in )ra4il3 which would tend to raise the price of coffee in )ra4il. c. )ra4il and selling it in &enya3 which would tend to raise the price of coffee in )ra4il. d. )ra4il and selling it in &enya3 which would tend to raise the price of coffee in &enya. ANSWE ! a. &enya and selling it in )ra4il3 which would tend to raise the price of coffee in &enya. "#$E! % &E#1! ' SE+",(N! 1 ()*E+",-E! = AN'(%! #
..

,f $ E domestic prices3 $J E foreign prices3 and e is the exchange rate3 which of the following is implied by purchasing-power parity? a. $ E e?$J b. e E $J?$ c. 1 E e?$J d. None of the abo0e is correct. ANSWE ! b. e E $J?$ "#$E! % &E#1! ' SE+",(N! 1 ()*E+",-E! = AN'(%! #
.1

When a countryGs central ban5 decreases the money supply3 its price le0el a. rises and its currency depreciates relati0e to other currencies in the world. b. falls and its currency depreciates relati0e to other currencies in the world. c. rises and its currency appreciates relati0e to other currencies in the world. d. falls and its currency appreciates relati0e to other currencies in the world. ANSWE ! d. falls and its currency appreciates relati0e to other currencies in the world. "#$E! % ',@@,+6A"#! 1 &E#1! + SE+",(N! 1 ()*E+",-E! = AN'(%! #
.2

When a countryGs central ban5 increases the money supply3 a unit of money a. loses 0alue in terms of the domestic goods and ser0ices it can buy3 but gains 0alue in terms of the foreign currency it can buy. b. loses 0alue both in terms of the domestic goods and ser0ices it can buy and in terms of the foreign currency it can buy. c. gains 0alue both in terms of the domestic goods and ser0ices it can buy and in terms of the foreign currency it can buy. d. gains 0alue in terms of the domestic goods and ser0ices it can buy3 but loses 0alue in terms of the foreign currency it can buy. ANSWE ! b. loses 0alue both in terms of the domestic goods and ser0ices it can buy and in terms of the foreign currency it can buy. "#$E! % &E#1! + SE+",(N! 1 ()*E+",-E! = AN'(%! #

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.7

(n behalf of your firm3 you ma5e freHuent trips to Aiberia. #ou notice that you always ha0e to pay fewer dollars to get the local currency to ha0e your hair styled than you ha0e to pay for similar styling in the 6nited States. "his is a. inconsistent with purchasing-power parity3 but might be explained by limited opportunities for arbitrage in hair styling across international borders. b. consistent with purchasing-power parity if prices in Aiberia are rising more rapidly than prices in the 6nited States. c. consistent with purchasing-power parity if prices in Aiberia are rising less rapidly than prices in the 6nited States. d. None of the abo0e is correct. ANSWE ! a. inconsistent with purchasing-power parity3 but might be explained by limited opportunities for arbitrage in hair styling across international borders. "#$E! % &E#1! ' SE+",(N! 1 ()*E+",-E! = AN'(%! #

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ANSWE ! d. neither the exporting nor importing country "#$E! % &E#1! ' ()*E+",-E! 1 AN'(%! #
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ANSWE ! d. None of the abo0e is correct. "#$E! % &E#1! ' ()*E+",-E! 1 AN'(%! #
1

ANSWE ! d. and ser0ices exported minus the 0alue of goods and ser0ices imported. "#$E! % &E#1! ' SE+",(N! 1 ()*E+",-E! 1 AN'(%! #
2

ANSWE ! b. decreases 6.S. net exports and increases +anadian net exports. "#$E! % &E#1! ' SE+",(N! 1 ()*E+",-E! 1 AN'(%! #
7

ANSWE ! d. o0er 1: percent "#$E! % &E#1! ' SE+",(N! 1 ()*E+",-E! 1 AN'(%! #

=

ANSWE ! a. foreign portfolio in0estment. "#$E! % &E#1! ' SE+",(N! 1 ()*E+",-E! . AN'(%! #
9

