Open-Economy Macroeconomics: Basic Concepts 7633
209. In an open economy, gross domestic product equals $1,970 billion, government expenditure equals
$300 billion, investment equals $500 billion, and net capital outflow equals $280 billion. What is
consumption expenditure?
a. $280 billion
b. $780 billion
c. $890 billion
d. $1,170 billion
210. In an open economy, gross domestic product equals $3,500 billion, consumption expenditure
equals $2100 billion, government expenditure equals $400 billion, investment equals $800 billion,
and net exports equals $200 billion. What is national savings?
a. $200 billion
b. $600 billion
c. $800 billion
d. $1,000 billion
7634 Open-Economy Macroeconomics: Basic Concepts
211. In an open economy, gross domestic product equals $1,650 billion, government expenditure equals
$250 billion, and savings equals $550 billion. What is consumption expenditure?
a. $250 billion
b. $300 billion
c. $550 billion
d. $850 billion
212. In an open economy, gross domestic product equals $2,450 billion, consumption expenditure
equals $1,390 billion, government expenditure equals $325 billion, investment equals $510 and net
capital outflow equals $225 billion. What is national saving?
a. $225 billion
b. $510 billion
c. $735 billion
d. $1,390 billion
213. The country of Wiknam has net capital outflow of $1,000, government purchases of $5,000 and
consumption of $20,000. Which of the following is correct?
a. If its domestic investment is $1,000, its GDP is $26,000.
b. If its domestic investment is $2,000, its GDP is $28,000.
c. If its domestic investment is $5,000, its GDP is $29,000.
d. None of the above are correct.
Open-Economy Macroeconomics: Basic Concepts 7635
214. The country of Sylvania has a GDP of $900, investment of $200, government purchases of $200,
and net capital outflow of –$100. What is consumption?
a. $700
b. $600
c. $500
d. $300
215. The country of Elbia has a GDP of $2,000, consumption of $1,300, and government purchases of
$400. Which of the following is equal to $300?
a. domestic investment
b. domestic investment plus net capital outflow
c. domestic investment minus net capital outflow
d. None of the above is correct.
216. Suppose a country’s net capital outflow does not change, but its investment rises by $250 billion.
a. Its saving must have risen by $250 billion so its net exports have risen.
b. Its saving must have risen by $250 billion, but its net exports are unchanged.
c. Its saving must have fallen by $250 billion, so its net exports have fallen.
d. Its saving must have fallen by $250 billion, but its net exports are unchanged.
7636 Open-Economy Macroeconomics: Basic Concepts
217. From 1960 to about 1980 the net capital outflow of the U.S. was typically
a. small but always positive.
b. small and sometimes negative and sometimes positive.
c. large and positive.
d. large but sometimes negative and sometimes positive.
218. After 1980 in the United States,
a. national saving fell below investment and net capital outflow was a large positive number.
b. national saving fell below investment and net capital outflow was a large negative number.
c. investment fell below saving and net capital outflow was a large positive number.
d. investment fell below saving, so net capital outflow was a large negative number.
Open-Economy Macroeconomics: Basic Concepts 7637
219. Since 1980 U.S. net capital outflow has been
a. negative, meaning that foreigners were buying more capital assets from the United States
than Americans were buying abroad.
b. negative, meaning that Americans were buying more capital assets abroad than foreigners
were buying from the United States.
c. positive, meaning that foreigners were buying more capital assets from the United States than
Americans were buying abroad.
d. positive, meaning that Americans were buying more capital assets abroad than foreigners
were buying from the United States.
220. From 1980–1987, U.S. net capital outflow as a percent of GDP became a
a. larger positive number.
b. smaller positive number.
c. larger negative number.
d. smaller negative number.
