Question 1

The real exchange rate:

Accepted Answer

A)   expresses the value of goods in one country in terms of the same goods in another country.
B)   is the nominal exchange rate adjusted for purchasing power parity.
C)   uses the price level in each country to convert the exchange rate into a value expressed in "real" terms.
D)   All of these are true.E) A) and D)
F) All of the above

Question 2

When the Fed lowers the interest rate, investment _______ and net exports _______.

Accepted Answer

A)   increases; decrease
B)   increases; increase
C)   decreases; decrease
D)   decreases; increaseE) C) and D)
F) A) and D)

Question 3

In an economy with a fixed exchange rate, an increased demand for foreign goods would increase the supply of the domestic currency. To stop its currency from _______, the government would need to purchase _______currency in the foreign-exchange market.

Accepted Answer

A)   depreciating; foreign
B)   depreciating; domestic
C)   appreciating; domestic
D)   appreciating; foreignE) B) and D)
F) B) and C)

Question 4

When the U.S. dollar appreciates, the trade deficit typically:

Accepted Answer

A)   falls.
B)   remains unaffected.
C)   is balanced by an increase in net exports.
D)   rises.E) None of the above
F) B) and C)

Question 5

What is the equation for total expenditure in a closed economy?

Accepted Answer

A)   Y = C + I + G
B)   Im − Ex = C + I
C)   Y = C + I + G + NX
D)   Y + G = C + I − NXE) A) and B)
F) B) and D) A

Question 6

In the forex market, the demand for dollars will increase if:

Accepted Answer

A)   foreigners wish to buy U.S. goods.
B)   foreigners wish to sell U.S. financial assets.
C)   interest rates are lower in the United States relative to interest rates abroad.
D)   interest rates are equal in the United States and abroad.E) A) and B)
F) None of the above A

Question 7

The exchange rate is the:

Accepted Answer

A)   value of one currency expressed in terms of another currency.
B)   reciprocal of a currency's real value.
C)   value of a currency expressed in terms of the goods and services it can buy.
D)   value of a currency adjusted for inflation.E) C) and D)
F) A) and B)

Question 8

The largest category of U.S. imports is:

Accepted Answer

A)   capital goods.
B)   consumer goods.
C)   industrial supplies.
D)   automotive goods.E) A) and D)
F) None of the above

Question 9

For any given country, net capital outflows to all other countries equal:

Accepted Answer

A)   net exports to all other countries.
B)   net capital inflows from all other countries.
C)   national savings.
D)   net foreign direct investment to all other countries.E) None of the above
F) A) and B)

Question 10

To maintain a fixed exchange rate, a country:

Accepted Answer

A)   cannot change its money supply.
B)   must constantly increase its money supply.
C)   must constantly decrease its money supply.
D)   Maintaining a fixed exchange rate is unrelated to the money supply.E) B) and D)
F) A) and B)

Question 11

Suppose Ford Motor Company opens a parts manufacturing plant in Haiti, which ships its parts back to the United States to be assembled in Detroit. The factory in Haiti is an example of:

Accepted Answer

A)   foreign direct investment.
B)   foreign portfolio investment.
C)   foreign import investment.
D)   foreign export investment.E) A) and D)
F) B) and D)

Question 12

Suppose IBM buys treasury bonds from the United Kingdom as part of its investment portfolio. This is an example of:

Accepted Answer

A)   foreign direct investment.
B)   foreign portfolio investment.
C)   foreign import investment.
D)   foreign export investment.E) A) and D)
F) All of the above

Question 13

The market for buying and selling foreign currencies is often referred to as the market for:

Accepted Answer

A)   foreign exchange.
B)   loanable funds.
C)   international trade.
D)   direct foreign investment.E) B) and C)
F) A) and B)

Question 14

The "crowding out" effect refers to the:

Accepted Answer

A)   increase in domestic investment by foreigners, leaving little investment choices for domestic investors.
B)   reduction in the interest rate caused by governments running a deficit.
C)   reduction in domestic investment caused by governments running a deficit.
D)   None of these are true.E) B) and D)
F) A) and B)

Question 15

If purchasing power parity holds between the United States and China:

