Question 1

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 2

What imbalance does net capital outflow measure?

Accepted Answer

A)  an imbalance between a country's income and expenditure
B)  an imbalance between a country's investment and saving
C)  an imbalance between a country's sale of goods and services abroad and buying of foreign goods and services
D)  an imbalance between a country's sale of domestic assets abroad and domestic purchase of foreign assetsE) B) and D)
F) B) and C)

Question 3

If Canada buys cameras from Japan,both Canadian net exports and Canadian net capital outflow decrease.

Accepted Answer

A) True 
 B)False

Question 4

Which of the following best describes the cross-border 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) B) and C)
F) C) and D)

Question 5

A Japanese firm buys lumber from Canada and pays for it with yen.Which of the following correctly identifies the effects of this transaction?

Accepted Answer

A)  Japanese net exports increase, and Canadian net capital outflow increases.
B)  Japanese net exports increase, and Canadian net capital outflow decreases.
C)  Japanese net exports decrease, and Canadian net capital outflow increases.
D)  Japanese net exports decrease, and Canadian net capital outflow decreases.E) B) and C)
F) A) and D)

Question 6

A Venezuelan firm purchases earth-moving equipment from a Canadian company and pays for it with domestic currency.Which of the following correctly identifies the effects of this transaction?

Accepted Answer

A)  It increases Canadian net exports and increases Venezuelan net capital outflow.
B)  It increases Canadian net exports and decreases Venezuelan net capital outflow.
C)  It decreases Canadian net exports and increases Venezuelan net capital outflow.
D)  It decreases Canadian net exports and decreases Venezuelan net capital outflow.E) All of the above
F) A) and B)

Question 7

What equation is the GDP identity in an open economy?

Accepted Answer

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

Question 8

Suppose the nominal exchange rate between the yen and the U.S.dollar is 220 yen per U.S.dollar,and that the nominal exchange rate between the Canadian dollar and the U.S.dollar is 1.10 Canadian dollars per U.S.dollar.How many yen would it take to buy a Canadian dollar?

Accepted Answer

A)  200
B)  20
C)  0.5
D)  0.005E) A) and B)
F) None of the above

Question 9

Net capital outflow is the purchase of domestic assets purchased by foreign residents minus the purchase of foreign assets by domestic residents.

Accepted Answer

A) True 
 B)False

Question 10

Since 1999,what caused most of the change of Canadian net capital outflow as a percent of GDP?

Accepted Answer

A)  decrease in private investment
B)  increase in national saving
C)  decrease in U.S. investment
D)  decrease in national savingE) B) and C)
F) C) and D)

Question 11

Suppose that the exchange rate is 10 Moroccan dirhams per Canadian dollar.Also suppose that you can buy a crate of oranges for 300 dirhams in the Moroccan capital of Rabat and can buy a similar crate of oranges in Ottawa for $35.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 oranges in Canada and selling them in Morocco.
B)  The real exchange rate is greater than one, and arbitrageurs could profit by buying oranges in Morocco and selling them in Canada.
C)  The real exchange rate is less than one, and arbitrageurs could profit by buying oranges in Canada and selling them in Morocco.
D)  The real exchange rate is less than one, and arbitrageurs could profit by buying oranges in Morocco and selling them in Canada.E) A) and B)
F) A) and C)

Question 12

When the central bank prints large quantities of money,that money loses value both in terms of the goods and services it buys and in terms of the amount of foreign currencies it can buy.

Accepted Answer

A) True 
 B)False

Question 13

Suppose Paul,a Romanian citizen,builds a telescope factory in Israel.Which of the following correctly identifies the effects of these expenditures?

Accepted Answer

A)  They increase Romanian and Israeli net capital outflow.
B)  They increase Romanian net capital outflow, but decrease Israeli net capital outflow.
C)  They decrease Romanian net capital outflow, but increase Israeli net capital outflow.
D)  They increase Romanian net capital outflow, but Israeli net capital outflow remains unchanged.E) A) and B)
F) A) and C)

Question 14

Which of the following would be Canadian foreign direct investment?

Accepted Answer

A)  A Swedish car manufacturer opens a plant in Sherbrooke, Quebec.
B)  A Dutch citizen buys shares of stock in a Canadian company.
C)  Tim Hortons, a Canadian company, opens a restaurant in Jamaica.
D)  A Canadian citizen buys shares of stock in companies located in Japan.E) A) and B)
F) A) and C)

Question 15

Table 12-1
 
-Refer to the Table 12-1.What currency(ies) is(are) more valuable than predicted by the doctrine of purchasing-power parity?

Accepted Answer

A)  the boliviano and dinar
B)  the yen, kroner, and baht
C)  the yen and kroner
D)  the bahtE) A) and B)
F) A) and C)

Question 16

A firm in India sells jackets to a Canadian department store chain.Which of the following correctly identifies the effects of this transaction?

