Question 1

Suppose the inflation rate over the last 20 years has been 10 per cent in SA, 7 per cent in Japan, and 3 per cent in the USA.If purchasing power parity holds, which of the following statements is true? Over this period,

Accepted Answer

A)  the value of the dollar should have fallen compared to the value of the rand and the yen.
B)  None of these answers.
C)  the yen should have fallen in value compared to the rand and risen compared to the dollar.
D)  the value of the rand should have risen compared to the value of the yen and the dollar.
E)  the yen should have risen in value compared to the rand and fallen compared to the dollar.F) A) and D)
G) B) and E)

Question 2

Which of the following is equivalent to the trade deficit?

Accepted Answer

A)  imports ÷ exports
B)  net capital inflow
C)  exports + imports
D)  net exports - importsE) A) and B)
F) A) and C)

Question 3

A fall in the rand's nominal exchange rate in terms of US dollars

Accepted Answer

A)  will always lead to a fall in the real exchange rate of the rand in terms of US dollars.
B)  may be offset by a rise in the price level in SA so that the real exchange rate of the rand in terms of US dollars is unchanged.
C)  will always make US imports into SA more expensive relative to goods produced in SA.
D)  may make SA a less affordable holiday destination for US residents.E) A) and B)
F) C) and D)

Question 4

An economy that interacts with other economies is known as

Accepted Answer

A)  an export economy.
B)  a friendly economy.
C)  an open economy.
D)  a balanced trade economy.
E)  an import economy.F) A) and C)
G) None of the above

Question 5

SA's net capital outflow measures

Accepted Answer

A)  the flow of goods and services between SA and other countries.
B)  the flow of assets between SA and other countries.
C)  the SA government's budget surpluses and deficits relative to those experienced in other countries.
D)  the amount of physical capital built by SA firms in foreign countries.E) All of the above
F) B) and C)

Question 6

If other things remain the same, if a country saves less, then

Accepted Answer

A)  net capital outflow rises, so net exports rise.
B)  net capital outflow rises, so net exports fall.
C)  net capital outflow falls, so net exports rise.
D)  net capital outflow falls, so net exports fall.E) B) and D)
F) A) and D)

Question 7

If SA exports more than it imports,

Accepted Answer

A)  SA's net exports are negative.
B)  SA is running a trade deficit.
C)  SA's net capital outflow must be positive.
D)  SA's net capital outflow must be negative.E) B) and D)
F) A) and D)

Question 8

If a company based in SA prefers a strong rand (a rand with a high foreign exchange value), then the company probably exports more than it imports.

Accepted Answer

A) True 
 B)False  False

Question 9

For any country, net exports are always equal to net capital outflow because every international transaction involves an exchange of an equal value of some combination of goods and assets.

Accepted Answer

A) True 
 B)False

Question 10

If SA has a positive capital inflow, what does this signify?

Accepted Answer

A)  Nothing.
B)  That the government is running a budget deficit.
C)  That more funds were invested in SA by foreigners than SA invested abroad.
D)  That SA is running a trade surplus.E) C) and D)
F) All of the above

Question 11

Suppose a cup of coffee is €1.50 in Germany and R0.50 in SA.If purchasing power parity holds, what is the nominal exchange rate between euros and rands?

Accepted Answer

A)  €0.33 per rand.
B)  €1.50 per rand.
C)  €0.75 per rand.
D)  €3 per rand.E) A) and D)
F) B) and C)

Question 12

If SA imports total R100 billion and SA exports total R150 billion, which of the following would be true?

Accepted Answer

A)  SA net exports equal R150 billion.
B)  The SA has a trade surplus of R50 billion.
C)  The SA has a trade deficit of R100 billion.
D)  The SA has a trade deficit of R50 billion.E) C) and D)
F) All of the above

Question 13

Which of the following people or firms would be pleased by a depreciation of the rand against the US dollar?

Accepted Answer

A)  All the people and firms mentioned in these answers.
B)  A French exporter of wine to the SA.
C)  An American tourist visiting Cape Town.
D)  A SA importer of French wine.
E)  A SA company that wishes to expand abroad by building a factory in Lesotho.F) All of the above
G) C) and D)

Question 14

If the SA price level is increasing by 3 per cent annually and the US price level is increasing by 5 per cent annually, by what percentage would the rand price of US dollars need to change according to purchasing power parity?

Accepted Answer

A)  depreciate by 5 per cent per year
B)  appreciate by 3 per cent per year
C)  appreciate by 5 per cent per year
D)  depreciate by 2 per cent per yearE) A) and B)
F) All of the above

Question 15

Which of the following, if undertaken by a SA economic agent, would be classified as foreign direct investment?

