Question 1

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?

Accepted Answer

The answer of The nominal exchange rate is about 2...

Question 2

A basket of goods costs $800 in the U.S.In Belgium the basket of goods costs 800 euros and the exchange rate is .80 euros per U.S.dollar.In Japan the basket of goods costs 720,000 yen and the exchange rate is 900 yen per dollar.Which country has purchasing-power parity with the U.S.?

Accepted Answer

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Question 3

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

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The answer of If the dollar buys less cotton in...

Question 4

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?

Accepted Answer

If two countries have the same price level due to purchasing power parity, then the real exchange rate and the nominal exchange rate will be equal to 1. This is because the real exchange rate adjusts for the difference in prices between countries, whereas the nominal exchange rate only reflects the relative value of currencies. When prices are equalized, there is no need for the real exchange rate to adjust, so it equals 1 along with the nominal exchange rate.

Question 5

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

Accepted Answer

If a dollar buys more rice in China than in the U.S., then the price of rice in China is lower than in the U.S. Therefore, the real exchange rate between the U.S. dollar and Chinese yuan is higher than 1. This implies that it takes more Chinese yuan to purchase a U.S. dollar than the nominal exchange rate suggests. As a result, buying rice in China with U.S. dollars and selling it in the U.S. can generate a profit due to the favorable exchange rate.

Question 6

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?

Accepted Answer

According to PPP, the exchange rate that makes the basket of goods cost the same in both countries is the nominal exchange rate. Thus, 800 pesos must be equal to $100. Hence, 1 dollar is equal to 800/100 = 8 pesos. Therefore, the answer is A) 8 pesos per dollar.

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?

Accepted Answer

The answer of The price of a basket of goods...

Question 8

If a dollar buys more potatoes in the U.S.than in France,then

Accepted Answer

If a dollar buys more potatoes in the U.S. than in France, then the price of potatoes is lower in the U.S. than in France. This means that the exchange rate between the U.S. dollar and the French euro is such that the U.S. dollar is relatively cheaper than the euro. Therefore, the real exchange rate is less than 1, as 1 U.S. dollar buys fewer euros than 1 euro buys dollars. In this case, a profit might be made by buying potatoes in the U.S. with U.S. dollars (which are relatively cheaper) and then selling them in France for euros (which are relatively more expensive). This would result in gaining more euros for each dollar spent, leading to a profit.

Question 9

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

Accepted Answer

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Question 10

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

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Question 11

It costs $80 for a dental appointment in the U.S.It costs 600 Egyptian pounds for the same appointment in Egypt.The nominal exchange rate is 7 pounds per dollar.The real exchange rate is

Accepted Answer

To calculate the real exchange rate, we need to divide the nominal exchange rate by the ratio of the price levels of the two countries.

Price level ratio = [Price of dental appointment in Egypt / Price of dental appointment in US] = 600 EGP / $80 = 7.5

Real exchange rate = Nominal exchange rate / Price level ratio = 7 / 7.5 = 0.93

Since the real exchange rate is less than one, this means that dental appointments in Egypt are more expensive in terms of what a dollar can buy compared to the US. Therefore, the correct answer is B.

Question 12

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

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The answer of If a lobster in Maine costs $10...

Question 13

The nominal exchange rate is .80 euros per U.S.dollar and a basket of goods in France costs 1,000 euros while the same basket costs $800 in the U.S.The nominal exchange rate is 1.2 Australian dollars per U.S.dollar and a basket of goods in Australia costs 960 Australian dollars while the same basket costs $800 in the U.S..Which country has purchasing-power parity with the U.S.?

Accepted Answer

The answer of The nominal exchange rate is .80 euros...

Question 14

If the exchange rate is 70 Bangladesh taka per dollar and a bushel of rice costs 200 taka in Bangladesh and $3 in the United States,then the real exchange rate is

Accepted Answer

The real exchange rate is calculated by multiplying the nominal exchange rate by the ratio of the price of a basket of goods in the home country to the price of the same basket of goods in the foreign country. In this case, the basket of goods is defined as a bushel of rice.

Real exchange rate = (Nominal exchange rate) x (Domestic price level/Foreign price level)

The nominal exchange rate is given as 70 taka per dollar. The price of a bushel of rice is 200 taka in Bangladesh and $3 in the United States. Therefore, the price level in Bangladesh is 200/3 = 66.67% of the price level in the United States.

Real exchange rate = (70 taka/$) x (66.67/100) = 46.67 taka/$

Since the real exchange rate is less than 1, arbitrageurs could profit by buying rice in the United States (where it is cheaper) and selling it in Bangladesh (where it is more expensive). Therefore, the correct answer is B.

Question 15

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?

Accepted Answer

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Question 16

An MP3 player in Singapore costs 200 Singaporean dollars.In the U.S.it costs 100 US dollars.Which of the following is correct?

Accepted Answer

The answer of An MP3 player in Singapore costs 200...

Question 17

If purchasing power parity holds,the price level in the U.S.is 220,and the price level in Japan is 200,which of the following is true?

Accepted Answer

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Question 18

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

Accepted Answer

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Question 19

A haircut costs 200 pesos in Mexico and $20 in the U.S.The exchange rate is 12.5 pesos per dollar.The real exchange rate is

Accepted Answer

To compare the cost of haircuts in Mexico and the U.S., we need to convert Mexican pesos to U.S. dollars using the exchange rate.

200 pesos ÷ 12.5 pesos per dollar = $16

So the price of a haircut in Mexico is $16. Since $16 is less than $20, haircuts in Mexico are cheaper than in the U.S.

To calculate the real exchange rate, we need to divide the price level in Mexico (in pesos) by the price level in the U.S. (in dollars) and then divide by the exchange rate.

Price level in Mexico (in pesos): 200 pesos 
Price level in the U.S. (in dollars): $20 
Exchange rate: 12.5 pesos per dollar

(200 / 12.5) / 20 = 0.8

The real exchange rate is 0.8, which is less than one. This means that haircuts in Mexico are cheaper than in the U.S. even when we take into account the exchange rate.

Question 20

If purchasing power parity holds,a bushel of rice costs $10 in the U.S. ,and the nominal exchange rate is 40 Thai baht per dollar,what is the price of rice in Thailand?

Accepted Answer

The answer of If purchasing power parity holds,a bushel of...

Quiz 31: Open-Economy Macroeconomic Models