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Mankiw-Test Chapter 18
Mankiw-Test Chapter 18
Basic Concepts
1. A country’s balance of international trade is positive when
a. exports exceed imports.
b. exports plus investment exceed imports plus domestic saving.
c. imports exceed exports.
d. imports plus domestic saving exceed exports plus investment.
4. If U.S. imports total $100 billion and U.S. exports total $150 billion, which of the
following would be true?
a. U.S. net exports equal –$50 billion
b. The U.S. has a trade surplus of $50 billion.
c. The U.S. has a trade deficit of $100 billion.
d. The U.S. has a trade deficit of $50 billion.
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184 Chapter Open-Economy Macroeconomics: Basic Concepts
9. If interest rates in Canada rise above those in the rest of the world, then
a. the demand for Canadian dollars decreases.
b. exports from Canada to other countries increases.
c. imports into Canada from other countries decreases.
d. it raises Canada’s exchange rate and this may result in a deficit on Canada’s
current account.
10. Foreign direct investment differs from foreign portfolio investment in that
a. direct investments involve stocks and bonds.
b. direct investments can only be made by the International Monetary Fund.
c. direct investments involve physical capital; portfolio investments involve
financial capital
d. a government must be involved in direct investment, but portfolio investment
can involve private firms.
15. If you were told that the exchange rate was 1.5 U.S. dollars per 1 Canadian dollar
(CDN), that would mean that Canadians would have to spend __________ to by a
$12 watch in New York City.
a. $18 CDN
b. $15 CDN
c. $1.5 CDN
d. $12 CDN
16. Currencies depreciate and appreciate all the time. Who gains and who loses when
the Mexican peso depreciates?
a. Americans holding Mexican pesos gain, U.S. tourists to Mexico lose.
b. U.S. exporters to Mexico gain, Americans holding pesos lose.
c. Mexican exporters gain, Mexican importers lose.
d. Mexican importers gain, Mexican exporters lose.
18. When fewer U.S. dollars are needed to buy a unit of Japanese yen, the dollar
a. is devalued.
b. is inflated.
c. appreciates.
d. depreciates.
19. If one country has a lower inflation rate than other countries, its
a. currency tends to appreciate.
b. currency tends to depreciate.
c. real interest rate will be higher than in other countries.
d. nominal interest rate will be higher than in other countries.
21. Which of the following is a statement of the purchasing power parity 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.
22. Suppose the same basket of goods costs $100 in the U.S. and 50 pounds in Britain.
According to PPP, if the prices do not change, what will be the exchange rate?
a. 2 dollars/pound
b. 4 dollars/pound
c. 5 dollars/pound
d. .5 dollars/pound
23. Which of the following is a reason why exchange rates may deviate from their
purchasing power parity values for many years?
a. Some goods are not tradable.
b. In some cases, a foreign-produced good is not a perfect substitute for a
domestically-produced version of the same thing.
c. In some markets, import quotas limit the ability of firms to agree on exchange
prices.
d. Both a and b are correct.
24. If the U.S. price level is increasing by 3 percent annually and the Swiss price level is
increasing by 5 percent annually, by what percent would the dollar price of francs
need to change according to purchasing power parity?
a. depreciate by 5 percent
b. appreciate by 3 percent
c. appreciate by 5 percent
d. depreciate by 2 percent