Question 1

Consider this statement: "Canada is characterized by perfect capital mobility." What does this mean in the language of economics?

Accepted Answer

A)   that capital is free to move across provinces in Canada
B)   that capital is free to move from one sector to another
C)   that Canadians can invest abroad but foreigners cannot invest in Canada
D)   that Canadians can invest abroad and foreigners can invest in CanadaE) None of the above
F) B) and D)

Question 2

According to purchasing-power parity, if prices in Canada increase by a larger percentage than prices in Kenyan, 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) None of the above
F) A) and B)

Question 3

Suppose that money-supply growth continues to be higher in Turkey than it is in Canada. What does purchasing-power parity imply will happen to the real and to the nominal exchange rate?

Accepted Answer

Higher money growth leads to higher pric...

Question 4

Why are net exports and net capital outflow always equal?

Accepted Answer

Net exports and net capital outflow are ...

Question 5

Suppose that a bushel of wheat costs $5 in Canada and costs 40 pesos in Mexico. If the nominal exchange rate is 20 pesos per dollar, what is the real exchange rate?

Accepted Answer

A)   .04
B)   2
C)   2.5
D)   8E) A) and B)
F) A) and C)

Question 6

This problem considers the effect of currency conversion fees on foreign investment. Jonathan is considering investing $1000 in Canada, where he expects an interest rate of 5 percent, or in the U.K., where the expected interest rate would be 6 percent. The current exchange rate is £0.5/$, which could take by the end of the year any value between £0.4 and £0.6/$ with equal probability.
a) Where should Jonathan invest?
b) How does your answer change if there is a currency conversion fee of 3 percent?
c) What have you learned from this exercise?

Accepted Answer

a) Jonathan would have $1000(1 + 0.05) =...

Question 7

In which situation must domestic saving equal investment?

Accepted Answer

A)   when NX is negative
B)   when NX is zero
C)   when NCO is negative
D)   when imports are zeroE) None of the above
F) A) and D)

Question 8

Which of the following was of much concern regarding the Canadian economy in the 1960s and 1970s?

Accepted Answer

A)   increasing budget deficits
B)   the extent of foreign investment in Canada
C)   the fact that net exports were positive
D)   Canadians purchasing too many foreign assetsE) A) and D)
F) All of the above

Question 9

Suppose that a Canadian dollar buys more silver in Australia than it buys in Mexico. What does purchasing-power parity imply should happen?

Accepted Answer

People can make a profit by buying silve...

Question 10

Which statement best describes the consequences that could occur if the Canadian real exchange rate appreciates relative to the euro?

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) A) and C)
F) A) and D)

Question 11

Which statement best describes Canadian net capital outflow and net exports from 1999 - 2009?

Accepted Answer

A)   Net capital outflow has been positive, and net exports have been negative.
B)   Net capital outflow and net exports have been positive.
C)   Net capital outflow and net exports have been negative.
D)   Net capital outflow has been negative, and net exports have been positive.E) A) and D)
F) A) and C)

Question 12

According to purchasing-power parity, what is the relationship between changes in price levels between two countries and changes in nominal exchange rates?

Accepted Answer

Purchasing-power parity asserts that the...

Question 13

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

Accepted Answer

A)   fewer domestic goods and foreign goods
B)   more domestic goods, but fewer foreign goods
C)   fewer domestic goods, but more foreign goods
D)   more domestic goods and foreign goodsE) All of the above
F) A) and B)

Question 14

Exchange rates are 0.75 U.S. dollars per Canadian dollar, 170 yen per Canadian dollar, 0.8 euro per Canadian dollar, and 20 pesos per Canadian dollar. A bottle of beer in New York costs 6 U.S. dollars, 1200 yen in Tokyo, 7 euros in Munich, and 100 pesos in Cancun. Where is the most expensive beer?

Accepted Answer

A)   Cancun
B)   New York
C)   Tokyo
D)   MunichE) B) and C)
F) A) and D)

Question 15

A Canadian firm buys boomerangs from Australia and pays for it with Canadian dollars. What are the effects of this transaction?

Accepted Answer

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

Question 16

Country A buys $300 of carrots from country B, and B buys $130 of cauliflower from A. Which of the following correctly indicates the two countries' net exports (in the order A, B) ?

Accepted Answer

A)   -$170, $170
B)   $170, -$170
C)   $300, $130
D)   $430, $0E) A) and B)
F) A) and C)

Question 17

Negative net exports are the same as a trade surplus.

Accepted Answer

A) True 
 B)False

Question 18

As an open economy, Canadian national saving can be less than Canadian investment.

Accepted Answer

A) True 
 B)False

Question 19

Suppose Connie, a Canadian citizen, buys bonds issued by an automobile manufacturer in Sweden. What would her expenditure be?

Accepted Answer

A)   Canadian foreign direct investment that would increase Canadian net capital outflow
B)   Canadian foreign direct investment that would decrease Canadian net capital outflow
C)   Canadian foreign portfolio investment that would increase Canadian net capital outflow
D)   Canadian foreign portfolio investment that would decrease Canadian net capital outflowE) A) and B)
F) A) and C)

Question 20

What is the logic behind the theory of purchasing-power parity?

Accepted Answer

The logic behind purchasing-power parity...

Exam 12: Open-Economy Macroeconomics: Basic Concepts

According to purchasing-power parity, what is the relationship between changes in price levels between two countries and changes in nominal exchange rates?

Correct Answer
verified
Purchasing-power parity asserts that the...
View Answer

In which situation must domestic saving equal investment?

Correct Answer
verified

Negative net exports are the same as a trade surplus.

Correct Answer
verified

Which of the following was of much concern regarding the Canadian economy in the 1960s and 1970s?

