Group 1

1.
2.
3.
4.

GROUP ASSIGNMENT
(Week 8 : Open Macroeconomics – Part 1)

1. International trade
a. raises the standard of living in all trading countries.
b. lowers the standard of living in all trading countries.
c. leaves the standard of living unchanged.
d. raises the standard of living for importing countries and lowers it for exporting countries.

2. Which of the following is correct?

a. For most Asian countries, exports and imports today as a percentage of the
GDP have more than doubled from their values in the 1960s.
b. For most Asian countries, exports and imports today as a percentage of the GDP
have halved from their values in the 1960s.
c. For most Asian countries, exports and imports today as a percentage of the GDP
have remained nearly the same as they were in the 1960s.
d. For most Asian countries, exports and imports today as a percentage of the GDP
have increased by a factor of 10 as compared to their values in the 1960s.

3. Foreign-produced goods and services that are sold domestically are

called

a. imports. c. net imports.

b. exports. d. net exports.

4. Net exports of a country are the value of

a. goods and services imported minus the value of goods and services
exported.
b. goods and services exported minus the value of goods and services
imported.
c. goods exported minus the value of goods imported.
d. goods imported minus the value of goods exported.

5. One year, a country has negative net exports. The next year it still has negative net exports,
and imports have risen more than exports.
a. Its trade surplus would have fallen. c. Its trade deficit would have fallen. b. Its
trade surplus would have risen. d. Its trade deficit would have risen.

6. Suppose that a country imports $100 million of goods and services and exports $75 million
of goods and services. What is the value of net exports?
a. $175 million c. $25 million
b. $75 million d. –$25 million
 7. Sean lives in Singapore and purchases a motorcycle manufactured in Japan. The motorcycle
is a. both a Japanese and Singaporean export.
b. both a Japanese and Singaporean import.
c. a Japanese import and a Singaporean export.
d. a Japanese export and a Singaporean import.

8. If US imports total $100 billion and US exports total $150 billion, which of the following
is correct?
a. The United States has a trade surplus of $100 billion.
b. The United States has a trade surplus of $50 billion.
c. The United States has a trade deficit of $100 billion.
d. The United States has a trade deficit of $50 billion.
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9. Suppose a country had $2.4 billion of net exports and bought $4.8 billion of goods and
services from foreign countries. This country would have
a. $7.2 billion of exports and $4.8 billion of imports.
b. $7.2 billion of imports and $4.8 billion of exports.
c. $4.8 billion of exports and $2.4 billion of imports.
d. $4.8 billion of imports and $2.4 billion of exports.

10. The increase in international trade is partly due to

a. improvements in transportation. c. government policies.
b. advances in telecommunications. d. All the above are correct.

11. Net capital outflow refers to the purchase of

a. foreign assets by domestic residents minus the purchase of domestic assets by
foreign residents.
b. foreign assets by domestic residents minus the purchase of foreign goods and services
by domestic residents.
c. domestic assets by foreign residents minus the purchase of domestic goods and services
by foreign residents.
d. domestic assets by foreign residents minus the purchase of foreign assets by
domestic residents.

12. If a country changes its corporate tax laws so that domestic firms build and manage more
firms overseas, then this country will
a. increase foreign direct investment, which increases the net capital
outflow. b. increase foreign direct investment, which decreases the net capital
outflow. c. increase foreign portfolio investment, which increases the net
capital outflow. d. increase foreign portfolio investment, which decreases the
net capital outflow.

13. Which of the following would be US foreign portfolio investment?

a. Disney builds a new amusement park in Hong Kong.
b. A US citizen buys stock in companies located in Taiwan.
c. An Indonesian hotel chain opens a new hotel in the United States.
d. A citizen of Singapore buys a bond issued by a US corporation.

14. Which of the following is an example of US foreign portfolio

 investment?

a. Alex, a US citizen, buys bonds issued by a Japan corporation.

b. Andy, a US citizen, opens a cheesecake factory in Dubai.
c. Both A and B are examples of US portfolio investment.
d. Neither A nor B are examples of US portfolio investment.

15. If a Swiss watchmaker opens a factory in China, this is an example of Swiss

a. exports. c. foreign portfolio investment. b. imports. d. foreign direct

investment.

16. When Microsoft establishes a distribution center in India, US net capital

outflow a. increases because Microsoft makes a portfolio investment in India.
b. decreases because Microsoft makes a portfolio investment in India.
c. increases because Microsoft makes a direct investment in capital in India.
d. decreases because Microsoft makes a direct investment in capital in India.

17. Net capital outflow

a. is always greater than net exports. c. is always equal to net exports. b. is
always less than net exports. d. could be any of the above.

18. Which of the following is correct?

a. NCO = NX
c. NX + NCO = Y
b. NCO + I = NX
d. Y = NCO – I

19. If a US textbook publishing company sells texts overseas, US net

exports
a. increase, and US net capital outflow increases.
b. increase, and US net capital outflow decreases.
c. decrease, and US net capital outflow increases.
d. decrease, and US net capital outflow decreases.