Accepted Answer

A)  It increases Canadian and Indian net exports.
B)  It decreases Canadian and Indian net exports.
C)  It increases Canadian net exports and decreases Indian net exports.
D)  It decreases Canadian net exports and increases Indian net exports.E) B) and C)
F) A) and B)

Question 17

Under what circumstances does purchasing-power parity explain how exchange rates are determined and why is it not completely accurate?

Accepted Answer

Purchasing-power parity works well in he...

Question 18

What happened after the introduction of the euro as the common currency of many European countries?

Accepted Answer

A)  It led to less international trade.
B)  It reduced the costs of trading within Europe.
C)  It led to greater differences in monetary policy amongst participating countries.
D)  It reduced trade of some European countries with Canada.E) All of the above
F) C) and D)

Question 19

Suppose that the dollar buys less cotton in Canada than in Egypt.How could traders make a profit?

Accepted Answer

A)  by buying cotton in Canada and selling it in Egypt, which would tend to raise the price of cotton in Canada
B)  by buying cotton in Canada and selling it in Egypt, which would tend to raise the price of cotton in Egypt
C)  by buying cotton in Egypt and selling it in Canada, which would tend to raise the price of cotton in Egypt
D)  by buying cotton in Egypt and selling it in Canada, which would tend to raise the price of cotton in CanadaE) B) and D)
F) B) and C)

Question 20

A Canadian firm buys apples from New Zealand with Canadian currency.The New Zealand firm then uses this money to buy packaging equipment from a Canadian firm.How do these transactions affect net exports or net capital outflow?

Accepted Answer

A)  They increase New Zealand net capital outflow and New Zealand net exports.
B)  They increase New Zealand net exports but not New Zealand net capital outflow.
C)  They increase New Zealand net capital outflow but not New Zealand net exports.
D)  They increase neither New Zealand net exports nor New Zealand capital outflow.E) A) and D)
F) A) and C)

Exam 12: Open-Economy Macroeconomics: Basic Concepts

Which of the following would be Canadian foreign direct investment?

Correct AnswerverifiedShow Answer

Under what circumstances does purchasing-power parity explain how exchange rates are determined and why is it not completely accurate?

Correct AnswerverifiedPurchasing-power parity works well in he...View AnswerShow Answer

Net capital outflow is the purchase of domestic assets purchased by foreign residents minus the purchase of foreign assets by domestic residents.

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

Since 1999,what caused most of the change of Canadian net capital outflow as a percent of GDP?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Suppose Paul,a Romanian citizen,builds a telescope factory in Israel.Which of the following correctly identifies the effects of these expenditures?

Correct AnswerverifiedShow Answer

If Canada buys cameras from Japan,both Canadian net exports and Canadian net capital outflow decrease.

Correct AnswerverifiedShow Answer

A Venezuelan firm purchases earth-moving equipment from a Canadian company and pays for it with domestic currency.Which of the following correctly identifies the effects of this transaction?

Correct AnswerverifiedShow Answer

When the central bank prints large quantities of money,that money loses value both in terms of the goods and services it buys and in terms of the amount of foreign currencies it can buy.

Correct AnswerverifiedShow Answer

A Japanese firm buys lumber from Canada and pays for it with yen.Which of the following correctly identifies the effects of this transaction?

Correct AnswerverifiedShow Answer

Suppose that the dollar buys less cotton in Canada than in Egypt.How could traders make a profit?

Correct AnswerverifiedShow Answer

What imbalance does net capital outflow measure?

Correct AnswerverifiedShow Answer

What equation is the GDP identity in an open economy?

Correct AnswerverifiedShow Answer

A firm in India sells jackets to a Canadian department store chain.Which of the following correctly identifies the effects of this transaction?

Correct AnswerverifiedShow Answer

A Canadian firm buys apples from New Zealand with Canadian currency.The New Zealand firm then uses this money to buy packaging equipment from a Canadian firm.How do these transactions affect net exports or net capital outflow?

Correct AnswerverifiedShow Answer

Table 12-1 -Refer to the Table 12-1.What currency(ies) is(are) more valuable than predicted by the doctrine of purchasing-power parity?

Correct AnswerverifiedShow Answer

Suppose that the exchange rate is 10 Moroccan dirhams per Canadian dollar.Also suppose that you can buy a crate of oranges for 300 dirhams in the Moroccan capital of Rabat and can buy a similar crate of oranges in Ottawa for $35.Which of the following is consistent with these facts?

Correct AnswerverifiedShow Answer

Suppose the nominal exchange rate between the yen and the U.S.dollar is 220 yen per U.S.dollar,and that the nominal exchange rate between the Canadian dollar and the U.S.dollar is 1.10 Canadian dollars per U.S.dollar.How many yen would it take to buy a Canadian dollar?

Correct AnswerverifiedShow Answer

What happened after the introduction of the euro as the common currency of many European countries?

Correct AnswerverifiedShow Answer

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