Module 8
Suppose the price of corn in Mexico is 82.50 pesos per bushel, while the price of corn in the United States is $7.50 per bushel. Where is corn least expensive if the exchange rate is 14 pesos per dollar?
Mexico
United States
The price is the same in the United States as Mexico.
Suppose the price of corn in Mexico is 105.00 pesos per bushel, while the price of corn in the United States is $7.50 per bushel. Where is corn least expensive if the exchange rate is 14 pesos per dollar?
The price is the same in the United States as Mexico.
United States
Mexico
Suppose the one-year rate of interest in the United States is 3% per year, while that in England is 2% per year. If the value of the dollar relative to the British pound on the forward market is 1% below its value on the spot market, then
The interest parity condition holds
Investors can earn more by converting pounds into dollars and buying one year bonds in England
The behavior of speculators will cause the value of the dollar on the forward market to increase
Investors can earn more by converting pounds into dollars and buying one-year bonds in the United States
Imports are defined as
Goods and services produced outside the United States, but sold to people living in the United States.
Goods and services produced in the United States, but sold to people living outside the United States
The difference between the values of goods sold by Americans to people living outside the United States and those sold by people living abroad
The Euro value of goods sold by Americans to Europeans
Suppose the value of the dollar on the forward exchange rate market (for one year in the future) is 1% above the spot rate. If foreign interest rates on a one-year bond are approximately equal to 1.75% per year. What is the rate of interest in the United States?
0.75%
2.25%
1.75%
-0.75%
Suppose the value of the dollar on the forward exchange rate market (for one year in the future) is 0.70% below the spot rate. If foreign interest rates on a one-year bond are approximately equal to 1.60% per year. What is the rate of interest in the United States?
2.30%
0.90%
1.60%
0.70%
Letting G be government spending, T be net taxes (or taxes collected minus transfer payments), I be gross private domestic investment, S savings, and X-M net exports, which of the following statements is correct?
(I–S) + (G–T) + (X–M) =0,
(I–S) - (G–T) + (X–M) =0,
(I–S) + (G–T) - (X–M) =0,
(I–S) - (G–T) - (X–M) =0,
Net exports are exports
Minus imports.
To a country that has a free trade agreement with the United States
From Europeans or other foreigners taking a vacation in the United States
From China to the United States minus the value of government bonds bought by the Chinese
Suppose the price of corn in Mexico is 105.00 pesos per bushel, while the price of corn in the United States is $7.50 per bushel. Where is corn least expensive if the exchange rate is 14.50 pesos per dollar?
Mexico.
United States
They price is the same in the United States as Mexico
Suppose that corn in less expensive in the United States than in Mexico. What does a Mexican have to do the buy corn in the United States and what effect does this tend to have on the peso/dollar exchange rate?
A Mexican must convert his pesos to dollars and this will tend to cause the value of the peso to decrease.
A Mexican must convert his pesos to dollars and this will tend to cause the value of the peso to increase.
A Mexican must convert his pesos to dollars, but because of speculator this will have no effect on the peso/dollar exchange rate
Because of the interest parity condition, the Mexican can directly buy United States corn with pesos, so he simply has to make a bid for the United States Mercantile exchange
Exports are defined as
Goods and services produced in the United States, but sold to people living outside the United States
Goods and services produced outside the United States, but sold to people living in the United States
The differences between the values of goods sold by Americans to people living outside the United States and those sold by people living abroad to Americans
The Euro value of goods sold by Americans to Europeans
Suppose US exports are $25 billion and imports are $20 billion. This implies that
Foreigners either are reducing their holdings of American assets by $5 billion, or Americans increasing their holdings of foreign assets by $5 billion.
Foreigners either are increasing their holdings of American assets by $5 billion, or Americans decreasing their holdings of foreign assets by $5 billion.
Both foreigners and Americans increasing their holdings of foreign assets by $5 billion
Both foreigners and Americans are reducing their holdings of dollar denominated assets
Suppose US exports are $25 billion and imports are $20 billion. This implies that
The balance of trade is plus $5 billion and foreigners on net are giving up $5 billion dollars to buy American Goods.
The balance of trade is minus $5 billion and foreigners on net are giving up $5 billion dollars to buy American Goods.
The balance of trade is plus $5 billion and foreigners on net are increasing their holding of dollars by $5 billion
The balance of trade is minus $5 billion and foreigners on net are increasing their holding of dollars by $5 billion
Suppose the one-year rate of interest in the United States is 3% per year, while that in England is 2% per year. If the value of the dollar relative to the British pound on the forward market is 1% above its value on the spot market, then
Investors can earn more by converting pounds into dollars and buying one-year bonds in the United States.
The interest parity condition holds
Investors can earn more by converting pounds into dollars and buying one-year bonds in the England
The behavior of speculators will cause the value of the dollar on the forward market to increase
Suppose the price of corn in Mexico is 100.00 pesos per bushel, while the price of corn in the United States is $7.50 per bushel. Finally suppose the exchange rate is 13.50 pesos per dollar. Given this situation, which of the following statements is true?
