Question 1

Suppose the real exchange rate is .80 pounds of bananas in Guatemala per pound of bananas in the U.S. If a pound of bananas in the U.S. costs $.50, and the exchange rate is 8 Guatemalan Quetzals per dollar, what is the price of bananas in Guatemala?

Accepted Answer

First, we need to convert the price of a pound of bananas in the U.S. to Quetzals using the exchange rate:

$.50 x 8 Quetzals per dollar = 4 Quetzals per pound

Then, we can use the real exchange rate to find the price of bananas in Guatemala:

.80 pounds of bananas in Guatemala / 1 pound of bananas in the U.S. x 4 Quetzals per pound = 3.20 Quetzals per pound

Therefore, the answer is C) 5.00 Quetzals per pound.

Question 2

The nominal exchange rate is 2 Barbados dollars per U.S. dollar. If the price of a good in Barbados is 3 Barbados dollars and the price in the U.S. is 2 U.S. dollars, what is the real exchange rate to the nearest 100th?

Accepted Answer

To find the real exchange rate, we need to compare the relative prices of the same good in the two countries. In this case, we can use the ratio of the price of the good in Barbados to the price in the U.S.:

3 Barbados dollars / 2 U.S. dollars = 1.5

This means that the price of the good in Barbados is 1.5 times higher than the price in the U.S. To adjust for the exchange rate, we need to divide this ratio by the nominal exchange rate:

1.5 / 2 = 0.75

The real exchange rate is therefore 0.75 Barbados goods per U.S. good. This means that it is cheaper to buy the good in the U.S. than in Barbados.

Therefore, the correct answer is B, 0.75 Barbados goods per U.S. good.

Question 3

The nominal exchange rate is 4 Saudi Arabian riyals, 8 Moroccan dirham, 45 Indian rupee, or .6 British pounds per U.S. dollar. A double latte espresso and a cinnamon biscotti costs $6 in the U.S., 24 riyals in Saudi Arabia, 40 Moroccan dirham in Morocco, 250 Indian rupees in India, and 5 British pounds in Britain. According to these numbers, where is the real exchange rate between American and foreign goods the lowest?

Accepted Answer

The answer of The nominal exchange rate is 4 Saudi...

Question 4

If a bushel of wheat costs $6.40 in the United States, costs 40 pesos in Mexico, and the nominal exchange rate is 10 pesos per dollar, then the real exchange rate is

Accepted Answer

The answer of If a bushel of wheat costs $6.40...

Question 5

If the price of a good in the U.S. is $10 and the unit of foreign currency is the stone, in which case is the real exchange rate 4/5?

Accepted Answer

The answer of If the price of a good in...

Question 6

If the real exchange rate between the U.S. and Japan is 1, the nominal exchange rate is 100 yen per U.S. dollar and the price of chicken in the U.S. is $2.50 per pound, what is the price of chicken in Japan?

Accepted Answer

If the nominal exchange rate is 100 yen per U.S. dollar and the real exchange rate is 1, then the purchasing power parity (PPP) exchange rate is also 100 yen per U.S. dollar. This means that goods should cost the same (when converted to the same currency) in both countries. Therefore, if chicken costs $2.50 per pound in the U.S., it should cost 250 yen per pound in Japan (when converted using the nominal exchange rate).

Question 7

The price of a basket of goods and services in the U.S. is $600. In Canada the same basket of goods costs 700 Canadian dollars. If the nominal exchange rate were 1.2 Canadian dollars per U.S. dollar, what would be the real exchange rate?

Accepted Answer

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

Question 8

Exchange rates are 82 yen per dollar, 0.8 euro per dollar, and 10 pesos per dollar. A bottle of beer in New York costs 6 dollars, 820 yen in Tokyo, 7.2 euro in Munich, and 50 pesos in Cancun. Where is the most expensive and the cheapest beer in that order?

Accepted Answer

We need to convert all prices to dollars: 
- 820 yen = $10
- 7.2 euro = $9
- 50 pesos = $5 
So, the most expensive beer is in Tokyo (10 yen = $0.12) and the cheapest beer is in Cancun (10 pesos = $1). Therefore, the answer is C, Tokyo and Cancun.