7638 Open-Economy Macroeconomics: Basic Concepts
221. From 1980 to 1987
a. foreigners were buying more assets from the United States than Americans were buying
abroad. The United States was going into debt.
b. Americans were buying more assets abroad than foreigners were buying from the United
States. The United States was going into debt.
c. foreigners were buying more assets from the United States than Americans were buying
abroad. The United States was moving into surplus.
d. Americans were buying more assets abroad than foreigners were buying from the United
States. The United States was moving into surplus.
222. Most of the change from 1980 to 1987 in U.S. net capital outflow as a percent of GDP was due
to a(n)
a. decrease in U.S. investment.
b. decrease in U.S. national saving.
c. increase in U.S. investment.
d. increase in U.S. national saving.
Open-Economy Macroeconomics: Basic Concepts 7639
223. From 1991–2000, U.S. net capital outflow as a percent of GDP became a
a. larger positive number.
b. smaller positive number.
c. larger negative number.
d. smaller negative number.
224. Most of the change from 1991 to 2000 in U.S. net capital outflow as a percent of GDP was due
to a(n)
a. decrease in U.S. investment.
b. decrease in U.S. national saving.
c. increase in U.S. investment.
d. increase in U.S. national saving.
225. From 2000 to 2012 the U.S. had a trade
a. surplus and a large net capital inflow.
b. surplus and a large net capital outflow.
c. deficit and a large net capital inflow.
d. deficit and a large net capital outflow.
7640 Open-Economy Macroeconomics: Basic Concepts
226. During the tough economic times from 2008–2012,
a. investment fell but saving rose, so net capital outflow rose.
b. investment fell by more than saving fell, so net capital outflow rose
c. investment fell by less than saving fell, so net capital outflow fell.
d. investment and saving both fell by about the same percent.
227. In which period was most of the change in U.S. net capital outflow due to an increase in
investment in the U.S.?
a. 1980-1987
b. 1991-2000
c. 2000-2012
d. None of the above are correct.
228. If citizens of a country are not saving much, it is better to
a. force citizens to save.
b. reduce investment.
c. have foreigners invest in the domestic economy than no one at all.
d. to prevent opportunities for citizens to buy capital assets abroad.
Open-Economy Macroeconomics: Basic Concepts 7641
Multiple Choice – Section 02: The Prices for International Transactions: Real and nominal
Exchange Rates
1. The nominal exchange rate is the
a. nominal interest rate in one country divided by the nominal interest rate in the other country.
b. the ratio of a foreign country’s interest rate to the domestic interest rate.
c. rate at which a person can trade the currency of one country for another.
d. the real exchange rate minus the inflation rate.
2. If the exchange rate is .60 British pounds = $1, a bottle of ale that costs 3 pounds costs
a. $1.80.
b. $4.80.
c. $5.
d. None of the above is correct.
7642 Open-Economy Macroeconomics: Basic Concepts
3. If the exchange rate is 5 Egyptian pounds per U.S. dollar, a watch that costs $25 US dollars costs
a. 125 Egyptian pounds
b. 50 Egyptian pounds
c. 5 Egyptian pounds
d. None of the above is correct.
4. If the exchange rate is 2 Brazilian reals per dollar and a meal in Rio costs 20 reals, then how many
dollars does it take to buy a meal in Rio?
a. 40 and your purchase will increase Brazil’s net exports.
b. 10 and your purchase will increase Brazil’s net exports.
c. 40 and your purchase will decrease Brazil’s net exports.
d. 10 and your purchase will decrease Brazil’s net exports.
Open-Economy Macroeconomics: Basic Concepts 7643
5. The dollar is said to depreciate against the euro if
a. the exchange rate falls. Other things the same, it will cost fewer euros to buy U.S. goods.
b. the exchange rate falls. Other things the same, it will cost more euros to buy U.S. goods.
c. the exchange rate rises. Other things the same, it will cost fewer euros to buy U.S. goods.
d. the exchange rate rises. Other things the same, it will cost more euros to buy U.S. goods.
