Question 1

The country of Freedonia has a GDP of $4000, consumption of $1800, and government purchases of $500. Which of the following does this situation imply?

Accepted Answer

A)  Investment is equal to -$1700.
B)  Investment plus net capital outflow is equal to $1700.
C)  Investment plus net exports is equal to $2300.
D)  Saving is equal to $2200.E) A) and D)
F) A) and C)

Question 2

Catherine, a citizen of Spain, decides to purchase bonds issued by Chile instead of Canadian bonds, even though the Chilean bonds have a higher risk of default. Which of the following might be an economic reason for her decision?

Accepted Answer

A)  Chile has a lower inflation rate.
B)  The Chilean bonds pay a higher rate of interest.
C)  The Canadian government is more stable than the Chilean government.
D)  Chilean bonds have shorter maturity periods than Canadian bonds.E) A) and D)
F) B) and C) B

Question 3

Between 1981 and 1988, which of the following caused most of the change in Canadian net capital outflow as a percent of GDP?

Accepted Answer

A)  decrease in Canadian investment
B)  decrease in Canadian national saving
C)  increase in Canadian investment.
D)  decrease in Canadian national saving.E) All of the above
F) A) and D)

Question 4

Over the past 50 years, which of the following has happened to Canadian imports as a percentage of GDP?

Accepted Answer

A)  They have approximately stayed constant.
B)  They have approximately doubled.
C)  They have approximately tripled.
D)  They have approximately quadrupled.E) All of the above
F) A) and C)

Question 5

If a country sells more goods and services abroad than it purchases abroad, it has positive net exports and a trade surplus.

Accepted Answer

A) True 
 B)False

Question 6

If the Canadian real exchange rate appreciates relative to the euro, which of the following best describes the consequences?

Accepted Answer

A)  Canadian exports to Europe and European exports to Canada both rise.
B)  Canadian exports to Europe and European exports to Canada both fall.
C)  Canadian exports to Europe rise, and European exports to Canada fall.
D)  Canadian exports to Europe fall, and European exports to Canada rise.E) B) and D)
F) None of the above

Question 7

In every economy, national saving equals domestic investment plus net capital outflow.

Accepted Answer

A) True 
 B)False

Question 8

The country of Sylvania has a GDP of $4000, investment of $500, government purchases of $400, and net capital outflow of negative $300. What is consumption?

Accepted Answer

A)  $600
B)  $700
C)  $3400
D)  $3700E) A) and B)
F) A) and C)

Question 9

Which of the following best defines the current account balance?

Accepted Answer

A)  net exports
B)  net exports - net inflow of dividends and interest payments
C)  net exports + net inflow of dividends and interest payments
D)  net inflow of dividends and interest payments - net exportsE) A) and B)
F) B) and D)

Question 10

Which of the following would an appreciation of the Canadian real exchange rate induce Canadian consumers to buy?

Accepted Answer

A)  fewer domestic goods and fewer foreign goods
B)  more domestic goods and fewer foreign goods
C)  fewer domestic goods and more foreign goods
D)  more domestic goods and more foreign goodsE) A) and C)
F) A) and D) C

Question 11

When Canada imports more than it exports, it must also buy domestic assets from foreigners.

Accepted Answer

A) True 
 B)False

Question 12

Which of the following best describes the net flow of dividends and interest payments?

Accepted Answer

A)  part of the current account balance
B)  part of net capital outflow
C)  part of net exports
D)  part of foreign direct investmentE) None of the above
F) A) and B)

Question 13

A country has $60 million of domestic investment and net capital outflow of $20 million. What is saving?

Accepted Answer

A)  -$60 million
B)  -$40 million
C)  $40 million
D)  $60 millionE) None of the above
F) C) and D)

Question 14

Suppose that the real return from operating factories in Ghana rises relative to the real rate of return in Canada. Which of the following best describes the effects of this transaction?

Accepted Answer

A)  This will increase Canadian net capital outflow and decrease Ghanian net capital outflow.
B)  This will decrease Canadian net capital outflow and increase Ghanian net capital outflow.
C)  This will only increase Canadian net capital outflow.
D)  This will only increase Ghanian net capital outflow.E) All of the above
F) None of the above

Question 15

Which of the following do net exports measure?

Accepted Answer

A)  an imbalance between a country's income and expenditures
B)  an imbalance between a country's sale of goods and services abroad and purchase of foreign goods and services
C)  an imbalance between a country's sale of domestic assets abroad and purchase of foreign assets
D)  imports minus exportsE) A) and D)
F) A) and C)

Question 16

If the exchange rate is 175 yen = $1, what is the cost of a bottle of rice wine that costs 5250 yen?

