Question 1

If it took as many dollars to buy goods in Canada as it did to buy enough currency to buy the same goods in India,the real exchange rate would be computed as how many Indian goods per Canadian goods?
A)one
B)the number of dollars needed to buy Canadian goods divided by the number of rupees needed to buy Indian goods
C)the number of rupees needed to buy Indian goods divided by the number of dollars needed to buy Canadian goods
D)a number equal to the nominal exchange rate

Accepted Answer

The answer of If it took as many dollars to...

Question 2

Suppose that a bushel of wheat costs $5 in Canada and costs 50 pesos in Mexico.If the nominal exchange rate is 30 pesos per dollar,what is the real exchange rate?
A)1/3
B)1
C)3
D)10

Accepted Answer

To calculate the real exchange rate, we need to compare the price of the same good in both countries in terms of a common currency. In this case, we can use the price of wheat in Canada as the common currency since both prices are given in relation to it.

Using the law of one price, we can say that the exchange rate should equalize the price of wheat in Canada and Mexico in terms of dollars:

$5 = 50 pesos / x

where x is the real exchange rate. Solving for x, we get:

x = 50 / 5 = 10

Therefore, the real exchange rate is 10. This means that one dollar can buy 10 times more wheat in Mexico than in Canada. Alternatively, we could say that the peso is undervalued relative to the dollar by a factor of 10.

Question 3

Suppose the real exchange rate is 1 litre of Canadian gasoline per 2 litres of U.S.gasoline,1 litre of U.S.gasoline costs $0.50 U.S.,and a litre of Canadian gas costs $1.30 Canadian.What is the nominal exchange rate?
A)0.38 U.S. dollars per Canadian dollar
B)0.65 U.S. dollars per Canadian dollar
C)0.77 U.S. dollars per Canadian dollar
D)1.30 U.S. dollars per Canadian dollar

Accepted Answer

To find the nominal exchange rate, we need to find how much 1 Canadian dollar would be worth in U.S. dollars. We can start by finding the price of 1 litre of Canadian gasoline in U.S. dollars:

$1.30 CAD/L * 1 USD/1.27 CAD * 1 L/3.7854 gal * 2 gal U.S. gas/1 L Can. gas = $0.431 USD/L Can. gas

This tells us that 1 litre of Canadian gasoline is worth $0.431 USD. To find how many Canadian dollars we need to get 1 U.S. dollar, we can take the reciprocal:

1/0.431 = 2.32

So, the nominal exchange rate is 2.32 Canadian dollars per U.S. dollar, or 0.77 U.S. dollars per Canadian dollar (since 1 U.S. dollar is equal to 1/0.77 Canadian dollars). Therefore, the answer is C.

Question 4

Which of the following is the most likely effect of an appreciation of the Canadian real exchange rate on the quantity of Alberta beef demanded by French citizens?
A)French citizens will buy less of Alberta beef.
B)French citizens will buy more of Alberta beef.
C)The quantity of Alberta beef demanded by French citizens will not change because the nominal exchange rate has not changed.
D)The quantity of Alberta beef demanded by French citizens will not change because it is the French real interest rate that matters for French citizens.

Accepted Answer

An appreciation of the Canadian real exchange rate means that the Canadian dollar has become stronger compared to the French euro. This makes Alberta beef more expensive for French citizens to buy. As a result, they are likely to buy less of it.

Question 5

If the nominal exchange rate e is foreign currency per dollar,the domestic price is P,and the foreign price is P*,which of the following is the definition of the real exchange rate?
A)e(P*/P)
B)e(P/P*)
C)e + P/P
D)e - P/P*

Accepted Answer

The real exchange rate is defined as the nominal exchange rate adjusted for differences in price levels between two countries. It can be calculated as e(P/P*), which is choice B.

Question 6

In Canada,a cup of hot chocolate costs $6.In Australia,the same hot chocolate costs 6 Australian dollars.If the exchange rate is $3 Australian dollars per Canadian dollar,what is the real exchange rate?
A)1/2 cup of Australian hot chocolate per cup of Canadian hot chocolate
B)1 cup of Australian hot chocolate per cup of Canadian hot chocolate
C)2 cups of Australian hot chocolate per cup of Canadian hot chocolate
D)3 cups of Australian hot chocolate per cup of Canadian hot chocolate

Accepted Answer

The answer of In Canada,a cup of hot chocolate costs...