6. The dollar is said to appreciate against the euro if
a. the exchange rate falls. Other things the same, it will cost fewer euros to buy U.S. goods.
b. the exchange rate falls. Other things the same, it will cost more euros to buy U.S. goods.
c. the exchange rate rises. Other things the same, it will cost fewer euros to buy U.S. goods.
d. the exchange rate rises. Other things the same, it will cost more euros to buy U.S. goods.
7644 Open-Economy Macroeconomics: Basic Concepts
7. If you go to the bank and notice that a dollar buys more Japanese yen than it used to, then the
dollar has
a. appreciated. Other things the same, the appreciation would make Americans less likely to travel
to Japan.
b. appreciated. Other things the same, the appreciation would make Americans more likely to
travel to Japan.
c. depreciated. Other things the same, the depreciation would make Americans less likely to travel
to Japan.
d. depreciated. Other things the same, the depreciation would make Americans more likely to
travel to Japan.
8. You are planning a graduation trip to Mexico. Other things the same, if the dollar appreciates
relative to the peso, then
a. the dollar buys fewer pesos. Your hotel room in Mexico will require fewer dollars.
b. the dollar buys fewer pesos. Your hotel room in Mexico will require more dollars.
c. the dollar buys more pesos. Your hotel room in Mexico will require fewer dollars.
d. the dollar buys more pesos. Your hotel room in Mexico will require more dollars.
Open-Economy Macroeconomics: Basic Concepts 7645
9. You are the CEO of a U.S. firm considering building a factory in Chile. If the dollar appreciates
relative to the Chilean peso, then other things the same
a. it takes fewer dollars to build the factory. By itself building the factory increases U.S. net
capital outflow.
b. it takes fewer dollars to build the factory. By itself building the factory decreases U.S. net
capital outflow.
c. it takes more dollars to build the factory. By itself building the factory increases U.S. net capital
outflow.
d. it takes more dollars to build the factory. By itself building the factory decreases U.S. net
capital outflow.
10. You are staying in London over the summer and you have a number of dollars with you. If the
dollar appreciates relative to the British pound, then other things the same,
a. the dollar would buy more pounds. The appreciation would discourage you from buying as
many British goods and services.
b. the dollar would buy more pounds. The appreciation would encourage you to buy more British
goods and services.
c. the dollar would buy fewer pounds. The appreciation would discourage you from buying as
many British goods and services.
d. the dollar would buy fewer pounds. The appreciation would encourage you to buy more British
goods and services.
7646 Open-Economy Macroeconomics: Basic Concepts
11. You are planning a graduation trip to Mexico. Other things the same, if the dollar depreciates
relative to the peso, then
a. the dollar buys fewer pesos. Your hotel room in Mexico will require fewer dollars.
b. the dollar buys fewer pesos. Your hotel room in Mexico will require more dollars.
c. the dollar buys more pesos. Your hotel room in Mexico will require fewer dollars.
d. the dollar buys more pesos. Your hotel room in Mexico will require more dollars.
12. If you are vacationing in France and the dollar depreciates relative to the euro, then
a. the dollar buys more euros. It will take fewer dollars to buy a good that costs 50 euros.
b. the dollar buys more euros. It will take more dollars to buy a good that costs 50 euros.
c. the dollar buys fewer euros. It will take fewer dollars to buy a good that costs 50 euros.
d. the dollar buys fewer euros. It will take more dollars to buy a good that costs 50 euros.
Open-Economy Macroeconomics: Basic Concepts 7647
13. If the exchange rate rises from .65 British pounds per dollar to .70 pounds per dollar, then
compared to British goods, U.S. goods become
a. relatively more expensive for both British and U.S. residents.
b. relatively more expensive for British residents and relatively less expensive for U.S. residents.
c. relatively less expensive for British residents and relatively more expensive for U.S. residents.
d. relatively less expensive for both British and U.S. residents.
