Deck 31: 3: Sec 313 Mc a First Theory of Exchange-Rate Determination Purchasing-Power Parity

Question 1

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.

Answer 1

C

Question 2

A basket of goods costs $800 in the U.S.In Belgium the basket of goods costs 640 euros and the exchange rate is .80 euros per U.S.dollar.In Japan the basket of goods costs 90,000 yen and the exchange rate is 90 yen per dollar.Which country has purchasing-power parity with the U.S.?

A)both Belgium and Japan
B)Belgium but not Japan
C)Japan but not Belgium
D)neither Belgium nor Japan

Answer 2

C

Question 3

Purchasing-power parity describes the forces that determine

A)prices in the short run.
B)prices in the long run.
C)exchange rates in the short run.
D)exchange rates in the long run.

Answer 3

C

Question 4

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.

Question 5

Which of the following does purchasing-power parity conclude should equal 1?

A)both the nominal and the real exchange rate.
B)the nominal exchange rate but not the real exchange rate
C)the real exchange rate but not the nominal exchange rate
D)neither the nominal exchange rate nor the real exchange rate

Question 6

Nominal exchange rates

A)vary little over time.
B)vary substantially over time.
C)appreciate over time for most countries.
D)depreciate over time for most countries.

Question 7

The price of a basket of goods is $2000 in the U.S.If purchasing-power parity holds,and the dollar buys two units of some country's currency,then how many units of foreign currency does the same basket of goods cost in that country?

A)4000
B)2000
C)1000
D)None of the above are correct.

Question 8

If purchasing-power parity holds,a dollar will buy

A)one unit of each foreign currency.
B)foreign currency equal to the U.S.price level divided by the foreign country's price level.
C)enough foreign currency to buy as many goods as it does in the United States.
D)None of the above is implied by purchasing-power parity.

Question 9

The theory of purchasing-power parity primarily explains

A)why trade deficits tend to move to zero over time.
B)how foreign prices affect domestic prices.
C)the determination of the real exchange rate.
D)why a change in the real exchange rate changes a country's net exports.

Question 10

According to purchasing-power parity,which of the following necessarily equals the ratio of the foreign price level divided by the domestic price level?

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

Question 11

The law of one price states that

A)a good must sell at the price fixed by law.
B)a good must sell at the same price at all locations.
C)a good cannot sell for a price greater than the legal price ceiling.
D)nominal exchange rates will not vary.

Question 12

According to purchasing-power parity,if the same basket of goods costs $100 in the U.S.and 50 pounds in Britain,then what is the nominal exchange rate?

A)2 pounds per dollar
B)1 pound per dollar
C)1/2 pound per dollar
D)None of the above is correct

Question 13

According to purchasing-power parity what should the nominal exchange rate between the U.S.and another country be equal to?

A)1
B)the real exchange rate between the U.S.and that country
C)the price level in the U.S.divided by the price level in the other country
D)the price level in the other country divided by the price level in the U.S.

Question 14

Which of the following does purchasing-power parity imply?

A)The purchasing power of the dollar is the same in the U.S.as in foreign countries.
B)The price of domestic goods relative to foreign goods cannot change.
C)The nominal exchange rate is the ratio of U.S.prices to foreign prices.
D)All of the above are correct.

Question 15

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

Question 16

The nominal exchange rate is about 2 Aruban florin per dollar.If a basket of goods in the United States costs $40,how many florins must a basket of goods in Aruba cost for purchasing-power parity to hold?

A)20 florin
B)40 florin
C)60 florin
D)80 florin

Question 17

Which of the following does purchasing-power parity imply?

A)the foreign price level times the nominal exchange rate (given as amount of foreign currency per dollar)equals the U.S.price level.
B)The price of domestic goods relative to foreign goods cannot change.
C)The nominal exchange rate is the ratio of foreign prices to U.S.prices.
D)All of the above are correct.

Question 18

According to purchasing-power parity,if a basket of goods costs $100 in the U.S.and the same basket costs 800 pesos in Argentina,then what is the nominal exchange rate?