Question 7

Suppose that in 1999 you could purchase about 400 Greek drachmas (the former Greek currency,replaced by the euro in 2002)for a dollar.In 2000,you could purchase about 350 drachmas for a dollar.Which of the following best explain the changes that could have taken place between 1999 and 2000?
A)The dollar appreciated, increasing the trade balance.
B)The dollar depreciated, decreasing the trade balance.
C)The dollar appreciated, decreasing the trade balance.
D)The dollar depreciated, increasing the trade balance.

Accepted Answer

If in 1999 you could purchase 400 Greek drachmas for a dollar, but in 2000 you could only purchase 350 drachmas for a dollar, it means that the value of the dollar decreased compared to the drachma. Therefore, the correct answer is D, meaning that the dollar depreciated, which would increase the trade balance. This is because a weaker dollar makes U.S. exports less expensive and therefore more competitive in the global market, while imports become relatively more expensive, reducing imports and increasing exports, thus improving the trade balance.

Question 8

Which of the following units of measurement would be appropriate for a real exchange rate?
A)9 euros per dollar
B)15 euros per basket of Canadian goods
C)1/2 case of German beer per case of Canadian beer
D)1/2 case of German beer per dollar of Canadian beer

Accepted Answer

The answer of Which of the following units of measurement...

Question 9

Which of the following would a depreciation of the Canadian real exchange rate induce Canadian consumers to buy?
A)fewer domestic goods and foreign goods
B)more domestic goods, but fewer foreign goods
C)fewer domestic goods, but more foreign goods
D)more domestic goods and foreign goods

Accepted Answer

A depreciation of the Canadian real exchange rate makes foreign goods more expensive and domestic goods cheaper, leading Canadian consumers to buy more domestic goods and fewer foreign goods.

Question 10

Which of the following would an appreciation of the Canadian real exchange rate induce Canadian consumers to buy?
A)fewer domestic goods and foreign goods
B)more domestic goods, but fewer foreign goods
C)fewer domestic goods, but more foreign goods
D)more domestic goods and foreign goods

Accepted Answer

An appreciation of the Canadian real exchange rate means that the Canadian dollar has become stronger relative to other currencies. This makes foreign goods cheaper for Canadian consumers, while domestic goods become relatively more expensive. Therefore, an appreciation of the Canadian real exchange rate would induce Canadian consumers to buy more foreign goods and fewer domestic goods, as they would be getting better value for their money by buying imports.

Question 11

If goods in Canada cost the same number of dollars as German goods cost in euros,the real exchange rate would be computed as how many German goods per Canadian goods?
A)one
B)the price of the Canadian goods
C)the amount of German currency that can be bought with one unit of Canadian currency
D)the amount of Canadian currency that can be bought with one unit of German currency

Accepted Answer

The real exchange rate compares the price of goods in different countries using a common currency. In this case, since the prices of Canadian goods and German goods are the same, we can compare their currencies directly. The real exchange rate is the amount of German currency (euros) that can be bought with one unit of Canadian currency (dollars). This means that if the exchange rate is 1 CAD = 1 EUR, then the real exchange rate would be 1:1, or one euro per Canadian dollar.

Question 12

Suppose that a kilogram can of coffee costs about $6 in Canada.Suppose the exchange rate is 0.7 euro per dollar and that a kilogram can of coffee in Belgium costs about 2.1 euros.What is the real exchange rate?
A)2.45 cans of Belgian coffee per can of Canadian coffee
B)2 cans of Belgian coffee per can of Canadian coffee
C)3/4 cans of Belgian coffee per can of Canadian coffee
D)3/5 cans of Belgian coffee per can of Canadian coffee

Accepted Answer

To find the real exchange rate, we need to compare the cost of one can of coffee in Canada to the cost of one can of coffee in Belgium converted to Canadian dollars. 
1 can of Belgian coffee = 2.1 euros = 2.1/0.7 dollars = $3
Therefore, the exchange rate is:
1 can of Belgian coffee/1 can of Canadian coffee = $3/$6 = 0.5
To convert this to the number of cans of Belgian coffee per can of Canadian coffee:
1/0.5 = 2 cans of Belgian coffee per can of Canadian coffee
Therefore, the best choice is B.