14. Other things the same, if the exchange rate changes from 75 Algerian dinar per dollar to 72
Algerian dinar per dollar, the dollar has
a. appreciated and so buys more Algerian goods.
b. appreciated and so buys fewer Algerian goods.
c. depreciated and so buys more Algerian goods.
d. depreciated and so buys fewer Algerian goods.
7648 Open-Economy Macroeconomics: Basic Concepts
15. Other things the same, if the exchange rate changes from 30 Thai bhat per dollar to 25 Thai bhat
per dollar, then the dollar has
a. appreciated and so buys more Thai goods.
b. appreciated and so buys fewer Thai goods.
c. depreciated and so buys more Thai goods.
d. depreciated and so buys fewer Thai goods.
16. Other things the same, if the exchange rate changes from .8 euros per dollar to .9 euros per
dollar, the dollar
a. depreciates so U.S. goods become less expensive relative to foreign goods.
b. depreciates so U.S. goods become more expensive relative to foreign goods.
c. appreciates so U.S. goods become less expensive relative to foreign goods.
d. appreciates so U.S. goods become more expensive relative to foreign goods.
Open-Economy Macroeconomics: Basic Concepts 7649
17. Other things the same, if the exchange rate changes from 6 Chinese yuan per dollar to 7 Chinese
yuan per dollar, then the dollar
a. appreciates and buys more Chinese goods.
b. appreciates and buys fewer Chinese goods.
c. depreciates and buys more Chinese goods.
d. depreciates and buys fewer Chinese goods.
18. If the exchange rate changes from 148 Kazakhstan tenge per dollar to 155 Kazakhstan tenge per
dollar, the dollar has
a. appreciated. Other things the same, it now takes fewer dollars to buy Kazakhstani goods.
b. appreciated. Other things the same, it now takes more dollars to buy Kazakhstani goods.
c. depreciated. Other things the same, it now takes fewer dollars to buy Kazakhstani goods.
d. depreciated. Other things the same, it now takes more dollars to buy Kazakhstani goods.
7650 Open-Economy Macroeconomics: Basic Concepts
19. If a dollar currently purchases 12.5 pesos and someone forecasts that in a year it will purchase 14
pesos, then the forecast is given in
a. real terms and implies the dollar will appreciate.
b. real terms and implies the dollar will depreciate.
c. nominal terms and implies the dollar will appreciate.
d. nominal terms and implies the dollar will depreciate.
20. The real exchange rate is the nominal exchange rate, defined as foreign currency per dollar, times
a. U.S. prices minus foreign prices.
b. U.S. prices divided by foreign prices.
c. foreign prices divided by U.S. prices.
d. None of the above is correct.
Open-Economy Macroeconomics: Basic Concepts 7651
21. If the nominal exchange rate e is foreign currency per dollar, the domestic price is P, and the
foreign price is P*, then the real exchange rate is defined as
a. e(P*/P).
b. e(P/P*).
c. e + P*/P.
d. e – P/P*.
22. If the nominal exchange rate e is foreign currency per dollar, the domestic price is P, and the
foreign price is P*, then the real exchange rate is defined as
a. P*/(Pe).
b. P/(P*e).
c. e(P*/P).
d. e(P/P*),
7652 Open-Economy Macroeconomics: Basic Concepts
23. Other things the same, an increase in the foreign price level
a. reduces the real exchange rate. This reduction could be offset by a decrease in the domestic
price level.
b. reduces the real exchange rate. This reduction could be offset by an increase in the domestic
price level.
c. increases the real exchange rate. This increase could be offset by a decrease in the domestic
price level.
d. increases the real exchange rate. This increase could be offset by an increase in the domestic
price level.
24. Other things the same, the real exchange rate between U.S. and Belgian goods would be higher if
a. prices in the U.S. were higher, or the number of euro the dollar purchased were higher.
b. prices in the U.S. were higher, or the number of euro the dollar purchased were lower.
c. prices in the U.S. were lower, or the number of euro the dollar purchased were higher.
d. prices in the U.S. were lower, or the number of euro the dollar purchased were lower.