A)8 pesos per dollar
B)1 peso per dollar
C)1/8 peso per dollar
D)none of the above is correct

Question 19

If the real exchange rate between the U.S.and Argentina is 1,then

A)purchasing-power parity holds,and 1 U.S.dollar buys 1 Argentinean bolivar.
B)purchasing-power parity holds,and the amount of dollars needed to buy goods in the U.S.is the same as the amount needed to buy enough Argentinean bolivars to buy the same goods in Argentina.
C)purchasing-power parity does not hold,but 1 U.S.dollar buys 1 Argentinean bolivar.
D)purchasing-power parity does not hold,but the amount of dollars needed to buy goods in the U.S.is the same as the amount needed to buy enough Argentinean bolivars to buy the same goods in Argentina.

Question 20

If purchasing-power parity holds,then the value of the

A)nominal exchange rate is equal to one.A dollar buys as many goods in the U.S.as it does overseas.
B)nominal exchange rate is equal to one.A dollar buys the quantity of foreign currency equal to the U.S.price level divided by the foreign country's price level.
C)real exchange rate is equal to one.A dollar buys as many goods in the U.S.as it does overseas.
D)real exchange rate is equal to one.A dollar buys the quantity of foreign currency equal to the U.S.price level divided by the foreign country's price level.

Question 21

A pair of jeans cost $25 in the U.S.and 1600 dinar in Algeria.If the nominal exchange rate is 75 dinar per U.S.dollar,then the real exchange rate is

A)more than one,so a profit could be made by buying jeans in Algeria and selling them in the U.S.
B)more than one,so a profit could be made by buying jeans in the U.S.and selling them in Algeria.
C)less than one,so a profit could be made by buying jeans in Algeria and selling them in the U.S.
D)less than one,so a profit could be made by buying jeans in the U.S.and selling them in Algeria.

Question 22

If the dollar buys less cotton in Egypt than in the United States,then traders could make a profit by

A)buying cotton in the United States and selling it in Egypt,which would tend to raise the price of cotton in the United States.
B)buying cotton in the United States and selling it in Egypt,which would tend to raise the price of cotton in Egypt.
C)buying cotton in Egypt and selling it in the United States,which would tend to raise the price of cotton in Egypt.
D)buying cotton in Egypt and selling it in the United States,which would tend to raise the price of cotton in the United States.

Question 23

If a dollar buys more rice in the China.than in the U.S. ,then

A)the real exchange rate is greater than 1;a profit might be made by buying rice in the U.S.and selling it in China.
B)the real exchange rate is greater than 1;a profit might be made by buying rice in China.and selling it in the U.S.
C)the real exchange rate is less than 1;a profit might be made by buying rice in the U.S.and selling it in China.
D)the real exchange rate is less than 1;a profit might be made by buying rice in China and selling it in the U.S.

Question 24

If P = domestic prices,P* = foreign prices,and e is the nominal exchange rate,which of the following is implied by purchasing-power parity?

A)P = e/P*
B)1 = e/P*
C)e = P*/P
D)None of the above is correct.

Question 25

A pair of running shoes costs $70 in the U.S.If the price of the same shoes is 4500 rupees in India and the exchange rate is 60 rupees per dollar,than the real exchange rate is

A)more than 1,so a profit could be made by buying these shoes in the U.S.and selling them in India.
B)more than 1,so a profit could be made by buying these shoes in India and selling them in the U.S.
C)less than 1,so a profit could be made by buying these shoes in the U.S.and selling them in India.
D)less than 1,so a profit could be made by buying these shoes in India and selling them in the U.S.

Question 26

If purchasing-power parity holds,a bushel of rice costs $10 in the U.S. ,and the nominal exchange rate is 25 Thai baht per dollar,what is the price of rice in Thailand?

A)400 baht
B)250 bhat
C)100 bhat
D)None of the above is correct.

Question 27

If a dollar buys more corn in the U.S.than in Mexico,then

A)the real exchange rate is greater than 1;a profit might be made by buying corn in the U.S.and selling it in Mexico.
B)the real exchange rate is greater than 1;a profit might be made by buying corn in Mexico and selling it in the U.S.
C)the real exchange rate is less than 1;a profit might be made by buying corn in the U.S.and selling it in Mexico.
D)the real exchange rate is less than 1;a profit might be made by buying corn in Mexico and selling it in the U.S.

