________________________ Name: Class: ___________________ Date: __________
ID: A
Quiz 7
Multiple Choice
Identify the letter of the choice that best completes the statement or answers the question.
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1. Suppose that a country exports $100 million of goods and services and imports $75 million of goods and
services, what is the value of net exports?
a. $175 million
b. $100 million
c. $25 million
d. -$25 million
2. Mike, a U.S. citizen, buys $10 of cheese from France. His action alone
a. increases U.S. imports by $10 and increases U.S. net exports by $10.
b. increases U.S. imports by $10 and decreases U.S. net exports by $10.
c. increases U.S. exports by $10 and increases U.S. net exports by $10.
d. increases U.S. exports by $10 and decreases U.S. net exports by $10.
3. Net capital outflow measures
a. foreign assets held by domestic residents minus domestic assets held by foreign residents.
b. the imbalance between the amount of foreign assets bought by domestic residents and the
amount of domestic 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. None of the above is correct.
4. The U.S. sells machinery to a South African country that pays them with South African currency (the rand).
a. This increases U.S. net capital outflow because the U.S. acquires foreign assets.
b. This decreases U.S. net capital outflow because the U.S. acquires foreign assets.
c. This increases U.S. net capital outflow because the U.S. sells capital goods.
d. This decreases U.S. net capital outflow because the U.S. sells capital goods.
5. Which of the following equations is always correct in an open economy?
a. I = Y - C
b. I = S
c. I = S - NCO
d. I = S + NX
6. In an open economy,
a. Saving = Foreign saving + Net capital outflow.
b. Saving = Domestic investment - Net capital outflow.
c. Saving = Domestic saving + Net capital outflow.
d. None of the above is correct.
7. A country has $45 million of domestic investment and net capital outflow of -$60 million. What is saving?
a. $15 million.
b. -$15 million.
c. $105 million.
d. -$105 million.
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Name: ________________________
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ID: A
8. The country of Freedonia has a GDP of $2,000, consumption of $1,200, and government purchases of $400.
This implies that it has
a. investment of $400.
b. investment plus net capital outflow of $400.
c. investment plus net exports of $400.
d. both b and c.
9. If the exchange rate is 4 units of Peruvian currency per dollar and a hotel room in Lima costs 300 units of
Peruvian currency, how many dollars do you need to get a room?
a. 1,200, and this will increase Peru's net exports.
b. 75 and this will increase Peru's net exports.
c. 1,200 and this will have no effect on Peru's net exports.
d. 75 and this will have no effect on Peru's net exports.
10. If the exchange rate changes from .30 Kuwaiti dinar per dollar to .35 Kuwaiti dinar per dollar, the dollar has
a. appreciated and so buys more Kuwaiti goods.
b. appreciated and so buys fewer Kuwaiti goods.
c. depreciated and so buys more Kuwaiti goods.
d. depreciated and so buys fewer Kuwaiti goods.
11. In the United States, a three-pound can of coffee costs about Suppose $5. the exchange rate is about 0.8 euros
per dollar and that a three-pound can of coffee in Belgium costs about 3 euros. What is the real exchange
rate?
a. 5/3 cans of Belgian coffee per can of U.S. coffee
b. 4/3 cans of Belgian coffee per can of U.S. coffee
c. 3/4 cans of Belgian coffee per can of U.S. coffee
d. 3/5 cans of Belgian coffee per can of U.S. coffee
12. A depreciation of the U.S. real exchange rate induces U.S. consumers to buy
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 goods.
13. If the U.S. real exchange rate appreciates, exports
a. increase and imports decrease.
b. decrease and imports increase.
c. and imports increase.
d. and imports decrease.
14. Which of the following does purchasing-power parity imply?
a. The purchasing power of the dollar is the same in the U.S. as in foreign countries.
b. The price of domestic goods relative to foreign goods cannot change.
c. The nominal exchange rate is the ratio of foreign to U.S. prices.
d. All of the above are correct.
15. When a country's central bank decreases the money supply, its
a. price level rises and its currency appreciates relative to other currencies in the world.
b. price level falls and its currency appreciates relative to other currencies in the world.
c. price level rises and its currency depreciates relative to other currencies in the world.
d. price level falls and its currency depreciates relative to other currencies in the world.
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ID: A
Quiz 7
Answer Section
MULTIPLE CHOICE
1. ANS: C
$25 million
DIF: 1
REF: SECTION: 31.1
OBJ: TYPE: M
2. ANS: B
increases U.S. imports by $10 and decreases U.S. net exports by $10.
DIF: 1
REF: SECTION: 31.1
OBJ: TYPE: M
3. ANS: B
the imbalance between the amount of foreign assets bought by domestic residents and the amount of domestic
assets bought by foreigners.
DIF: 1
REF: SECTION: 31.1
OBJ: TYPE: M
4. ANS: A
This increases U.S. net capital outflow because the U.S. acquires foreign assets
DIF: 2
5. ANS: C
I = S - NCO
REF: SECTION: 31.1
OBJ: TYPE: M
DIF: 1
REF: SECTION: 31.1
6. ANS: D
None of the above is correct.
OBJ: TYPE: M
DIF: 1
7. ANS: B
-$15 million.
REF: SECTION: 31.1
OBJ: TYPE: M
DIF: 2
8. ANS: D
both b and c.
REF: SECTION: 31.1
OBJ: TYPE: M
DIF: 2
REF: SECTION: 31.1
9. ANS: B
75 and this will increase Peru's net exports.
OBJ: TYPE: M
DIF: 1
REF: SECTION: 31.2
10. ANS: A
appreciated and so buys more Kuwaiti goods.
OBJ: TYPE: M
DIF:
1
REF: SECTION: 31.2
OBJ: TYPE: M
1
ID: A
11. ANS: B
4/3 cans of Belgian coffee per can of U.S. coffee
DIF: 2
REF: SECTION: 31.2
12. ANS: B
more domestic goods and fewer foreign goods.
OBJ: TYPE: M
DIF: 1
REF: SECTION: 31.2
13. ANS: B
decrease and imports increase.
OBJ: TYPE: M
DIF: 1
REF: SECTION: 31.2
OBJ: TYPE: M
14. ANS: A
The purchasing power of the dollar is the same in the U.S. as in foreign countries.
DIF: 1
REF: SECTION: 31.3
OBJ: TYPE: M
15. ANS: B
price level falls and its currency appreciates relative to other currencies in the world.
DIF:
3
REF: SECTION: 31.3
OBJ: TYPE: M
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