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macroeconomics ch 13

If a lobster in Maine costs $10 and that the same type of lobster in Massachusetts costs $30, then people could make a profit by

Answer

 

a.

buying lobsters in Maine and selling them in Massachusetts. This action would increase the price of lobster in Massachusetts.

 

b.

buying lobsters in Maine and selling them in Massachusetts. This action would decrease the price of lobster in Massachusetts.

 

c.

buying lobsters in Massachusetts and selling them in Maine. This action would increase the price of lobster in Massachusetts.

 

d.

buying lobsters in Massachusetts and selling them in Maine. This action would decrease the price of lobster in Massachusetts.

 

A country’s saving is greater than its domestic investment.  This difference means that its

Answer

 

a.

net capital outflow is positive and net exports are negative.

 

b.

net capital outflow and net exports are negative.

 

c.

net capital outflow and net exports are positive.

 

d.

net capital outflow is negative and net exports are positive.

 

Suppose that the nominal exchange rate is .80 euro per dollar, that the price of a basket of goods in the U.S. is $500 and the price of a basket of goods in Germany  is 400 Euro.  Suppose that these values change to .90 euro per dollar, $600, and 600 euro.  Then the real exchange rate would

Answer

 

a.

depreciate which by itself would make U.S. net exports rise.

 

b.

appreciate which by itself would make U.S. net exports fall.

 

c.

depreciate which by itself would make U.S. net exports fall.

 

d.

appreciate which by itself would make U.S. net exports rise.

 

 

Suppose that the real exchange rate between the United States and Vietnam is defined in terms of baskets of goods. Other things the same, which of the following will increase the real exchange rate (that is increase the number of baskets of Vietnamese goods a basket of U.S. goods buys)?

Answer

 

a.

an increase in the quantity of Vietnamese currency that can be purchased with a dollar

 

b.

an increase in the price of U.S. baskets of goods

 

c.

a decrease in the price in Vietnamese currency of Vietnamese goods

 

d.

All of the above are correct.

 

According to the theory of purchasing-power parity, the nominal exchange rate between two countries must reflect the differing

Answer

 

a.

standards of living between those countries.

 

b.

income levels in those countries.

 

c.

price levels in those countries.

 

d.

resource endowments in those countries.

 

Nominal exchange rates

Answer

 

a.

vary substantially over time.

 

b.

depreciate over time for most countries.

 

c.

vary little over time.

 

d.

appreciate over time for most countries.

 

Bill, a U.S. citizen,  pays a Spanish architect to design a metal casting factory.  Which country’s exports increase?

Answer

 

a.

Spain’s

 

b.

the U.S.’s

 

c.

Spain’s and the U.S.’s

 

d.

neither Spain’s nor the U.S.’s

 

The country of Sylvania has a GDP of $900, investment of $200, government purchases of $200, and net capital outflow of -$100. What is consumption?

Answer

 

a.

$600

 

b.

$500

 

c.

$300

 

d.

$700

 

Which of the following is correct? Over about the last fifty years

Answer

 

a.

U.S. exports about doubled and U.S. imports about tripled.

 

b.

U.S. exports about tripled and U.S. imports about doubled.

 

c.

U.S. exports and U.S. imports each about tripled.

 

d.

U.S. exports and U.S. imports each about doubled.

If a country has a trade deficit

Answer

 

a.

it has positive net exports and negative net capital outflow.

 

b.

it has negative net exports and negative net capital outflow.

 

c.

it has positive net exports and positive net capital outflow.

 

d.

it has negative net exports and positive net capital outflow.

 

Prices in both the U.S. and India rise, but prices in India increase by a larger percentage.   According to purchasing-power parity the U.S. dollar

Answer

 

a.

loses value in terms of the domestic goods and services it can buy, but gains value in terms of the Indian currency it can buy.

 

b.

gains value in terms of the domestic goods and services it can buy, but loses value in terms of the Indian currency it can buy.

 

c.

loses value both in terms of the domestic goods and services it can buy and in terms of the Indian currency it can buy.

 

d.

gains value both in terms of the domestic goods and services it can buy and in terms of the Indian currency it can buy.

 

if Thailand has a trade surplus, then

Answer

 

a.

foreign countries purchase fewer Thai assets than Thailand purchases from them. This makes Thai saving greater than Thai domestic investment.

 

b.

foreign countries purchase fewer Thai assets than Thailand purchases from them. This makes Thai saving greater than Thai domestic investment.

 

c.

foreign countries purchase more Thai  assets than Thailand purchases from them. This makes Thai saving greater than Thai domestic investment.

 

d.

foreign countries purchase more Thai assets than Thailand purchases from them. This makes Thai saving smaller then Thai domestic investment.

 

 

Stacey, a U.S. citizen, buys a bond issued by an Italian pasta manufacturer.

Answer

 

a.

This purchase is foreign direct investment. By itself it decreases U.S. net capital outflow.

 

b.

This purchase is foreign portfolio investment. By itself it increases U.S. net capital outflow.

 

c.

This purchase is foreign direct investment. By itself it increases U.S. net capital outflow.

 

d.

This purchase is foreign portfolio investment. By itself it decreases U.S. net capital outflow.

 

A country has $30 billion of domestic investment and net capital outflows of -$20 billion.  What is the country’s saving?

Answer

 

a.

-$50 billion

 

b.

$10 billion

 

c.

-$10 billion

 

d.

$50 billion

 

A haircut costs 200 pesos in Mexico and $20 in the U.S.  The exchange rate is 12.5 pesos per dollar. The real exchange rate is

Answer

 

a.

greater than one.  Haircuts in Mexico are cheaper than in the U.S.

 

b.

less than one.  Haircuts in Mexico are more expensive than in the U.S.

 

c.

less than one.  Haircuts in Mexico are cheaper than in the U.S.

 

d.

greater than one.  Haircuts in Mexico are more expensive than in the U.S.

 

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