Question 28

According to the theory of purchasing-power parity,the nominal exchange rate between two countries must reflect the differing

A)price levels in those countries.
B)resource endowments in those countries.
C)income levels in those countries.
D)standards of living between those countries.

Question 29

If purchasing-power parity holds,the price level in the U.S.is 250,and the price level in Japan is 260,which of the following is true?

A)the real exchange rate is 250/260
B)the real exchange rate is 260/250
C)the nominal exchange rate is 250/260
D)the nominal exchange rate is 260/250

Question 30

A tall latte in China costs 30 yuan.The same latte in the U.S.costs 4 dollars.If the exchange rate is 6.5 yuan per dollar then,the real exchange rate is

A).867 so the good is more expensive in the U.S.
B).867 so the good is more expensive in China.
C)1.154 so the god is more expensive in the U.S.
D)1.154 so the good is more expensive in China.

Question 31

A basket of goods cost $800 in the U.S.The same basket of goods costs $1,000 in France and the exchange rate is .80 euros per dollar.The same basket of goods costs 960 Australian dollars and the exchange rate is 1.2 Australian dollars per U.S.dollar.Purchasing power parity with the U.S.holds in

A)both France and Australia
B)France but not Australia
C)Australia but not France
D)neither France nor Australia

Question 32

The ability to profit by purchasing wheat in the U.S.and selling it in China implies that the

A)nominal exchange rate is less than 1.
B)nominal exchange rate is greater than 1.
C)real exchange rate is less than 1.
D)real exchange rate is greater than 1.

Question 33

An MP3 player in Singapore costs 200 Singaporean dollars.In the U.S.it costs 100 US dollars.What is the nominal exchange rate if purchasing-power parity holds?

A)2.0
B)1.0
C).50
D)None of the above is correct.

Question 34

If the exchange rate is 60 Indian rupees per dollar and a bushel of rice costs 200 rupees in India and $3 in the U.S. ,then the real exchange rate is

A)greater than one and arbitrageurs could profit by buying rice in the U.S.and selling it in India.
B)greater than one and arbitrageurs could profit by buying rice in India and selling it in the U.S..
C)less than one and arbitrageurs could profit by buying rice in the U.S.and selling it in India.
D)less than one and arbitrageurs could profit by buying rice in India and selling it in the U.S..

Question 35

If purchasing-power parity holds but then U.S.prices rise,which of the following move the exchange rate back towards purchasing-power parity?

A)foreign prices rise or the U.S.nominal exchange rate rises
B)foreign prices rise or the U.S.nominal exchange rate falls
C)foreign prices fall or the U.S.nominal exchange rate rises
D)foreign prices fall or the U.S.nominal exchange rate falls

Question 36

If the exchange rate is 8 Moroccan dirhams per U.S.dollars,a crate of oranges costs 400 dirhams in the Moroccan capital of Rabat,and a similar crate of oranges in Miami sells for $55 dollars,then

A)the real exchange rate is greater than one and arbitrageurs could profit by buying oranges in the U.S.and selling them in Morocco.
B)the real exchange rate is greater than one and arbitrageurs could profit by buying oranges in Morocco and selling them in the U.S.
C)the real exchange rate is less than one and arbitrageurs could profit by buying oranges in the U.S.and selling them in Morocco.
D)the real exchange rate is less than one and arbitrageurs could profit by buying oranges in Morocco and selling them in the U.S.

Question 37

If the dollar buys fewer bananas in Guatemala than in Honduras,then traders could make a profit by

A)buying bananas in Honduras and selling them in Guatemala,which would tend to raise the price of bananas in Honduras.
B)buying bananas in Honduras and selling them in Guatemala,which would tend to raise the price of bananas in Guatemala.
C)buying bananas in Guatemala and selling them in Honduras,which would tend to raise the price of bananas in Guatemala.
D)buying bananas in Guatemala and selling them in Honduras,which would tend to raise the price of bananas in Honduras.

Question 38

If purchasing-power parity holds,the price level in the U.S.is 140,and the price level in Canada is 120,which of the following is true?

