Name:________________ Last 4-digit of Eagle ID:_______ Section:____ Date:___________ (Totally 20 questions and 1 point for each)

Multiple Choice Identify the choice that best completes the statement or answers the question. ____ 1. Foreign-produced goods and services that are sold domestically are called a. imports. b. exports. c. net imports. d. net exports. 2. If a country has $2.4 billion of net exports and purchases $4.8 billion of goods and services from foreign countries, then it has a. $7.2 billion of exports and $4.8 billion of imports. b. $7.2 billion of imports and $4.8 billion of exports. c. $4.8 billion of exports and $2.4 billion of imports. d. $4.8 billion of imports and $2.4 billion of exports. 3. Mary, a U.S. citizen, buys stock in an Italian railroad. This purchase is an example of a. investment for Mary and U.S. foreign direct investment. b. investment for Mary and U.S. foreign portfolio investment. c. saving for Mary and U.S. foreign direct investment. d. saving for Mary and U.S. foreign portfolio investment. 4. Larry, a U.S. citizen, opens and operates a bookstore in Spain. This action is an example of a. investment for Larry and U.S. foreign direct investment. b. investment for Larry and U.S. foreign portfolio investment. c. U.S. foreign direct investment and U.S. domestic investment. d. U.S. foreign portfolio investment and U.S. domestic investment. 5. If the exchange rate is 125 yen = $1, a bottle of rice wine that costs 2,500 yen costs a. $20. b. $25. c. $22. d. None of the above is correct. 6. If the nominal exchange rate e is foreign currency per dollar, the domestic price is P, and the foreign price is P*, then the real exchange rate is defined as a. e(P*/P). b. e(P/P*). c. e + P/P. d. e - P/P*. 7. The nominal exchange rate is .80 euros per dollar and the real exchange rate is 4/3. Which of the following prices for a particular good are consistent with these exchange rates? a. $4 in the U.S. and 3 euros in Italy. b. $4 in the U.S. and 3.75 euros in Italy. c. $5 in the U.S. and 3 euros in Italy. d. $6 in the U.S. and 2.50 euros in Italy.

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8. If purchasing-power parity holds, then the value of the a. real exchange rate is equal to one. b. nominal exchange rate is equal to one. c. real exchange rate is equal to the nominal exchange rate. d. real exchange rate is equal to the difference in inflation rates between the two countries. 9. If purchasing-power parity holds, a dollar will buy a. more goods in foreign countries than in the United States. b. as many goods in foreign countries as it does in the United States. c. fewer goods in foreign countries than it does in the United States. d. None of the above is implied by purchasing-power parity.

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____ 10. According to purchasing power parity, if two countries have the same price level because they have the same prices for all goods and services, then which of the following would equal 1? a. the real exchange rate, but not the nominal exchange rate b. the nominal exchange rate, but not the real exchange rate c. the real exchange rate and the nominal exchange rate d. neither the real exchange rate nor the nominal exchange rate ____ 11. A country purchases $3 billion of foreign-produced goods and services and sells $2 billion dollars of domestically produced goods and services to foreign countries. It has a. exports of $3 billion and a trade surplus of $1 billion. b. exports of $3 billion and a trade deficit of $1 billion. c. exports of $2 billion and a trade surplus of $1 billion. d. exports of $2 billion and a trade deficit of $1 billion. ____ 12. A country has $100 million of net exports and $170 million of saving. Net capital outflow is a. $70 million and domestic investment is $170 million. b. $70 million and domestic investment is $270 million. c. $100 million and domestic investment is $70 million. d. None of the above is correct. ____ 13. If a bushel of wheat costs $6.40 in the United States and costs 40 pesos in Mexico and the nominal exchange rate is 10 pesos per dollar, then the real exchange rate is a. 1.60 b. 1.25 c. .625 d. None of the above is correct. ____ 14. According to purchasing power parity, if two countries have the same price level because they have the same prices for all goods and services, then which of the following would equal 1? a. the real exchange rate, but not the nominal exchange rate b. the nominal exchange rate, but not the real exchange rate c. the real exchange rate and the nominal exchange rate d. neither the real exchange rate nor the nominal exchange rate ____ 15. Other things the same, an increase in the price level causes the interest rate to a. increase, the dollar to depreciate, and net exports to increase. b. increase, the dollar to appreciate, and net exports to decrease. c. decrease, the dollar to depreciate, and net exports to increase. d. decrease, the dollar to appreciate, and net exports to decrease.

____ 16. At a given price level, an increase in which of the following shifts aggregate demand to the right? a. consumption b. investment c. government expenditures d. All of the above are correct. ____ 17. The long-run aggregate supply curve shifts right if a. immigration from abroad increases. b. the capital stock increases. c. technology advances. d. All of the above are correct. ____ 18. Which of the following shifts short-run, but not long-run aggregate supply right? a. a decrease in the actual price level b. a decrease in the expected price level c. a decrease in the capital stock d. an increase in the money supply The Stock Market Boom of 2014 Imagine that in 2014 the economy is in long-run equilibrium. Then stock prices rise more than expected and stay high for some time. ____ 19. Refer to Stock Market Boom 2014. What happens to the expected price level and what impact does this have on wage bargaining? a. The expected price level falls. Bargains are struck for higher wages. b. The expected price level falls. Bargains are struck for lower wages. c. The expected price level rises. Bargains are struck for higher wages. d. The expected price level rises. Bargains are struck for lower wages. ____ 20. Refer to Stock Market Boom 2014. How is the new long-run equilibrium different from the original one? a. the price level and real GDP are higher b. the price level and real GDP are lower. c. the price level is higher and real GDP is the same. d. the price level is the same and real GDP is higher.