Econ-201 Open-Economy Macroeconomics (B)

Front 1

Suppose the dollar depreciates relative to the British pound. What is the result on U.S. prices?

Back 1

Prices in the U.S. are rising.

Front 2

In an open economy, saving is equal to:

Back 2

Domestic investment plus net capital outflow.

S = I + NCO

Front 3

____ is greater than ____ if the U.S. experiences a trade surplus.

Back 3

exports, imports

Front 4

According to the purchasing power parity theory, what will happen to the pound if inflation in Great Britain exceeds inflation in the U.S.?

Back 4

The pound will depreciate.

Front 5

Suppose that a German-produced car becomes very popular in the United States. What effect would this have on the U.S.?

Back 5

There would be an increase in the trade deficit in the United States.

Front 6

If a U.S. dollar exchanges for 2.0 German marks, then the dollar price of a mark is:

Back 6

50 cents




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Front 7

A French winery increases its wine sales to the United States. What is the effect of this increase?

Back 7

An increase in French exports and U.S. imports.

Front 8

The nightly news reports that the dollar has strengthened relative to the Japanese yen. What does this mean?

Back 8

It means that the dollar can now purchase more yen.

Front 9

Suppose there is an increase in the nominal exchange rate. We would expect an increase in:

Back 9

The real exchange rate.

Front 10

If one Japanese Yen = $0.50, how many Yen can be purchased with $1.00?

Back 10

2 Yen per $1




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Front 11

If the nominal exchange rate of the dollar goes from 1.00 English pounds to 0.75 pounds, then what has happened to the dollar?

Back 11

The dollar has depreciated relative to the pound and English currency is now strengthened.

Front 12

Suppose that a video craze in the US makes a particular Japanese-produced video game very popular. How would this affect the U.S.?

Back 12

It would increase the trade deficit of the US.

Front 13

How do we express the nominal exchange rate?

Back 13

As units of foreign currency per U.S. dollar

Front 14

What causes ANY currency to depreciate?

Back 14

inflation

Front 15

If a dollar buys __________, there is an appreciation of the dollar.

Back 15

more foreign currency

Front 16

The movement of _____
help(s) to ensure that currency has the same purchasing power in all countries.

Back 16

exchange rates

Front 17

A depreciation (fall) in the U.S. real exchange encourages consumers both at home and abroad to buy more ____ & fewer ____.

Back 17

U.S. goods, foreign goods

Front 18

The real exchange rate compares the prices of _____ and _____ in the domestic economy.

Back 18

domestic goods, foreign goods

Front 19

The ____ between the currencies of two countries must reflect the different price levels in those countries.

Back 19

nominal exchange rate

Front 20

If the purchasing power of the dollar is always the same at home and abroad, then the ____ cannot change.

Back 20

exchange rate

Front 21

What causes money to lose value both in terms of the goods and services it can buy and in terms of the amount of other currencies it can buy?

Back 21

When the central bank prints large quantities of money.

Front 22

If the ____ ____ of the dollar is always the same at home and abroad, then the exchange rate cannot change.

Back 22

purchasing power

Front 23

Suppose a country has business opportunities that are relatively attractive to other countries. What effect would this have on the country's net exports and net capital outflow?

Back 23

This would cause the country to have both NEGATIVE net exports and net capital outflow.

Front 24

How would this transaction affect net exports and net capital outflow?

"A Russian flour mill buys wheat from the United States and pays for it with rubles."

Back 24

Russian net exports DECREASE.

U.S. net capital outflow INCREASES b/c the U.S. has acquired a Russian asset.

Front 25

What 6 factors affect net exports?

Back 25

1) PRICES of goods.
2) EXCHANGE RATES at which people can use domestic currency to buy foreign currencies.
3) TASTES of consumers.
4) POLICIES of the govt. toward international trade.
5) INCOMES of consumers.
6) COSTS of transporting goods.

Front 26

Suppose the US real exchange rate appreciates. What will happen to US exports and imports?

Back 26

An appreciation of the US real exchange rate makes domestic goods more expensive and foreign goods less expensive. The result is that EXPORTS WILL FALL and IMPORTS WILL RISE.

Front 27

Suppose that Japan has had 5% inflation in the last year, and Germany has had 3% inflation in the last year. According to the PPP model of exchange rates, what will result?

Back 27

Inflation causes the value of any currency to depreciate, so both the Mark and the Yen will have depreciated in the past year. The PPP model of exchange rates predicts that the country with HIGHER inflation will have the currency that depreciates, relative to the other currency. Therefore, the YEN WILL DEPRECIATE AGAINST THE MARK.

Front 28

In a small open economy, if consumer confidence falls and consumers decide to save more, then the real exchange rate ____ and net exports ____.

Back 28

fall, rise

Front 29

Suppose that Mary, a UK citizen, spends $1000 while shopping on her vacation in Florida. What does Mary's shopping spree do to US net exports and NCO?

Back 29

Mary's purchase of $1000 of US exports causes US net exports to rise. In exchange for the goods Mary purchased, she gave domestic agents $1000 in cash - this represents a purchase of UK assets by US residents - therefore, NCO also rises by $1000.