Question 9

In the U.S. a candy bar costs $1. If the nominal exchange rate were 6 Chinese yuan per dollar and the real exchange rate were 1.2, then, what would be the price of a candy bar in China?

Accepted Answer

The answer of In the U.S. a candy bar costs...

Question 10

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?

Accepted Answer

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

Question 11

In the U.S. a digital camera costs $200. The same camera in London sells for 90 pounds. If the exchange rate were .50 pounds per dollar, then which of the following would be correct?

Accepted Answer

The answer of In the U.S. a digital camera costs...

Question 12

Other things the same, the real exchange rate between American and Mexican goods would be lower if

Accepted Answer

The answer of Other things the same, the real exchange...

Question 13

If the unit of foreign currency is the peso, in which case is the real exchange rate 1.2?

Accepted Answer

The answer of If the unit of foreign currency is...

Question 14

If a U.S. dollar purchases 4 Argentinean pesos, and a gallon of milk costs $2 in the U.S. and 6 pesos in Argentina what is the real exchange rate?

Accepted Answer

The answer of If a U.S. dollar purchases 4 Argentinean...

Question 15

The nominal exchange rate is 30 Thai bhat for one U.S. dollar. A sub sandwich combo deal in the U.S. costs $6 dollars in the U.S. and 120 bhat in Thailand. The real exchange rate is

Accepted Answer

The answer of The nominal exchange rate is 30 Thai...

Question 16

In Ireland, a pint of beer costs 3 euros. In Australia, a pint of beer costs 4 Australian dollars. If the exchange rate is .8 euros per Australian dollar, what is the real exchange rate?

Accepted Answer

To find the real exchange rate, we need to see how many pints of Irish beer we can buy with one Australian dollar. 
Since 1 pint of beer in Australia costs 4 Australian dollars, we divide 4 by .8 (the exchange rate) to get 5. 
So with one Australian dollar, we can buy 5 pints of Irish beer. 
Therefore, the real exchange rate is 3.2/3 pints of Irish beer per pint of Australian beer.

Question 17

In the United States, a three-pound can of coffee costs about $5. If the exchange rate is about 0.8 euros per dollar and a three-pound can of coffee in Belgium costs about 7 euros. What is the real exchange rate?

Accepted Answer

The answer of In the United States, a three-pound can...

Question 18

If the exchange rate is .70 euro per dollar, the price of an MP3 player in Paris is 150 euros and the price of an MP3 player in the U.S. is $150, then what is the real exchange rate?

Accepted Answer

The real exchange rate is the ratio of the prices in the two currencies. In this case, the price of an MP3 player in Paris is 150 euros and the price in the U.S. is $150, which is equivalent to approximately 107 euros (using the given exchange rate of .70 euros per dollar). Therefore, the real exchange rate is 150 euros / 107 euros = 1.40 U.S. MP3 players per French MP3 player, or equivalently, .70 French MP3 players per U.S. MP3 player (choice C).

Question 19

In the United States, a cup of hot chocolate costs $5. In a foreign country, the same hot chocolate costs 6.5 units of that country's currency. If the exchange rate were 1.3 units of foreign currency per U.S. dollar, what is the real exchange rate?

Accepted Answer

The answer of In the United States, a cup of...

Question 20

The exchange rate is 1.5 Bosnian markas per U.S. dollar. The price of a refrigerator in Bosnia is 1,200 markas while in the U.S. it is $1,000. The real exchange rate is

Accepted Answer

To find the real exchange rate, we need to compare the relative price of the refrigerator in both countries. The price of the refrigerator in Bosnia is 1,200 markas, which is equivalent to $800 using the exchange rate (1,200/1.5). Therefore, the relative price of the refrigerator in Bosnia compared to the U.S. is 800/1000 = 4/5. This means that the real exchange rate is 4/5, which is equivalent to 5/4 when flipped. Therefore, the best choice is B, 5/4.

Quiz 18: Open-Economy Macroeconomic Models