A)the real exchange rate is 120/140.
B)the real exchange rate is 140/120.
C)the nominal exchange rate is 120/140
D)the nominal exchange rate is 140/120

Question 39

If purchasing-power parity between France and the U.S.holds,but then U.S.prices rise,

A)the real exchange rate is above its purchasing-power parity value.An increase in the nominal exchange rate can move it back.
B)the real exchange rate is above its purchasing-power parity value.A decrease in the nominal exchange rate can move it back.
C)the real exchange rate is below its purchasing-power parity value.An increase in the nominal exchange rate can move it back.
D)the real exchange rate is below its purchasing-power parity value.A decrease in the nominal exchange rate can move it back.

Question 40

If a lobster in Maine costs $10 and that the same type of lobster in Massachusetts costs $30,then people could make a profit by

A)buying lobsters in Maine and selling them in Massachusetts.This action would increase the price of lobster in Massachusetts.
B)buying lobsters in Maine and selling them in Massachusetts.This action would decrease the price of lobster in Massachusetts.
C)buying lobsters in Massachusetts and selling them in Maine.This action would increase the price of lobster in Massachusetts.
D)buying lobsters in Massachusetts and selling them in Maine.This action would decrease the price of lobster in Massachusetts.

Question 41

Prices in both the U.S.and China rise,but prices in China increase by a larger percentage.According to purchasing-power parity,the U.S.dollar

A)gains value both in terms of the domestic goods and services it can buy and in terms of the Chinese currency it can buy.
B)gains value in terms of the domestic goods and services it can buy,but loses value in terms of the Chinese currency it can buy.
C)loses value in terms of the domestic goods and services it can buy,but gains value in terms of the Chinese currency it can buy.
D)loses value both in terms of the domestic goods and services it can buy and in terms of the Chinese currency it can buy.

Question 42

Purchasing-power parity implies that the nominal exchange rate given as foreign currency per unit of U.S.currency must rise if the price level(s)in

A)foreign countries rise.
B)the United States rises.
C)all countries rise.
D)all countries fall.

Question 43

According to purchasing-power parity,when a country's central bank decreases the money supply,a unit of money

A)gains value both in terms of the domestic goods and services it can buy and in terms of the foreign currency it can buy.
B)gains value in terms of the domestic goods and services it can buy,but loses value in terms of the foreign currency it can buy.
C)loses value in terms of the domestic goods and services it can buy,but gains value in terms of the foreign currency it can buy.
D)loses value both in terms of the domestic goods and services it can buy and in terms of the foreign currency it can buy.

Question 44

According to purchasing-power parity,if the price of a basket of goods in the U.S.rose from $2,000 to $2,104 and the price of the same basket of goods rose from 800 units to 832 units of some other country's currency,then the

A)nominal exchange rate would appreciate.
B)nominal exchange rate would depreciate.
C)real exchange rate would appreciate.
D)real exchange rate would depreciate.

Question 45

Prices in both the U.S.and India rise,but prices in India increase by a smaller percentage.According to purchasing-power parity the U.S.dollar

A)gains value both in terms of the domestic goods and services it can buy and in terms of the Indian currency it can buy.
B)gains value in terms of the domestic goods and services it can buy,but loses value in terms of the Indian currency it can buy.
C)loses value in terms of the domestic goods and services it can buy,but gains value in terms of the Indian currency it can buy.
D)loses value both in terms of the domestic goods and services it can buy and in terms of the Indian currency it can buy.

Question 46

A Big Mac in Japan costs 400 yen while it costs $4.50 in the U.S..The nominal exchange rate is 100 yen per dollar.Which of the following would both make the real exchange rate move towards purchasing-power parity?

A)the price of Big Macs in the U.S.falls,the nominal exchange rate falls
B)the price of Big Macs in the U.S.falls,the nominal exchange rate rises
C)the price of Big Macs in the U.S.rises,the nominal exchange rate falls
D)the price of Big Macs in the U.S.rises,the nominal exchange rate rises

Question 47

If purchasing-power parity holds,when a country's central bank increases the money supply,a unit of money

A)gains value both in terms of the domestic goods and services it can buy and in terms of the foreign currency it can buy.
B)gains value in terms of the domestic goods and services it can buy,but loses value in terms of the foreign currency it can buy.
C)loses value in terms of the domestic goods and services it can buy,but gains value in terms of the foreign currency it can buy.
D)loses value both in terms of the domestic goods and services it can buy and in terms of the foreign currency it can buy.