Accepted Answer

A)  A purchase of 100 shares in Vodacom.
B)  A loan of r₁ million to a Brazilian mining company.
C)  A purchase of shares in Swiss firm Nestlé.
D)  The establishment of a new accountancy practice in Gaborone, Botswana.E) B) and D)
F) A) and D) D

Question 16

Which of the following would be recorded as a SA merchandise export?

Accepted Answer

A)  A SA tourist spends 10,000 euros on vacation in the south of France.
B)  A machine shop in Durban purchases a grinder made in Italy.
C)  A SA resident receives a R500 dividend on shares she owns in a business in Germany.
D)  A French car hire firm purchases a fleet of new Honda cars built at Honda's factory in SA.E) A) and D)
F) B) and C) D

Question 17

According to purchasing power parity, what is the relationship between changes in price levels between two countries and changes in nominal exchange rates?

Accepted Answer

Purchasing power parity asserts that the...

Question 18

If savings in SA is R300 billion and investment in SA is R550 billion, then

Accepted Answer

A)  there must be net capital inflow of R550 billion.
B)  there must be net capital inflow of R250 billion.
C)  the SA government must be running a R250 billion surplus.
D)  the SA financial market must be experiencing a net capital outflow.E) B) and C)
F) A) and B)

Question 19

If the nominal exchange rate is 20 SA rands per 1 US dollar, and if the price of a Big Mac is $2 in the USA and R60 in SA, then the real exchange rate is 2/3 SA Big Mac per American Big Mac.

Accepted Answer

A) True 
 B)False

Question 20

When more rands are needed to buy a unit of Japanese yen, the rand

Accepted Answer

A)  has deflated.
B)  has inflated.
C)  has appreciated.
D)  has depreciated.E) A) and D)
F) B) and C)

Exam 11: Open-Economy Macroeconomics: Basic Concepts

Suppose the inflation rate over the last 20 years has been 10 per cent in SA, 7 per cent in Japan, and 3 per cent in the USA.If purchasing power parity holds, which of the following statements is true? Over this period,

Correct AnswerverifiedShow Answer

Which of the following is equivalent to the trade deficit?

Correct AnswerverifiedShow Answer

A fall in the rand's nominal exchange rate in terms of US dollars

Correct AnswerverifiedShow Answer

An economy that interacts with other economies is known as

Correct AnswerverifiedShow Answer

SA's net capital outflow measures

Correct AnswerverifiedShow Answer

If other things remain the same, if a country saves less, then

Correct AnswerverifiedShow Answer

If SA exports more than it imports,

Correct AnswerverifiedShow Answer

If a company based in SA prefers a strong rand (a rand with a high foreign exchange value), then the company probably exports more than it imports.

Correct AnswerverifiedFalse

For any country, net exports are always equal to net capital outflow because every international transaction involves an exchange of an equal value of some combination of goods and assets.

Correct AnswerverifiedShow Answer

If SA has a positive capital inflow, what does this signify?

Correct AnswerverifiedShow Answer

Suppose a cup of coffee is €1.50 in Germany and R0.50 in SA.If purchasing power parity holds, what is the nominal exchange rate between euros and rands?

Correct AnswerverifiedShow Answer

If SA imports total R100 billion and SA exports total R150 billion, which of the following would be true?

Correct AnswerverifiedShow Answer

Which of the following people or firms would be pleased by a depreciation of the rand against the US dollar?

Correct AnswerverifiedShow Answer

If the SA price level is increasing by 3 per cent annually and the US price level is increasing by 5 per cent annually, by what percentage would the rand price of US dollars need to change according to purchasing power parity?

Correct AnswerverifiedShow Answer

Which of the following, if undertaken by a SA economic agent, would be classified as foreign direct investment?

Correct AnswerverifiedD

Which of the following would be recorded as a SA merchandise export?

Correct AnswerverifiedD

According to purchasing power parity, what is the relationship between changes in price levels between two countries and changes in nominal exchange rates?

Correct AnswerverifiedPurchasing power parity asserts that the...View AnswerShow Answer

If savings in SA is R300 billion and investment in SA is R550 billion, then

Correct AnswerverifiedShow Answer

If the nominal exchange rate is 20 SA rands per 1 US dollar, and if the price of a Big Mac is $2 in the USA and R60 in SA, then the real exchange rate is 2/3 SA Big Mac per American Big Mac.

Correct AnswerverifiedShow Answer

When more rands are needed to buy a unit of Japanese yen, the rand

Correct AnswerverifiedShow Answer

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False

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D

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D

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Purchasing power parity asserts that the...
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