Corn flows from Mexico to the United States and dollars flow from the United States to Mexico.
Corn flows from Mexico to the United States and dollars flow from Mexico to the United States.
Corn flows from the United States to Mexico and dollars flow from the United States to Mexico
Corn flows from the United States to Mexico and dollars flow from Mexico to the United States
When the value of the dollar decreases on foreign exchange markets
The price of foreign goods expressed in dollars increases, so the United states imports decrease.
It causes the stock market in the United States to rise and imports (into the USA) to increase
The price of foreign goods expressed in dollars decreases, so the United states imports decrease.
The price of US goods in other currencies increases so United States exports decrease
Net exports are determined by
Both relative prices and capital flows
Only relative prices
Only capital flows
Relative prices and tariffs
Suppose you take a vacation to England. The money you spend there
Counts as in import because you are spending money on English produced goods and services.
Counts as an export because you are spending money abroad
Counts as an import because you have to use English money
Counts as a net export if you flew there on an American airline
If a government’s budget is balance on national income and product account, and there is a balance of payments deficit then,
Gross investment is greater than gross saving, I>S.
Gross investment is greater than gross saving, I
Gross investment is greater than gross saving, I=S.
There is more investment abroad than foreign investment at home
Suppose that over the course of this year Americans wish to purchase $450 billion worth of imports at the current value of the dollar on exchange rate markets, while foreigners wish to purchase $300 billion worth of American exports. If foreigners wish to increase their holdings of American assets by $150 billion, then
There will be a balance of trade deficit for the United States equal to $150 billion dollars.
There will be a balance of trade surplus for the United States equal to $150 billion dollars.
The value of the dollar will increase on foreign exchange markets
The value of the dollar will decrease on foreign exchange markets
If there is a balance of trade deficit in the United States, then
Foreigners must be willing to increase their holdings of American assets.
There must be a governmental budget deficit
Investment must be greater than saving
The value of the dollar must be falling
Suppose the one-year rate of interest in the United States is 3% per year, while that in England is 2% per year. If the value of the dollar relative to the British pound on the forward market is 2% below its value on the spot market, then
Investors can earn more by converting dollars into pounds and buying one year bonds in England.
The interest parity condition holds
The behavior of speculators will cause the value of the dollar on the forward market to decrease
Investors can earn more by converting pounds into dollars and buying one-year bonds in the United States
Suppose the price of corn in Mexico is 105.00 pesos per bushel, while the price of corn in the United States is $7.50 per bushel. Finally suppose the exchange rate is 13.50 pesos per dollar. Given this situation, which of the following statements is true?
Corn is more expensive in Mexico than in the United States, therefore corn will be imported into Mexico.
Corn is less expensive in Mexico than in the United States, therefore corn will be imported into Mexico.
Corn is more expensive in Mexico than in the United States, therefore corn will be exported from Mexico into the United States.
Corn is less expensive in Mexico than in the United States, therefore corn will be exported from Mexico into the United States
Suppose the rate of inflation in the United States is 2.5% per year, while that in Europe is 1% per year. This implies that
The value of the dollar will decline relative to the euro by 1.5% per year.
The value of the euro will decline relative to the dollar by 1.5% per year.
The value of American goods is increasing relative to the value of European goods
The value of American goods is decreasing relative to the value of European goods
Suppose the price of $1 is 11 pesos or the exchange rate between the dollar and the Mexican peso is 11 pesos per dollar. Suppose also that the price of corn in the United States is $5 a bushel. If a Mexican wants to purchase corn in the United States, how much would one bushel of corn in the United States cost in pesos?
55 pesos per bushel.
There is no way to tell
50 pesos per bushel.
65 pesos per bushel.
Suppose the price of corn in Mexico is 110.00 pesos per bushel, while the price of corn in the United States is $7.50 per bushel. Finally suppose the exchange rate is 13.50 pesos per dollar. Given this situation, which of the following statements is true?
Corn flows from the United States to Mexico and pesos flow from Mexico to the United States.
Corn flows from the United States to Mexico and pesos flow from the United States to Mexico
Corn flows from Mexico to the United States and pesos flow from Mexico to the United States.
Corn flows from Mexico to the United States and pesos flow from the United States to Mexico
Suppose that corn in less expensive in the United States than in Mexico. What does a Mexican have to do the buy corn in the United States and what effect does this tend to have on the price of corn in Mexico and the price corn in the United States.
A Mexican must convert his pesos to dollars and use the dollars to buy corn. This will tend to reduce the price of corn in Mexico and increase it in the United States.
A Mexican must convert his pesos to dollars and use the dollars to buy corn. This will tend to reduce the price of corn in the United States and increase it in Mexico
A Mexican must convert his pesos to dollars and use the dollars to buy corn. This will tend to reduce the price of corn in both countries.
Because of the interest parity condition, the Mexican can directly buy United States corn with pesos, so he simply has to make a bid for the United States corn at the Chicago Mercantile exchange. This will tend to reduce the price of corn in Mexico and increase it in the United States.
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