Question 48

Suppose a Starbucks tall latte costs $4.00 in the United States and 2.50 euros in the Euro area.Also,suppose a McDonald's Big Mac costs $4.50 in the United States and 3.60 euros in the Euro area.If the nominal exchange rate is .80 euros per dollar,which goods have prices that are consistent with purchasing-power parity?

A)both the tall latte and the Big Mac
B)the tall latte but not the Big Mac
C)the Big Mac but not the tall latte
D)neither the Big Mac nor the tall latte

Question 49

A Starbucks Grande Latte costs $3.75 in the U.S.and 28 yuan in China.The nominal exchange rate is 6.75 yuan per dollar.The real exchange rate is

A)1.106.If purchasing-power parity held the nominal exchange rate would be higher.
B)1.106.If purchasing-power parity held the nominal exchange rate would be lower.
C).904.If purchasing power parity held the nominal exchange rate would be higher.
D).904.If purchasing-power parity held the nominal exchange rate would be lower.

Question 50

According to purchasing-power parity,if the price of a basket of goods in the U.S.rose from $1,500 to $2,000 and the price of the same basket of goods rose from 600 units of some other country's currency to 1,000 units of that country's currency,then the

A)nominal exchange rate would appreciate.
B)nominal exchange rate would depreciate.
C)real exchange rate would appreciate.
D)real exchange rate would depreciate.

Question 51

According to purchasing-power parity,inflation in the U.S.causes the dollar to

A)depreciate relative to all other currencies.
B)depreciate relative to currencies of countries that have lower inflation rates.
C)appreciate relative to all other countries.
D)appreciate relative to currencies of countries that have lower inflation rates.

Question 52

According to purchasing-power parity which of the following would happen if a country raised its money supply growth rate?

A)its nominal exchange rate would fall
B)its real exchange rate would fall
C)its real net exports would rise
D)All of the above would happen.

Question 53

If a Starbucks tall latte costs $3.20 in the United States and 3 euros in the Euro area,then purchasing-power parity implies the nominal exchange rate is how many euros per dollar?

A).938 If the exchange rate is less than this,it costs more dollars to buy a tall latte in the U.S.than in the Euro area.
B).938 If the exchange rate is less than this,it costs fewer dollars to buy a tall latte in the U.S.then in the Euro area.
C)1.067 If the exchange rate is less than this,it costs more dollars to buy a tall latte in the U.S.than in the Euro area.
D)1.067 If the exchange rate is less than this,it costs fewer dollars to buy a tall latte in the U.S.than in the Euro area.

Question 54

If a McDonald's Big Mac cost $4.50 in the United States and 3.60 euros in the Euro area,then purchasing-power parity implies the nominal exchange rate is how many euros per dollar?

A)1.25 If the value is less than this,it costs more dollars to buy a Big Mac in the U.S.than in the Euro area.
B)1.25 If the value is less than this,it costs fewer dollars to buy a Big Mac in the U.S.then in the Euro area.
C).80 If the value is less than this,it costs more dollars to buy a Big Mac in the U.S.than in the Euro area.
D).80 If the value is less than this,it costs fewer dollars to buy a Big Mac in the U.S.than in the Euro area.

Question 55

Suppose a Starbucks tall latte costs $4.00 in the United States,5.00 euros in the euro area and $2.50 Australian dollars in Australia.Nominal exchange rates are .80 euros per dollar and 1.4 Australian dollars per U.S.dollar.Where does purchasing-power parity hold?

A)both the euro area and Australia
B)the euro area but not Australia
C)Australia but not the euro area
D)neither the euro area or Australia

Question 56

If purchasing-power parity holds,when a country's central bank decreases the money supply,its

A)price level rises and its currency appreciates relative to other currencies in the world.
B)price level falls and its currency appreciates relative to other currencies in the world.
C)price level rises and its currency depreciates relative to other currencies in the world.
D)price level falls and its currency depreciates relative to other currencies in the world.

Question 57

Suppose a Starbucks tall latte costs $4.00 in the United States and 3.20 euros in the Euro area.Also,suppose a McDonald's Big Mac costs $4.40 in the United States and 5.50 euros in Euro area.If the nominal exchange rate is .80 euros per dollar,the prices of which goods have prices that are consistent with purchasing-power parity?

