Multiple Choice Questions
1. Comparing the U.S. economy today to that of 1950, one finds that today, as a percentage of GDP,
a. Exports and imports are both higher.
b. Exports and imports are both lower.
c. Exports are higher, and imports are lower.
d. Exports are lower, and imports are higher.
2. In an open economy, national saving equals domestic investment
a. Plus the net outflow of capital abroad.
b. Minus the net exports of goods and services.
c. Plus the government's budget deficit.
d. Minus foreign portfolio investment.
3. If the value of a nation's imports exceeds the value of its exports, which of the following is NOT true?
a. Net exports are negative.
b. GDP is less than the sum of consumption, investment, and government purchases.
c. Domestic investment is greater than national saving.
d. The nation is experiencing a net outflow of capital.
4. If a nation's currency doubles in value on foreign exchange markets, the currency is said to _________, reflecting a change in the _________ exchange rate.
a. Appreciate, nominal
b. Appreciate, real
c. Depreciate, nominal
d. Depreciate, real
5. If a cup of coffee costs 2 Euros in Paris and $6 in New York and purchasing-power parity holds, what is the exchange rate?
a. 1/4 euro per dollar
b. 1/3 euro per dollar
c. 3 Euros per dollar
d. 4 Euros per dollar
6. The theory of purchasing-power parity says that higher inflation in a nation causes the nation's currency to _________, leaving the _________ exchange rate unchanged.
a. Appreciate, nominal
b. Appreciate, real
c. Depreciate, nominal
d. Depreciate, real