Question 1

Many economists believe that the theory of purchasing-power parity describes the forces that determine exchange rates in the long run.

Accepted Answer

A) True 
 B)False

Question 2

Between 1981 and 1988,what happened to Canadian net capital outflow as a percent of GDP?

Accepted Answer

A)   It became a larger,positive number.
B)   It became a smaller,positive number.
C)   It became a larger,negative number.
D)   It became a smaller,negative number.E) B) and C)
F) A) and D)

Question 3

Which of the following is an example of Canadian foreign portfolio investment?

Accepted Answer

A)   Crystal,a Canadian citizen,buys bonds issued by a corporation in Turkey.
B)   Randall,a Canadian citizen,opens a cheesecake factory in Italy.
C)   Abigail,a Canadian citizen,buys software produced by Microsoft Corporation,a U.S.company.
D)   Fernando,a Spanish citizen,buys shares of stock in Research In Motion,a Canadian company.E) B) and C)
F) A) and B)

Question 4

When making investment decisions,which of the following are investors most likely to do?

Accepted Answer

A)   They compare the real interest rates offered on different bonds.
B)   They compare the nominal,but not the real,interest rates offered on different bonds.
C)   They purchase the highest-priced bond available.
D)   They purchase the highest-interest bonds available.E) A) and B)
F) A) and C)

Question 5

From 1970 to 1998,the Canadian dollar depreciated against the German mark and appreciated against the Italian lira because Canada experienced more inflation than Germany but less inflation than Italy.

Accepted Answer

A) True 
 B)False

Question 6

What was an important change in the Canadian economy after 1999?

Accepted Answer

A)   National saving fell below investment,and net capital outflow was a large positive number.
B)   Net capital outflow turned positive.
C)   Investment equalled saving every year.
D)   Investment fell below saving,so net capital outflow was a large negative number.E) A) and D)
F) B) and C)

Question 7

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) None of the above
F) A) and B)

Question 8

Which statement best describes how the Canadian economy has evolved over the past five decades?

Accepted Answer

A)   It has become more closed.
B)   It has become more open.
C)   It has become less trade-oriented.
D)   It has become more self-sufficient.E) C) and D)
F) A) and D)

Question 9

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) A) and B)
F) A) and C)

Question 10

Over the past 50 years,what 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) A) and B)
F) C) and D)

Question 11

How do nominal exchange rates change over time?

Accepted Answer

A)   They vary little over time.
B)   They vary substantially over time.
C)   They appreciate over time for most countries.
D)   They depreciate over time for most countries.E) A) and B)
F) None of the above

Question 12

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

Accepted Answer

A) True 
 B)False

Question 13

Why does purchasing-power parity theory NOT hold at all times?

Accepted Answer

A)   because countries use different currencies
B)   because wages are higher in some countries and lower in others
C)   because some goods and services cannot be traded
D)   because prices are different across countriesE) A) and B)
F) All of the above

Question 14

John,a Canadian citizen,opens up a 70s-style dance club in Tokyo.What is this an example of?

Accepted Answer

A)   Canadian exports
B)   Canadian imports
C)   Canadian foreign portfolio investment
D)   Canadian foreign direct investmentE) C) and D)
F) B) and C)

Question 15

Larry,a Canadian citizen,opens and operates a bookstore in England.What is this an example of?

Accepted Answer

A)   investment for Larry and Canadian foreign direct investment
B)   investment for Larry and Canadian foreign portfolio investment
C)   Canadian foreign direct investment and Canadian domestic investment
D)   Canadian foreign portfolio investment and Canadian domestic investmentE) B) and C)
F) A) and D)

Question 16

What does net capital outflow measure?

Accepted Answer

A)   foreign assets held by domestic residents minus domestic assets held by foreign residents
B)   the imbalance between the amount of domestic assets bought by domestic residents and the amount of foreign assets bought by foreigners
C)   the imbalance between the amount of foreign assets bought by domestic residents and the amount of domestic goods and services sold to foreigners
D)   domestic assets held by foreigners minus foreign assets held by domestic residentsE) A) and B)
F) All of the above

Question 17

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 18

In Ireland,a pint of beer costs 4 Irish punts.In Australia,a pint of beer costs 6 Australian dollars.If the exchange rate is 0.8 punts per Australian dollar,what is the real exchange rate?

Accepted Answer

A)   0.53 pints of Irish beer per pint of Australian beer
B)   0.8 pints of Irish beer per pint of Australian beer
C)   1.11 pints of Irish beer per pint of Australian beer
D)   1.25 pints of Irish beer per pint of Australian beerE) B) and C)
F) C) and D)

Question 19

Which statement best defines the nominal exchange rate?

Accepted Answer

A)   It is the nominal interest rate in one country divided by the nominal interest rate in the other country.
B)   It is the rate at which a person can trade the currency of one country for the currency of another.
C)   It is the price of a good in one country divided by the price of the same good in another.
D)   It is the number of goods a person can trade for a similar good in another country.E) B) and D)
F) C) and D)

Question 20

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) A) and D)
F) A) and B)

Exam 12: Open-Economy Macroeconomics: Basic Concepts

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

Correct AnswerverifiedShow Answer

Why does purchasing-power parity theory NOT hold at all times?

Correct AnswerverifiedShow Answer

Many economists believe that the theory of purchasing-power parity describes the forces that determine exchange rates in the long run.

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

Which of the following is an example of Canadian foreign portfolio investment?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Which statement best describes how the Canadian economy has evolved over the past five decades?

Correct AnswerverifiedShow Answer

In Ireland,a pint of beer costs 4 Irish punts.In Australia,a pint of beer costs 6 Australian dollars.If the exchange rate is 0.8 punts per Australian dollar,what is the real exchange rate?

Correct AnswerverifiedShow Answer

John,a Canadian citizen,opens up a 70s-style dance club in Tokyo.What is this an example of?

Correct AnswerverifiedShow Answer

What was an important change in the Canadian economy after 1999?

Correct AnswerverifiedShow Answer

Between 1981 and 1988,what happened to Canadian net capital outflow as a percent of GDP?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

From 1970 to 1998,the Canadian dollar depreciated against the German mark and appreciated against the Italian lira because Canada experienced more inflation than Germany but less inflation than Italy.

Correct AnswerverifiedShow Answer

When making investment decisions,which of the following are investors most likely to do?

Correct AnswerverifiedShow Answer

Which statement best defines the nominal exchange rate?

Correct AnswerverifiedShow Answer

How do nominal exchange rates change over time?

Correct AnswerverifiedShow Answer

Larry,a Canadian citizen,opens and operates a bookstore in England.What is this an example of?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

What does net capital outflow measure?

Correct AnswerverifiedShow 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

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