Question 13

If the exchange rate changes from 40 Thai baht per dollar to 35 Thai baht per dollar,what has happened to the dollar?
A)It has appreciated and so buys more Thai goods.
B)It has appreciated and so buys fewer Thai goods.
C)It has depreciated and so buys more Thai goods.
D)It has depreciated and so buys fewer Thai goods.

Accepted Answer

When the exchange rate changes from 40 Thai baht per dollar to 35 Thai baht per dollar, it means that the value of the dollar has decreased in relation to the Thai baht. Therefore, the dollar has depreciated and can now buy fewer Thai goods.

Question 14

If the Canadian dollar gets weaker relative to the Japanese yen,which of the following might happen?
A)Canadian trade surplus will fall.
B)Canadian trade deficit will fall.
C)Japanese trade surplus will rise.
D)Japanese trade deficit will fall.

Accepted Answer

A weaker Canadian dollar makes Canadian goods cheaper for Japanese buyers, potentially increasing Canadian exports and reducing the trade deficit.

Question 15

Suppose that the real exchange rate between Canada and Kenya is defined in terms of baskets of goods.Which of the following will increase the real exchange rate (that is,increase the number of baskets of Kenyan goods a basket of Canadian goods buys)?
A)an increase in the number of Kenyan shillings that can be purchased with a dollar
B)an increase in the price in Canadian dollars of Kenyan goods
C)an increase in the price in Kenyan shillings of Kenyan goods
D)a decrease in the number of Kenyan shillings that can be purchased with a dollar

Accepted Answer

The answer of Suppose that the real exchange rate between...

Question 16

If the Canadian real exchange rate appreciates,which of the following will most likely happen?
A)Net exports increase, and net capital outflow decreases.
B)Net exports decrease, and net capital outflow increases.
C)Net exports and net capital outflow both increase.
D)Net exports and net capital outflow both decrease.

Accepted Answer

When the Canadian real exchange rate appreciates, Canadian goods become more expensive for foreign buyers, leading to a decrease in net exports. Simultaneously, the higher exchange rate makes foreign assets cheaper for Canadians, reducing net capital outflow.

Question 17

If the Canadian real exchange rate appreciates,which of the following will most likely happen?
A)Exports increase and imports decrease.
B)Exports decrease and imports increase.
C)Exports and imports both increase.
D)Exports and imports both decrease.

Accepted Answer

When the Canadian real exchange rate appreciates, Canadian goods become more expensive for foreign buyers, leading to a decrease in exports. Conversely, foreign goods become cheaper for Canadian consumers, leading to an increase in imports.

Question 18

In Ireland,a pint of beer costs 4 Irish punts.In Australia,a pint of beer costs 6 Australian dollars.If the exchange rate is 0.6 punts per Australian dollar,what is the real exchange rate?
A)0.8 pints of Irish beer per pint of Australian beer
B)0.9 pints of Irish beer per pint of Australian beer
C)1.11 pints of Irish beer per pint of Australian beer
D)1.25 pints of Irish beer per pint of Australian beer

Accepted Answer

To find the real exchange rate we need to compare the prices of the same amount of beer in different currencies.

Let's convert the price of a pint of beer in Australia to Irish punts:

6 Australian dollars * 0.6 punts per Australian dollar = 3.6 punts

Now we can compare:

4 punts in Ireland vs. 3.6 punts in Australia

To find how many Australian pints we can buy for 4 Irish punts, we can divide 4 punts by the price in Australian dollars:

4 punts / (6 Australian dollars * 0.6 punts per Australian dollar) = 0.9 pints of Australian beer per pint of Irish beer

Therefore, the real exchange rate is 0.9 pints of Irish beer per pint of Australian beer, which is choice B.

Question 19

If the exchange rate changes from 0.35 Kuwaiti dinar per dollar to 0.30 Kuwaiti dinar per dollar,what has happened to the dollar?
A)It has appreciated and so buys more Kuwaiti goods.
B)It has appreciated and so buys fewer Kuwaiti goods.
C)It has depreciated and so buys more Kuwaiti goods.
D)It has depreciated and so buys fewer Kuwaiti goods.