20. A Japanese firm buys lumber from Indonesia and pays for it with yen. Other things the
same, Japanese
a. net exports increase, and Indonesian net capital outflow increases.
b. net exports increase, and Indonesian net capital outflow decreases.
c. net exports decrease, and Indonesian net capital outflow increases.
d. net exports decrease, and Indonesian net capital outflow decreases.

21. A US firm buys apples from Indonesia with US currency. The Indonesian firm then uses
this money to buy packaging equipment from a US firm. Which of the following
increases?

a. Indonesia’s net capital outflow and Indonesia’s net exports

b. only Indonesia’s net exports
c. only Indonesia’s net capital outflow
 d. neither Indonesia’s net exports nor Indonesia’s capital outflow

22. Suppose that the real return from operating factories in Thailand rises relative to the real rate
of return in the United States. Other things the same,
a. this will increases US net capital outflow and decrease Thai net capital
outflow.
b. this will decreases US net capital outflow and increase Thai net capital
outflow.
c. this will only increase US net capital outflow.
d. this will only increase Thai net capital outflow.

23. A US based company sells semiconductors to an Indian firm. The US company uses all
the revenue from this sale to purchase software from Indian firms. These transactions
a. increase both US net exports and US net capital outflow.
b. decrease both US net exports and US net capital outflow.
c. increase US net exports and do not affect US net capital outflow.
d. None of the above is correct.

24. If a country has negative net capital outflows, then its net exports are
a. positive and its saving is larger than its domestic investment.
b. positive and its saving is smaller than its domestic investment.
c. negative and its saving is larger than its domestic investment.
d. negative and its saving is smaller than its domestic investment.

25. If a country has a trade surplus,

a. it has positive net exports and positive net capital outflow.
b. it has positive net exports and negative net capital outflow.
c. it has negative net exports and positive net capital outflow.
d. it has negative net exports and negative net capital outflow.

26. If a country has a trade deficit,

a. it has positive net exports and positive net capital outflow.
b. it has positive net exports and negative net capital outflow.
c. it has negative net exports and positive net capital outflow.
d. it has negative net exports and negative net capital outflow.

27. An open economy’s GDP is always given by

a. Y = C + I + G. c. Y = C + I + G + S.
b. Y = C + I + G + T. d. Y = C + I + G + NX.

28. Which of the following equations is correct?

a. S = I + C c. S = I + NCO
b. S = I – NX d. S = NX – NCO.

29. If there is a trade deficit, then

a. saving is greater than domestic investment and Y > C + I + G.
b. saving is greater than domestic investment and Y < C + I + G.
c. saving is less than domestic investment and Y > C +I + G.
d. saving is less than domestic investment and Y < C + I + G.
30. A country has a trade deficit. Its
a. net capital outflow must be positive, and saving is larger than investment.
b. net capital outflow must be positive, and saving is smaller than
investment. c. net capital outflow must be negative, and saving is larger than
investment.
d. net capital outflow must be negative, and saving is smaller than investment.

31. A country has $200 billion of domestic investment and net capital outflow of $100 billion. What
is the saving?
a. $100 billion c. –$200 billion
b. $300 billion d. –$300 billion

32. In an open economy, gross domestic product equals $1,950 billion, government expenditure
equals $280 billion, investment equals $500, and net capital outflow equals $280 billion. What
is consumption expenditure?
a. $280 billion c. $890 billion
b. $780 billion d. $1,170 billion

33. If you were told that the exchange rate was 1.2 Singaporean dollars per US dollar, a watch
that costs $12 US dollars would cost
a. $8.5 Singaporean dollars. c. $12.20 Singaporean dollars. b. $10
Singaporean dollars. d. $14.40 Singaporean dollars.

34. Other things the same, if the exchange rate changes from 115 yen per dollar to 125 yen per
dollar, the dollar has
a. appreciated and so buys more Japanese goods.
b. appreciated and so buys fewer Japanese goods.
c. depreciated and so buys more Japanese goods.
d. depreciated and so buys fewer Japanese goods.

35. The real exchange rate is the nominal rate exchange defined as foreign currency per home
currency times
a. home prices minus foreign prices. c. foreign prices divided by home prices. b. prices
at home divided by foreign prices. d. None of the above is correct.

36. If the real exchange rate between the United States and Singapore is 1, then a.
purchasing-power parity holds, and 1 US dollar buys 1 Singaporean dollar.. b.
purchasing power parity holds, and the amount of currency needed to buy goods in
the
United States is the same as the amount needed to buy enough Singaporean dollars
to buy the same goods in Singapore.
c. purchasing power parity does not hold, but 1 US dollar buys 1 Singaporean dollar. d.
purchasing power parity does not hold, but the amount of currency needed to buy goods in
United States is the same as the amount needed to buy enough Singaporean dollars to buy
the same goods in Singapore.