A)both the tall latte and the Big Mac
B)the tall latte but not the Big Mac
C)the Big Mac but not the tall latte
D)neither the tall latte nor the Big Mac

Question 58

If purchasing-power parity holds,when a country's central bank increases the money supply,its

A)price level rises and its currency appreciates relative to other currencies in the world.
B)price level rises and its currency depreciates relative to other currencies in the world.
C)price level falls and its currency appreciates relative to other currencies in the world.
D)price level falls and its currency depreciates relative to other currencies in the world.

Question 59

Suppose a McDonalds Big Mac costs $4.40 in the United States and 3.30 euros in the euro area and 5.72 Australian dollars in Australia.If exchange rates are .75 euros per dollar and 1.3 Australian dollars per dollar,where does purchasing-power parity hold?

A)both the euro area and Australia
B)the euro area but not Australia
C)Australia but not the euro area
D)neither the euro area nor Australia

Question 60

Other things the same,according to purchasing-power parity,if over the next few years Mexico has a higher money supply growth rate than the U.S. ,then

A)prices in Mexico will rise by a larger percentage than in the U.S.So,the dollar will appreciate against the Mexican peso.
B)prices in Mexico will rise by larger percentage than in the U.S.So,the dollar will depreciate against the Mexican peso.
C)prices in Mexico will rise by a smaller percentage than in the U.S.So,the dollar will appreciate against the Mexican peso.
D)prices in Mexico will rise by a smaller percentage than in the U.S.So,the dollar will depreciate against the Mexican peso.

Question 61

According to purchasing-power parity,if over the course of a year the price level in the U.S.rises more than in Japan,then which of the following falls?

A)the U.S.real exchange rate,but not the U.S.nominal exchange rate
B)the U.S.nominal exchange rate,but not the U.S.real exchange rate
C)the U.S.nominal exchange rate and the U.S.real exchange rate
D)neither the real exchange rate nor the nominal exchange rate

Question 62

According to purchasing-power parity,if it took 58 Indian rupees to buy a dollar today,but it took 55 to buy it a year ago,then the dollar has

A)appreciated,indicating inflation was higher in the U.S.than in India.
B)appreciated,indicating inflation was lower in the U.S.than in India.
C)depreciated,indicating inflation was higher in the U.S.than in India.
D)depreciated,indicating inflation was lower in the U.S.than in India.

Question 63

If over the next six months inflation is higher in the U.S.than in foreign countries,then according to purchasing-power parity

A)only the nominal exchange rate depreciates.
B)both the real and nominal exchange rate appreciate.
C)both the real and nominal exchange rate depreciate.
D)only the real exchange rate appreciates.

Question 64

According to purchasing-power parity,if it took 55 Indian rupees to buy a dollar today,but it took 58 to buy it a year ago,then the dollar has

A)appreciated,indicating inflation was higher in the U.S.than in India.
B)appreciated,indicating inflation was lower in the U.S.than in India.
C)depreciated,indicating inflation was higher in the U.S.than in India.
D)depreciated,indicating inflation was lower in the U.S.than in India.

Question 65

According to purchasing-power parity,if over the course of a year the price level in the U.S.rises more than in Canada,then which of the following rises?

A)the U.S.real exchange rate,but not the U.S.nominal exchange rate
B)the U.S.nominal exchange rate,but not the U.S.real exchange rate
C)the U.S.nominal exchange rate and the U.S.real exchange rate
D)neither the real exchange rate nor the nominal exchange rate

Question 66

If over the next few years inflation is higher in Mexico than in the U.S. ,then according to purchasing-power parity which of the following should rise?

A)the U.S.real exchange rate but not the U.S.nominal exchange rate
B)the U.S.nominal exchange rate but not the U.S.real exchange rate
C)the U.S.real exchange rate but not the U.S.nominal exchange rate
D)neither the U.S.real nor the U.S.nominal exchange rate

Question 67

If the Canadian nominal exchange rate does not change,but prices rise faster abroad than in Canada,then the Canadian real exchange rate

A)does not change.
B)rises.
C)declines.
D)None of the above is necessarily correct.