ANSWE ! c. in0estment for )rad and 6.S. foreign direct in0estment. "#$E! % ',@@,+6A"#! 1 &E#1! + SE+",(N! 1 ()*E+",-E! . AN'(%! #
B

ANSWE ! c. increase 6.S. net foreign in0estment3 but decrease )ra4ilian net foreign in0estment. "#$E! % ',@@,+6A"#! 1 &E#1! + SE+",(N! 1 ()*E+",-E! . AN'(%! #
>

ANSWE ! b. compare the real interest rates offered on different bonds. "#$E! % &E#1! + SE+",(N! 1 ()*E+",-E! . AN'(%! #
1:

ANSWE ! b. @oreign stoc5 mar5ets ma5e up an increasing share of the 0alue of stoc5 worldwide. "#$E! % &E#1! ' SE+",(N! 1 ()*E+",-E! . AN'(%! #
11

ANSWE ! c. N@, E NC "#$E! % &E#1! E SE+",(N! 1 ()*E+",-E! 1 AN'(%! #

1.

ANSWE ! b. decrease3 and 6.S. net foreign in0estment decreases. "#$E! % ',@@,+6A"#! 1 &E#1! + SE+",(N! 1 ()*E+",-E! 1 AN'(%! #
11

ANSWE ! a. "he total mo0ement of capital from ad0anced to de0eloping nations is a large fraction of the worldGs total in0estment. "#$E! % &E#1! ' SE+",(N! 1 ()*E+",-E! 1 AN'(%! #
12

ANSWE ! b. S E , D N@, "#$E! % &E#1! E SE+",(N! 1 ()*E+",-E! 2 AN'(%! #

17

ANSWE ! a. ha0e decreased dramatically. "#$E! % &E#1! ' SE+",(N! 1 ()*E+",-E! 2 AN'(%! #
1=

ANSWE ! d. appreciated and so buys more "hai goods. "#$E! % &E#1! + SE+",(N! . ()*E+",-E! 7 AN'(%! #
19

ANSWE ! b. 1 ton of )ritish coal per ton of 6.S. coal. "#$E! % &E#1! E SE+",(N! . ()*E+",-E! 7 AN'(%! #
1B

ANSWE ! a. eK$?$JL. "#$E! % &E#1! E SE+",(N! . ()*E+",-E! 7 AN'(%! #

1>

ANSWE ! c. more domestic goods and fewer foreign goods. "#$E! % &E#1! ' SE+",(N! . ()*E+",-E! 7 AN'(%! #
.:

ANSWE ! b. fall3 and @rench exports to the 6nited States rise. "#$E! % ',@@,+6A"#! 1 &E#1! + SE+",(N! . ()*E+",-E! 7 AN'(%! #
.1

ANSWE ! a. &enya and selling it in )ra4il3 which would tend to raise the price of coffee in &enya. "#$E! % &E#1! ' SE+",(N! 1 ()*E+",-E! = AN'(%! #
..

ANSWE ! b. e E $J?$ "#$E! % &E#1! ' SE+",(N! 1 ()*E+",-E! = AN'(%! #

.1

ANSWE ! d. falls and its currency appreciates relati0e to other currencies in the world. "#$E! % ',@@,+6A"#! 1 &E#1! + SE+",(N! 1 ()*E+",-E! = AN'(%! #
.2

ANSWE ! b. loses 0alue both in terms of the domestic goods and ser0ices it can buy and in terms of the foreign currency it can buy. "#$E! % &E#1! + SE+",(N! 1 ()*E+",-E! = AN'(%! #
.7

ANSWE ! a. inconsistent with purchasing-power parity3 but might be explained by limited opportunities for arbitrage in hair styling across international borders. "#$E! % &E#1! ' SE+",(N! 1 ()*E+",-E! = AN'(%! #