PE quiz 13/4

Which of the following statements correctly describes the relationship between net exports (NX) and net capital outflow (NCO)?

• When a country has a trade surplus (NX positive), it experiences positive NCO.

• When a country has a trade deficit (NX negative), it experiences positive NCO.

• When a country has a trade surplus (NX positive), it experiences negative NCO.

• When a country has a trade deficit (NX negative), it experiences no change in NCO.

In an open economy, how are savings, domestic investment, and net capital outflow (NCO) related?

• Domestic investment is equal to the difference between savings and NCO.

• Savings are equal to the difference between domestic investment and NCO.

• Savings are equal to the sum of domestic investment and NCO.

• NCO is equal to the difference between savings and domestic investment.

The dollar-yen exchange rate falls from 100 to

80 yen per dollar. At the same time, the price Ievel

in the United States rises from 180 to 200, and the

price level in Japan remains the same. As a result,

• American goods have become more expensive

  relative to Japanese goods

• The relative price of American and Japanese

  goods has not changed.

• American goods have become less expensive

  relative to Japanese goods.

• Both American and Japanese goods have become

  relatively less expensive.

What does a positive net capital outflow (NCO) indicate?

• The country is experiencing a trade deficit.

• The country is investing more in foreign assets than foreign investors are investing in its domestic assets.

• Foreign investors are investing more in the country's domestic assets than the country is investing in foreign assets.

• The country has a higher rate of return on domestic assets than on foreign assets.

What does a positive net export number indicate for a country?

• The country is not involved in international trade.

• The country has a trade deficit.

• The country has a balanced trade.

• The country has a trade surplus.

Which of the following is a limitation of the purchasing-power parity theory?

• It ensures that a unit of currency has the same real value in all countries.

• All goods are easily traded between countries.

• The theory does not account for differences in the price of goods between countries.

• Not all goods are perfect substitutes, preventing arbitrage from functioning effectively.

Which of the following correctly defines the real exchange rate?

• The increase in the value of a currency as measured by the amount of foreign currency it can buy.

• The rate at which a person can trade the currency of one country for the currency of another.

• The rate at which a person can trade the goods and services of one country for the goods and services of another.

• The decrease in the value of a currency as measured by the amount of foreign currency it can buy.

Purchasing power parity implies that national price levels should be equal after:

• They are converted to a common currency

• Sufficient time has passed

• Trade deficits are remedied

• Local economic factors are considered