Accepted Answer

A decrease in the exchange rate of the Kuwaiti dinar relative to the US dollar means that it takes more dinars to buy one dollar. Therefore, the US dollar has become stronger, or appreciated, relative to the Kuwaiti dinar. This means that the US dollar can buy fewer Kuwaiti goods, so option D is correct.

Question 20

Suppose the real exchange rate is 3/5 kilograms of Chilean beef per kilogram of Canadian beef,a kilogram of Canadian beef costs $3,and the nominal exchange rate is 400 Chilean pesos per dollar.What does Chilean beef cost?
A)960 pesos per kilogram
B)1200 pesos per kilogram
C)1500 pesos per kilogram
D)2000 pesos per kilogram

Accepted Answer

The answer of Suppose the real exchange rate is 3/5...

Quiz 12: Open-Economy Macroeconomics: Basic Concepts

If it took as many dollars to buy goods in Canada as it did to buy enough currency to buy the same goods in India,the real exchange rate would be computed as how many Indian goods per Canadian goods?

Suppose that a bushel of wheat costs $5 in Canada and costs 50 pesos in Mexico.If the nominal exchange rate is 30 pesos per dollar,what is the real exchange rate?

Suppose the real exchange rate is 1 litre of Canadian gasoline per 2 litres of U.S.gasoline,1 litre of U.S.gasoline costs $0.50 U.S.,and a litre of Canadian gas costs $1.30 Canadian.What is the nominal exchange rate?

Which of the following is the most likely effect of an appreciation of the Canadian real exchange rate on the quantity of Alberta beef demanded by French citizens?

If the nominal exchange rate e is foreign currency per dollar,the domestic price is P,and the foreign price is P*,which of the following is the definition of the real exchange rate?

In Canada,a cup of hot chocolate costs $6.In Australia,the same hot chocolate costs 6 Australian dollars.If the exchange rate is $3 Australian dollars per Canadian dollar,what is the real exchange rate?

Suppose that in 1999 you could purchase about 400 Greek drachmas (the former Greek currency,replaced by the euro in 2002) for a dollar.In 2000,you could purchase about 350 drachmas for a dollar.Which of the following best explain the changes that could have taken place between 1999 and 2000?

Which of the following units of measurement would be appropriate for a real exchange rate?

Which of the following would a depreciation of the Canadian real exchange rate induce Canadian consumers to buy?

Which of the following would an appreciation of the Canadian real exchange rate induce Canadian consumers to buy?

If goods in Canada cost the same number of dollars as German goods cost in euros,the real exchange rate would be computed as how many German goods per Canadian goods?

Suppose that a kilogram can of coffee costs about $6 in Canada.Suppose the exchange rate is 0.7 euro per dollar and that a kilogram can of coffee in Belgium costs about 2.1 euros.What is the real exchange rate?

If the exchange rate changes from 40 Thai baht per dollar to 35 Thai baht per dollar,what has happened to the dollar?

If the Canadian dollar gets weaker relative to the Japanese yen,which of the following might happen?

Suppose that the real exchange rate between Canada and Kenya is defined in terms of baskets of goods.Which of the following will increase the real exchange rate (that is,increase the number of baskets of Kenyan goods a basket of Canadian goods buys) ?

If the Canadian real exchange rate appreciates,which of the following will most likely happen?

If the Canadian real exchange rate appreciates,which of the following will most likely happen?

In Ireland,a pint of beer costs 4 Irish punts.In Australia,a pint of beer costs 6 Australian dollars.If the exchange rate is 0.6 punts per Australian dollar,what is the real exchange rate?

If the exchange rate changes from 0.35 Kuwaiti dinar per dollar to 0.30 Kuwaiti dinar per dollar,what has happened to the dollar?

Suppose the real exchange rate is 3/5 kilograms of Chilean beef per kilogram of Canadian beef,a kilogram of Canadian beef costs $3,and the nominal exchange rate is 400 Chilean pesos per dollar.What does Chilean beef cost?