Question

1. Suppose a comparable phone costs 500 USD in the U.S. and 300 EUR in Germany. If the nominal exchange rate is

0.8 EUR per 1 USD, then the real exchange rate in terms of how many German phones can be traded for one U.S. phone is: A. 1.33. B. 1.25. C. 0.60. D. 0.80. 2. The value of net exports is also the value of: A. net saving. B. national saving. C. net investment. D. the excess of national saving over domestic investment. 3. In the 1990s, a presidential candidate in the U.S. proposed tariffs on Japanese, Chinese, and other South American imports. Assume that the U.S. is a small open economy, and use the model of the real exchange rate shown in the diagram above to explain what happens to the following: a.) The real exchange rate b.) The trade balance c.) Imports d.) Exports 4. A trade deficit can be financed in all of the following ways except by: A. borrowing from domestic lenders. B. selling foreign assets owned by domestic residents to foreigners. C. selling domestic assets to foreigners. D. borrowing from foreigners. 5. If the real exchange rate is high, foreign goods: A. are relatively cheap and domestic goods are relatively expensive. B. are relatively expensive and domestic goods are relatively cheap. C. and domestic goods are both relatively expensive. D. and domestic goods are both relatively cheap. 6. If domestic spending exceeds output, we ______ the difference. A. export B. import C. import D. export 7. Assume that in a small open economy where full employment always prevails, national saving is 300. a. If domestic investment is given by I = 400 – 20r, where r is the real interest rate in percent, what would the equilibrium interest rate be if the economy were closed? b. If the economy is open and the world interest rate is 10 percent, what will investment be? c. What will the current account surplus or deficit be? What will net capital outflow be? HTML Editor 8. What is the price of a pair of shoes in Paris if the price in the U.S. is 400 USD and the exchange rate is 1 USD = 0.75 EUR? A. 53 EUR B. 30 EUR C. 533 EUR D. 300 EUR 9. An “open” economy is one in which: A. government spending exceeds revenues. B. the national interest rate equals the world interest rate. C. the level of output is fixed. D. there is trade in goods and services with the rest of the world. 10. If net capital outflow is positive, then: A. exports must be negative. B. the trade balance must be positive. C. exports must be positive. D. the trade balance must be negative. 11. If domestic saving exceeds domestic investment, then net exports are ______ and net capital outflows are ______. A. positive; negative B. negative; negative C. positive; positive D. negative; positive

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