Macroeconomics 1 - Seminar 7
31.03.2015
Miroslava Federičová
• Advantages of international trade
• Describe the difference between foreign portfolio
investment and foreign direct investment.
• Who is more likely to engage in foreign direct
investment – a corporation or an individual
investor?
• Who is more likely to engage in foreign portfolio
investment?
Another name given to Net Exports is:
a. trade value.
b. trade deficit.
c. trade balance.
d. balanced trade.
Net Exports are affected by which of the following?
i. Tastes of consumers.
ii. Prices of goods at home and abroad.
iii. The incomes of consumers at home and abroad.
iv. Government policies toward international trade.
By all.
Other things remaining equal, when domestic
incomes rise, Net Exports:
a.will decrease.
b.will increase.
c.will remain unaffected.
d.might increase or decrease.
When Net Capital Outflow is positive, it means:
a. imports are bigger than exports.
b. domestic residents are spending more on foreign
assets than foreigners are spending on domestic
assets.
c. foreigners are spending more on domestic assets
than domestic residents are spending on foreign
assets.
d. none of the above.
Other things remaining equal, if real interest
rates increase abroad, our:
a. net exports will decrease.
b. net capital outflow will increase.
c. net capital outflow will decrease.
d. none of the above.
Other things remaining equal, if there is political
or economic turmoil in the U.S., we can expect
our:
a. net exports will decrease.
b. net capital outflow will increase.
c. net capital outflow will decrease.
d. none of the above.
If the U.S. has a trade deficit, it means that:
a. saving in the U.S. is less than investment.
b. saving in the U.S. is grater than investment.
c. foreign incomes are greater than U.S.
incomes.
d. foreign incomes are less than U.S. incomes.
If purchasing-power parity holds, and if prices in
country A are the same as prices in country B, it
means that the real/nominal exchange rate
between these countries is equal to zero/one.
According to the Purchasing Power Parity Theory, if
a dollar will buy more in the U.S. than abroad,
traders will ________, which will cause the dollar to
________.
a. buy abroad and sell in the U.S., depreciate
b. buy abroad and sell in the U.S., appreciate
c. buy in the U.S. and sell abroad, appreciate
d. buy in the U.S. and sell abroad, depreciate
Would each of the following transactions be
included in net exports or net capital outflow? Be
sure to say whether it would represent an increase
or a decrease in that variable.
a. An American buys a Sony TV. Decrease in NX
b. An American buys a share of Sony stock.
Increase in NCO
c. The Sony pension fund buys a bond from the
U.S. Treasury. Decrease in NCO
d. A worker at a Sony plant in Japan buys some
Georgia peaches from an American farmer.
Increase in NX
Would each of the following groups be happy or
unhappy if the U.S. dollar appreciated? Explain.
a. Dutch pension funds holding U.S. government
bonds. Happy
b. U.S. manufacturing industries Unhappy
c. Australian tourists planning a trip to the U.S.
Unhappy
d. An American firm trying to purchase property
overseas. Happy
A can of soda costs $0.75 in the United States
and 12 pesos in Mexico.
What would the peso-dollar exchange rate be if
purchasing-power parity holds? 16 pesos for $1
If a monetary expansion caused all prices in
Mexico to double, so that soda rose to 24 pesos,
what would happen to the peso-dollar exchange
rate? 32 pesos for $1
Purchasing-power parity holds between the nations of Ectenia and
Wiknam, where the only commodity is Spam.
a. In 2000 a can of Spam costs 2 dollars in Ectenia and 6 pesos in
Wiknam. What is the exchange rate between Ectenian dollars and
Wiknamian pesos? 3 pesos for $1
b. Over the next 20 years, inflation is 3.5 percent per year in Ectenia
and 7 percent per year in Wiknam. What will happen over this
period to the price of Spam and the exchange rate? In Ectenia, the
price of Spam will be $4 and in Wiknam, 23.2 pesos. Exchange rate
will be 5.8 pesos for $1.
c. Which of these two nations will likely have a higher nominal
interest rate? Why? Wiknam
d. A friend of yours suggests a get-rich-quick scheme: Borrow from
the nation with the lower interest rate, invest in the nation with
the higher interest rate, and profit from the interest-rate
differential. Do you see any potential problems with this idea?
Explain.