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Economics 101 Practice Test: Open-Economy Macroeconomics
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Avg score: 37% • Most missed: “The nominal exchange rate is about 2 Aruban florin per dollar. If a basket of go…”
Open-economy macroeconomics is the study of an economy that interacts with other countries through various methods.  In an open economy, trading activity takes place between all countries. This means that it allows the buying and selling of goods and securities from neighboring countries.  Here are some things that an open economy can do: Trade in commodities and services, Purchase financial assets, Pick where to locate manufacturing plants, and Pick where to work.  An open economy interacts with other countries in two ways: It buys and sells goods and services in world product... Show more
Economics 101 Practice Test: Open-Economy Macroeconomics
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25 Questions

1. If a resident of the United States buys stock in a Japanese corporation, this is an example of U.S.
2. Brazil buys railroad engines from a U.S. firm and pays for them with bolivianos (Bolivian currency). By itself this transaction
3. If P = domestic prices, P* = foreign prices, and e is the exchange rate, which of the following is implied by purchasing-power parity?
4. When a country’s central bank decreases the money supply, its price level
5. During the twenty years or so before this text was written the United States had
6. Which of the following does purchasing-power parity imply?
7. If exchange rates are given in terms of how much foreign currency a dollar buys and how many foreign goods U.S. goods buy, then if the Fed increased the U.S. money supply other things the same, purchasing-power parity implies
8. International trade is of major importance for understanding
9. Suppose the nominal exchange rate is 100, the domestic price index is 50, and the foreign price index is 10. The real exchange rate is:
10. If the nominal exchange rate e is foreign currency per dollar, the domestic price is P, and the foreign price is P*, the real exchange rate is defined as
11. A Swiss firm opens a watch factory in the United States.
12. In 1999 Morocco exported $5.9 billion of goods and services and imported $8.4 billion. Morocco had a trade balance of about
13. Net exports of a country are the value of goods
14. The difference between savings in an open and closed economy equals
15. Brad, a U.S. resident, builds and operates a boxing gym in Thailand. The purchase represents
16. Peter, a Canadian citizen, sells several hundred cases of smoked salmon to a restaurant chain in the United States. By itself this sale
17. Which of the following would be inconsistent with purchasing-power parity?
18. The nominal exchange rate is about 2 Aruban florin per dollar. If a basket of goods in the United States costs $40, how many florins must a basket of goods in Aruba cost for purchasing-power parity to hold?
19. If inflation in other countries is higher than inflation in the United States over the next few months and exchange rates are given in terms of how much foreign currency a dollar buys and how many foreign goods U.S. goods buy, according to purchasing-power parity we should expect to see
20. Which of the following is correct?
21. Which of the following is incorrect?
22. Suppose that the real return from operating factories in Ghana decreases relative to the real rate of return in the United States. Other things the same,
23. Paul, a U.S. citizen, opens a textbook company in Brazil. His expenditures
24. In the United States a three-pound can of coffee costs about $6. Suppose the exchange rate is about 50 Belgian francs per dollar and that a three-pound can of coffee in Belgium costs about 400 francs. What is the real exchange rate?
25. A U.S. computer maker sells computers to a German firm. The U.S. company uses all of the revenues from this sale to purchase automobiles from German firms. These transactions

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