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Exam 31: Open-Economy Macroeconomics: Basic Concepts

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Question 31

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Under what circumstances does purchasing-power parity explain how exchange rates are determined, and why is this not completely accurate?

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Purchasing-power parity works well in he...

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Question 32

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As the value of the Australian dollar rises, more and more people are buying goods from overseas on the internet and having them shipped to Australia. Does this mean purchasing power parity is more or less likely to hold for these goods?

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The law of one price applies to the inte...

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Question 33

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How can one derive the identity that saving equals the sum of domestic investment and net foreign investment from the national income accounting identity?

If a country sells more goods and services abroad than it purchases from foreign countries, then its exports are:

If purchasing-power parity holds, and a tonne of rice costs $200 in Australia and 15 000 yen in Japan, then the nominal exchange rate is:

Positive net exports signal that the:

The outcome from the GFEC has been that poorer nations have not received the capital investment required to continue their growth.

If a government does not pay interest or principal on its debt when due, it is:

If the nominal exchange rate is 75 yen per dollar, and a Big Mac hamburger sells for $4 in Australia and for 200 yen in Japan, then the real exchange rate is:

During every period of hyperinflation, the money supply and the price level increase rapidly, and the nominal exchange rate depreciates rapidly.

A closed economy is where an economy does not interact with other economies in the world.

Net exports of a country are:

Macroeconomic variables that describe an open economy's interactions in world markets include exchange rates, the trade balance and imports.

Group the following according to whether they may affect the demand, supply or both the demand and supply of $A in the foreign exchange market? a. A fall in the incomes of Australians b. A fall in the inflation rate in Australia relative to the rates in other countries with which Australia trades c. A fall in interest rates in Australia d. An increase in the income of citizens of the United Kingdom

Purchasing-power parity describes the forces that determine:

If the exchange rate changes from 100 yen per dollar to 120 yen per dollar, then the yen has:

In an open economy:

A person flying QANTAS from LA to Hawaii leads to an increase in the current account deficit.

When the money supply decreases:

According to the theory of purchasing-power parity, what will happen to a country's nominal exchange rate if the country has relatively high inflation?