Correct Answer
verified

What is the logic behind the theory of purchasing-power parity?

Correct Answer
verified
The logic behind purchasing-power parity...
View Answer

Consider this statement: "Canada is characterized by perfect capital mobility." What does this mean in the language of economics?

Correct Answer
verified

Suppose that a bushel of wheat costs $5 in Canada and costs 40 pesos in Mexico. If the nominal exchange rate is 20 pesos per dollar, what is the real exchange rate?

Correct Answer
verified

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

Correct Answer
verified

Correct Answer
verified
a) Jonathan would have $1000(1 + 0.05) =...
View Answer

Suppose that a Canadian dollar buys more silver in Australia than it buys in Mexico. What does purchasing-power parity imply should happen?

Correct Answer
verified
People can make a profit by buying silve...
View Answer

Country A buys $300 of carrots from country B, and B buys $130 of cauliflower from A. Which of the following correctly indicates the two countries' net exports (in the order A, B) ?

Correct Answer
verified

A Canadian firm buys boomerangs from Australia and pays for it with Canadian dollars. What are the effects of this transaction?

Correct Answer
verified

Which statement best describes the consequences that could occur if the Canadian real exchange rate appreciates relative to the euro?

Correct Answer
verified

Suppose that money-supply growth continues to be higher in Turkey than it is in Canada. What does purchasing-power parity imply will happen to the real and to the nominal exchange rate?

Correct Answer
verified
Higher money growth leads to higher pric...
View Answer

Exchange rates are 0.75 U.S. dollars per Canadian dollar, 170 yen per Canadian dollar, 0.8 euro per Canadian dollar, and 20 pesos per Canadian dollar. A bottle of beer in New York costs 6 U.S. dollars, 1200 yen in Tokyo, 7 euros in Munich, and 100 pesos in Cancun. Where is the most expensive beer?

Correct Answer
verified

As an open economy, Canadian national saving can be less than Canadian investment.

Correct Answer
verified

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

Correct Answer
verified

Which statement best describes Canadian net capital outflow and net exports from 1999 - 2009?

Correct Answer
verified

Why are net exports and net capital outflow always equal?

Correct Answer
verified
Net exports and net capital outflow are ...
View Answer

Suppose Connie, a Canadian citizen, buys bonds issued by an automobile manufacturer in Sweden. What would her expenditure be?

Correct Answer
verified

Exam 12: Open-Economy Macroeconomics: Basic Concepts

According to purchasing-power parity, what is the relationship between changes in price levels between two countries and changes in nominal exchange rates?

Correct AnswerverifiedPurchasing-power parity asserts that the...View AnswerShow Answer

In which situation must domestic saving equal investment?

Correct AnswerverifiedShow Answer

Negative net exports are the same as a trade surplus.

Correct AnswerverifiedShow Answer

Which of the following was of much concern regarding the Canadian economy in the 1960s and 1970s?

Correct AnswerverifiedShow Answer

What is the logic behind the theory of purchasing-power parity?

Correct AnswerverifiedThe logic behind purchasing-power parity...View AnswerShow Answer

Consider this statement: "Canada is characterized by perfect capital mobility." What does this mean in the language of economics?

Correct AnswerverifiedShow Answer

Suppose that a bushel of wheat costs $5 in Canada and costs 40 pesos in Mexico. If the nominal exchange rate is 20 pesos per dollar, what is the real exchange rate?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Correct Answerverifieda) Jonathan would have $1000(1 + 0.05) =...View AnswerShow Answer

Suppose that a Canadian dollar buys more silver in Australia than it buys in Mexico. What does purchasing-power parity imply should happen?

Correct AnswerverifiedPeople can make a profit by buying silve...View AnswerShow Answer

Country A buys $300 of carrots from country B, and B buys $130 of cauliflower from A. Which of the following correctly indicates the two countries' net exports (in the order A, B) ?

Correct AnswerverifiedShow Answer

A Canadian firm buys boomerangs from Australia and pays for it with Canadian dollars. What are the effects of this transaction?

Correct AnswerverifiedShow Answer

Which statement best describes the consequences that could occur if the Canadian real exchange rate appreciates relative to the euro?

Correct AnswerverifiedShow Answer

Suppose that money-supply growth continues to be higher in Turkey than it is in Canada. What does purchasing-power parity imply will happen to the real and to the nominal exchange rate?

Correct AnswerverifiedHigher money growth leads to higher pric...View AnswerShow Answer

Exchange rates are 0.75 U.S. dollars per Canadian dollar, 170 yen per Canadian dollar, 0.8 euro per Canadian dollar, and 20 pesos per Canadian dollar. A bottle of beer in New York costs 6 U.S. dollars, 1200 yen in Tokyo, 7 euros in Munich, and 100 pesos in Cancun. Where is the most expensive beer?

Correct AnswerverifiedShow Answer

As an open economy, Canadian national saving can be less than Canadian investment.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Which statement best describes Canadian net capital outflow and net exports from 1999 - 2009?

Correct AnswerverifiedShow Answer

Why are net exports and net capital outflow always equal?

Correct AnswerverifiedNet exports and net capital outflow are ...View AnswerShow Answer

Suppose Connie, a Canadian citizen, buys bonds issued by an automobile manufacturer in Sweden. What would her expenditure be?

Correct AnswerverifiedShow Answer

Correct Answer
verified
Purchasing-power parity asserts that the...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
The logic behind purchasing-power parity...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
a) Jonathan would have $1000(1 + 0.05) =...
View Answer

Correct Answer
verified
People can make a profit by buying silve...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
Higher money growth leads to higher pric...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
Net exports and net capital outflow are ...
View Answer

Correct Answer
verified