Accepted Answer

A)   the real exchange rate must be 1.
B)   the nominal exchange rate must be 1.
C)   the United States must no longer have a trade deficit.
D)   China must no longer have a trade deficit.E) All of the above
F) B) and C)

Question 16

If the U.S. dollar appreciates in the foreign-exchange market, net exports will:

Accepted Answer

A)   increase.
B)   decrease.
C)   be unaffected.
D)   It is impossible to say how net exports will be affected without knowing how net capital outflow is affected.E) C) and D)
F) B) and C)

Question 17

During the Argentine debt crisis of 2001:

Accepted Answer

A)   foreign investors lost confidence in the country's economy, which increased net capital outflows.
B)   government debt became more expensive, decreasing savings.
C)   interest rates increased.
D)   All of these are true.E) All of the above
F) B) and C)

Question 18

Which of the following countries is a major trading partner with the United States?

Accepted Answer

A)   South Africa
B)   Mexico
C)   Russia
D)   Saudi ArabiaE) A) and D)
F) None of the above B

Question 19

If confidence in the open economy of the United States suddenly decreases, and fewer people want to invest in U.S. assets, the _______ curve for loanable funds will shift to the _______.

Accepted Answer

A)   demand; right
B)   demand; left
C)   supply; right
D)   supply; leftE) None of the above
F) A) and B)

Question 20

When the value of one currency increases relative to the value of another currency, the currency with increasing value has experienced:

Accepted Answer

A)   exchange rate depreciation.
B)   exchange rate appreciation.
C)   interest rate depreciation.
D)   exchange rate arbitrage.E) C) and D)
F) A) and B)

Exam 18: Open-Marketmacroeconomics

The real exchange rate:

Correct AnswerverifiedShow Answer

When the Fed lowers the interest rate, investment _______ and net exports _______.

Correct AnswerverifiedShow Answer

In an economy with a fixed exchange rate, an increased demand for foreign goods would increase the supply of the domestic currency. To stop its currency from _______, the government would need to purchase _______currency in the foreign-exchange market.

Correct AnswerverifiedShow Answer

When the U.S. dollar appreciates, the trade deficit typically:

Correct AnswerverifiedShow Answer

What is the equation for total expenditure in a closed economy?

Correct AnswerverifiedA

In the forex market, the demand for dollars will increase if:

Correct AnswerverifiedA

The exchange rate is the:

Correct AnswerverifiedShow Answer

The largest category of U.S. imports is:

Correct AnswerverifiedShow Answer

For any given country, net capital outflows to all other countries equal:

Correct AnswerverifiedShow Answer

To maintain a fixed exchange rate, a country:

Correct AnswerverifiedShow Answer

Suppose Ford Motor Company opens a parts manufacturing plant in Haiti, which ships its parts back to the United States to be assembled in Detroit. The factory in Haiti is an example of:

Correct AnswerverifiedShow Answer

Suppose IBM buys treasury bonds from the United Kingdom as part of its investment portfolio. This is an example of:

Correct AnswerverifiedShow Answer

The market for buying and selling foreign currencies is often referred to as the market for:

Correct AnswerverifiedShow Answer

The "crowding out" effect refers to the:

Correct AnswerverifiedShow Answer

If purchasing power parity holds between the United States and China:

Correct AnswerverifiedShow Answer

If the U.S. dollar appreciates in the foreign-exchange market, net exports will:

Correct AnswerverifiedShow Answer

During the Argentine debt crisis of 2001:

Correct AnswerverifiedShow Answer

Which of the following countries is a major trading partner with the United States?

Correct AnswerverifiedB

If confidence in the open economy of the United States suddenly decreases, and fewer people want to invest in U.S. assets, the _______ curve for loanable funds will shift to the _______.

Correct AnswerverifiedShow Answer

When the value of one currency increases relative to the value of another currency, the currency with increasing value has experienced:

Correct AnswerverifiedShow Answer

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When the Fed lowers the interest rate, investment _ and net exports _.

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In an economy with a fixed exchange rate, an increased demand for foreign goods would increase the supply of the domestic currency. To stop its currency from _, the government would need to purchase _currency in the foreign-exchange market.

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A

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A

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B

If confidence in the open economy of the United States suddenly decreases, and fewer people want to invest in U.S. assets, the _ curve for loanable funds will shift to the _.

Correct Answer
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