Accepted Answer

A)  $28
B)  $30
C)  $32
D)  $34E) A) and C)
F) None of the above B

Question 17

Mike, a Canadian citizen living in Canada, buys $30 of cheese from France. Which of the following correctly identifies the effects of this transaction?

Accepted Answer

A)  It increases Canadian imports by $30 and increases Canadian net exports by $30.
B)  It increases Canadian imports by $30 and decreases Canadian net exports by $30.
C)  It increases Canadian exports by $30 and increases Canadian net exports by $30.
D)  It increases Canadian exports by $30 and decreases Canadian net exports by $30.E) A) and C)
F) B) and D)

Question 18

Suppose that the exchange rate is 50 Bangladesh taka per dollar, and that a bushel of rice costs 200 taka in Bangladesh and $3 in Canada. 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 rice in Canada and selling it in Bangladesh.
B)  The real exchange rate is greater than one, and arbitrageurs could profit by buying rice in Bangladesh and selling it in Canada.
C)  The real exchange rate is less than one, and arbitrageurs could profit by buying rice in Canada and selling it in Bangladesh.
D)  The real exchange rate is less than one, and arbitrageurs could profit by buying rice in Bangladesh and selling it in Canada.E) A) and C)
F) A) and B)

Question 19

For an economy as a whole, net exports must equal minus one times net capital outflow.

Accepted Answer

A) True 
 B)False

Question 20

Which of the following refers to the theory that the real interest rate in Canada should equal that in the rest of the world?

Accepted Answer

A)  the Fisher effect
B)  the theory of Ricardian equivalence
C)  the theory of purchasing power parity
D)  interest rate parityE) None of the above
F) A) and D)

Exam 12: Open-Economy Macroeconomics: Basic Concepts

The country of Freedonia has a GDP of $4000, consumption of $1800, and government purchases of $500. Which of the following does this situation imply?

Correct AnswerverifiedShow Answer

Catherine, a citizen of Spain, decides to purchase bonds issued by Chile instead of Canadian bonds, even though the Chilean bonds have a higher risk of default. Which of the following might be an economic reason for her decision?

Correct AnswerverifiedB

Between 1981 and 1988, which of the following caused most of the change in Canadian net capital outflow as a percent of GDP?

Correct AnswerverifiedShow Answer

Over the past 50 years, which of the following has happened to Canadian imports as a percentage of GDP?

Correct AnswerverifiedShow Answer

If a country sells more goods and services abroad than it purchases abroad, it has positive net exports and a trade surplus.

Correct AnswerverifiedShow Answer

If the Canadian real exchange rate appreciates relative to the euro, which of the following best describes the consequences?

Correct AnswerverifiedShow Answer

In every economy, national saving equals domestic investment plus net capital outflow.

Correct AnswerverifiedShow Answer

The country of Sylvania has a GDP of $4000, investment of $500, government purchases of $400, and net capital outflow of negative $300. What is consumption?

Correct AnswerverifiedShow Answer

Which of the following best defines the current account balance?

Correct AnswerverifiedShow Answer

Which of the following would an appreciation of the Canadian real exchange rate induce Canadian consumers to buy?

Correct AnswerverifiedC

When Canada imports more than it exports, it must also buy domestic assets from foreigners.

Correct AnswerverifiedShow Answer

Which of the following best describes the net flow of dividends and interest payments?

Correct AnswerverifiedShow Answer

A country has $60 million of domestic investment and net capital outflow of $20 million. What is saving?

Correct AnswerverifiedShow Answer

Suppose that the real return from operating factories in Ghana rises relative to the real rate of return in Canada. Which of the following best describes the effects of this transaction?

Correct AnswerverifiedShow Answer

Which of the following do net exports measure?

Correct AnswerverifiedShow Answer

If the exchange rate is 175 yen = $1, what is the cost of a bottle of rice wine that costs 5250 yen?

Correct AnswerverifiedB

Mike, a Canadian citizen living in Canada, buys $30 of cheese from France. Which of the following correctly identifies the effects of this transaction?

Correct AnswerverifiedShow Answer

Suppose that the exchange rate is 50 Bangladesh taka per dollar, and that a bushel of rice costs 200 taka in Bangladesh and $3 in Canada. Which of the following is consistent with these facts?

Correct AnswerverifiedShow Answer

For an economy as a whole, net exports must equal minus one times net capital outflow.

Correct AnswerverifiedShow Answer

Which of the following refers to the theory that the real interest rate in Canada should equal that in the rest of the world?

Correct AnswerverifiedShow Answer

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B

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C

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B

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