Question 68

According to purchasing-power parity,if the Federal Reserve increased the money supply

A)U.S.prices would rise and the nominal exchange rate would rise.
B)U.S.prices would rise and the nominal exchange rate would fall.
C)U.S.prices would fall and the nominal exchange rate would rise.
D)U.S.prices and the nominal exchange rate would fall.

Question 69

From 1970 to 1998 the U.S.dollar

A)gained value compared to the German mark because inflation was higher in Germany.
B)gained value compared to the German mark because inflation was lower in Germany.
C)lost value compared to the German mark because inflation was higher in Germany.
D)lost value compared to the German mark because inflation was lower in Germany.

Question 70

During 2011,the price level in the U.S.rose at a faster rate than the price level in Japan.Other things the same,according to purchasing-power parity,this difference in inflation rates should have caused

A)the nominal exchange rate of the dollar to appreciate relative to the yen.
B)the real exchange rate of the dollar to appreciate relative to the yen.
C)the nominal exchange rate of the dollar to depreciate relative to the yen.
D)the real exchange rate of the dollar to depreciate relative to the yen.

Question 71

According to the doctrine of purchasing-power parity,which of the following should depreciate if over the next year the inflation rate is higher in the U.S.than in the Euro area?

A)both the U.S.real exchange rate and the U.S.nominal exchange rate
B)the U.S.real exchange rate,but not the U.S.nominal exchange rate
C)the U.S.nominal exchange rate,but not the U.S.real exchange rate
D)neither the U.S.nominal exchange rate nor the U.S.real exchange rate

Question 72

If the U.S.price level is increasing by 3 percent annually and the Japanese price level is increasing by 1 percent annually,then according to purchasing-power parity,by about what percent would the nominal exchange rate be changing?

A)decreasing by 4 percent
B)decreasing by 2 percent
C)increasing by 4 percent
D)increasing by 2 percent

Question 73

If the Kenyan nominal exchange rate declines,and prices are unchanged in Kenya and abroad,then the Kenyan real exchange rate

A)does not change.
B)rises.
C)declines
D)None of the above is necessarily correct.

Question 74

According to purchasing-power parity,if prices in the United States increase by a larger percentage than prices in the United Kingdom,then the

A)real exchange rate rises.
B)nominal exchange rate rises.
C)real exchange rate falls.
D)nominal exchange rate falls.

Question 75

You hold currency from a foreign country.If that country has a higher rate of inflation than the United States,then over time the foreign currency will buy

A)more goods in that country and buy more dollars.
B)more goods in that country but buy fewer dollars.
C)fewer goods in that country but buy more dollars.
D)fewer goods in that country and buy fewer dollars.

Question 76

According to purchasing-power parity,if it took 1,100 Korean Won to buy a dollar this year,but it took 1,000 to buy it last year,then the dollar has

A)appreciated,indicating inflation was higher in the U.S.than in Korea.
B)appreciated indicating inflation was lower in the U.S.than in Korea.
C)depreciated indicating inflation was higher in the U.S.than in Korea.
D)depreciated indicating inflation was lower in the U.S.than in Korea.

Question 77

According to purchasing-power parity,if prices in the United States increase by a smaller percentage than prices in the United Kingdom,then the

A)real exchange rate rises.
B)nominal exchange rate rises.
C)real exchange rate falls.
D)nominal exchange rate falls.

Question 78

If the Mexican nominal exchange rate does not change,but prices rise faster in Mexico than in all other countries,then the Mexican real exchange rate

A)does not change.
B)rises.
C)declines.
D)There is not enough information to answer the question

Question 79

From 1970 to 1998 the U.S.dollar

A)gained value compared to the Italian lira because inflation was higher in Italy.
B)gained value compared to the Italian lira because inflation was lower in Italy.
C)lost value compared to the Italian lira because inflation was higher in Italy.
D)lost value compared to the Italian lira because inflation was lower in Italy.

Question 80

From 1970 to 1998 the U.S.dollar

A)gained value compared to the German mark because inflation was higher in the U.S.
B)gained value compared to the German mark because inflation was lower in the U.S.
C)lost value compared to the German mark because inflation was higher in the U.S.
D)lost value compared to the German mark because inflation was lower in the U.S.