37. In the United States, a three-kilogram can of coffee costs about $5. Suppose that the exchange
rate is about 0.8 baht per dollar and that a three-pound can of coffee in Thailand costs about 3
baht. What is the real exchange rate?
a. 5/3 cans of Thai coffee per can of US coffee
 b. 4/3 cans of Thai coffee per can of US coffee
c. 3/4 cans of Thai coffee per can of US coffee
d. 3/5 cans of Thai coffee per can of US coffee

38. Suppose the same basket of goods costs $100 in the United States and 50 yen in Japan.
According to purchasing power parity, what is the nominal exchange rate?
a. 2 yen per dollar c. 1/2 yen per dollar
b. 1 yen per dollar d. None of the above is correct

39. Other things the same, the real exchange rate between American and Japanese goods would
be higher if
a. prices of Japanese goods were higher, or the number of kilograms a dollar purchased
was higher.
b. prices of Japanese goods were higher, or the number of kilograms a dollar purchased
was lower.
c. prices of Japanese goods were lower, or the number of kilograms a dollar
purchased was higher.
d. prices of Japanese goods were lower, or the number of kilograms a dollar purchased
was lower.

40. A paperback book in the United States costs $6. In the Philippines, it costs 4 pesos. If the
nominal exchange rate is 1/2 peso per dollar, what is the real exchange rate?
a. 2/3 c. 4/3
b. 3/4 d. 2/3

41. If the Indonesian real exchange rate appreciates, Indonesian net exports
a. increase and Indonesian net capital outflow decreases.
b. decrease and Indonesian net capital outflow increases.
c. and Indonesian net capital outflow both increase.
d. and Indonesian net capital outflow both decrease.
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42. Suppose that the Singapore dollar buys fewer bananas in Indonesia than in Thailand. Traders
could make a profit by
a. buying bananas in Indonesia and selling them in Thailand, which would tend to raise
the price of bananas in Indonesia.
b. buying bananas in Indonesia and selling them in Thailand, which would tend to raise
the price of bananas in Thailand.
c. buying bananas in Thailand and selling them in Indonesia, which would tend to
raise the price of bananas in Thailand.
d. buying bananas in Thailand and selling them in Indonesia, which would tend to raise
the price of bananas in Indonesia.

43. Suppose that the US dollar buys less cotton in India than in the United States. Traders could
make a profit by
a. buying cotton in the United States and selling it in India, which would tend to
raise the price of cotton in the United States.
b. buying cotton in the United States and selling it in India, which would tend to raise
the price of cotton in India.
c. buying cotton in India and selling it in the United States, which would tend to raise
the price of cotton in India.
 d. buying cotton in India and selling it in the United States, which would tend to raise
the price of cotton in the United States.

44. If P = domestic prices, P* = foreign prices, and e is the nominal exchange rate, which of
the following is implied by purchasing-power parity?
a. P = e/P* c. e = P*/P
b. 1 = e/P* d. None of the above is correct. Use the (hypothetical) information in the

following table to answer the following questions.

Table A
Country Currency Currency per US Price Country Price
US Dollar Index Index

Bolivia boloviano 8.00 200 1600

Japan yen 125.00 200 50,000

Morocco dinar 10.00 200 2,000

Norwegian kroner 6.5 200 1,500

Thailand baht 40.00 200 7,000

45. Refer to Table A. In real terms, US goods are more expensive than goods in which
country(ies)? a. Bolovia and Morocco c. Japan and Norway
b. Japan, Norway, and Thailand d. Thailand

46. Refer to Table A. In real terms, US goods are less expensive than goods in which
country(ies)? a. Bolivia and Morocco c. Japan and Norway
b. Japan, Norway, and Thailand d. Thailand

47. Purchasing-power parity implies that the nominal exchange rate given as foreign currency per
unit of home currency must rise if the price levels in
a. foreign countries rise. c. both countries rise.
b. the prices in the home country rise. d. both countries fall.

48. When a country’s central bank increases the money supply, its
a. price level rises and its currency appreciates relative to other currencies in the
world.
b. price level rises and its currency depreciates relative to other currencies in the
world.
c. price level falls and its currency appreciates relative to other currencies in the
world.
d. price level falls and its currency depreciates relative to other currencies in the
world.

49. 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.

50. Economic policymakers are unable to simultaneously meet the following three
objectives:
a. exchange-rate management to stabilize the currency, the ability to carry out domestic
monetary policy by targeting domestic interest rates or the money supply(monetary
autonomy), and reduce inflation.
b. exchange-rate management to stabilize the currency, the ability to balance the budget,
and free capital mobility in order to integrate with global financial markets.
c. exchange-rate management to stabilize the currency, the ability to carry out
domestic monetary policy by targeting domestic interest rates or the money
supply(monetary autonomy), and free capital mobility in order to integrate with
global financial markets. d. None of the above is correct.

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