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Exam 11: Open-Economy Macroeconomics: Basic Concepts

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Question 31

Multiple Choice

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The exchange rate is the

A) value of money.
B) quantity of rands, dollars, yen, etc., that are traded on currency markets.
C) amount of foreign currency that is used to buy goods made in your country.
D) number of units of a foreign currency that can be bought with one unit of your own currency.

E) A) and B)
F) All of the above

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Question 32

Multiple Choice

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Which of the following is a statement of the purchasing power parity (PPP) theory of exchange rate determination? The exchange rate will adjust in the

A) long run until the interest rate is roughly the same in both countries.
B) long run until real GDP is roughly the same in both countries.
C) long run until the average price of goods is roughly the same in both countries.
D) short run until the average price of goods is roughly the same in both countries.

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

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Question 33

Multiple Choice

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Which of the following statements is not true about the relationship between national saving, investment, and net capital outflow?

If SA's money supply grows faster than Zimbabwe's, the value of the rand should rise relative to the value of the Zimbabwean dollar.

How do the nominal exchange rate and the real exchange rate differ?

Suppose that money supply growth continues to be higher in SA than it is in the United States.What does purchasing power parity imply will happen to the real and to the nominal exchange rate?

If SA has R25 billion in imports, R15 billion in exports, and sells R20 billion of assets to foreigners, how many foreign assets do domestic residents purchase?

Suppose that Thabo, a resident of SA, buys software from a company in Japan.Explain what this is and in what directions this changes SA net exports and SA net capital outflow.

If the nominal exchange rate between SA rands and US dollars is R0.50 per $1.00, how many dollars can you get for a rand?

What does purchasing power parity imply about the real exchange rate?

What is the logic behind the theory of purchasing power parity?

Suppose a resident of the USA buys a Jaguar car from SA, and the SA exporter uses the receipts to buy shares in Boeing.Which of the following statements is true from the perspective of SA?

If the rand/euro exchange rate rises, the euro has appreciated.

Arbitrage is the process of taking advantage of differences in prices of the same good by buying where the good is cheap and selling where it is expensive.

Under what circumstances does purchasing power parity explain how exchange rates are determined, and why is it not completely accurate?

If a bottle of mineral water is priced at R8 in South Africa and 720 yen in Japan, then according to the purchasing power parity theory of exchange rates, the yen/rand exchange rate should be 5,760 yen/rand.

If one country has a lower inflation rate than other countries, its

When people take advantage of differences in prices for the same good by buying it where it is cheap and selling it where it is expensive, it is known as

Which of the following statements is true about a country with a trade deficit?