Question 1

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 $1.20 Canadian. What is the nominal exchange rate?
A) 0.21 U.S. dollars per Canadian dollar
B) 0.42 U.S. dollars per Canadian dollar
C) 0.83 U.S. dollars per Canadian dollar
D) 1.20 U.S. dollars per Canadian dollar

Accepted Answer

The answer of Suppose the real exchange rate is 1...

Question 2

If the Canadian real exchange rate appreciates, what 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 to foreigners, leading to a decrease in exports. Conversely, foreign goods become cheaper to Canadians, leading to an increase in imports.

Question 3

If the Canadian real exchange rate appreciates, what 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 investments more attractive, reducing net capital outflow.

Question 4

Suppose that a bushel of wheat costs $5 in Canada and costs 40 pesos in Mexico. If the nominal exchange rate is 20 pesos per dollar, what is the real exchange rate?
A) .04
B) 2
C) 2.5
D) 8

Accepted Answer

To calculate the real exchange rate, we need to compare the prices of the same basket of goods in different countries. Here, the basket of goods is a bushel of wheat, which costs $5 in Canada and 40 pesos in Mexico.

To bring the Mexican price into dollars, we need to use the nominal exchange rate, which is 20 pesos per dollar. So, the Mexican price in dollars is:

40 pesos × (1 dollar / 20 pesos) = $2

Now, we can compare the prices of wheat in Canada and Mexico in dollars:

$5 / $2 = 2.5
 
Therefore, the real exchange rate is 2.5.

Question 5

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

Accepted Answer

An increase in the number of Tanzanian shillings that can be purchased with a dollar means that the Canadian dollar has appreciated relative to the Tanzanian shilling, making Canadian goods relatively cheaper and increasing the real exchange rate.

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 $2 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 real exchange rate is calculated by comparing the cost of goods in two countries. In this case, 6 Canadian dollars equals 12 Australian dollars (6 CAD * 2 AUD/CAD). Since the hot chocolate costs 6 AUD in Australia, you can buy 2 cups of Australian hot chocolate for the price of 1 cup of Canadian hot chocolate.

Question 7

If the Canadian dollar gets weaker relative to the Chinese yuan, what might happen?
A) Canadian trade surplus will fall.
B) Canadian trade deficit will fall.
C) Chinese trade surplus will rise.
D) Chinese trade deficit will fall.

Accepted Answer

A weaker Canadian dollar makes Canadian exports cheaper and imports more expensive, potentially reducing the trade deficit as exports increase and imports decrease.

Question 8

What 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 is stronger compared to other currencies. This makes foreign goods cheaper for Canadians to buy, and domestic goods relatively more expensive. Therefore, consumers are likely to buy fewer domestic goods but more foreign goods in this scenario.

Question 9

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 is the rate at which one currency can be exchanged for another, taking into account the prices of goods and services in each country. If the goods in Canada cost the same as German goods in euros, then the exchange rate would be based on how much German currency can be bought with one unit of Canadian currency, since the prices of goods are already equivalent. Therefore, the answer is choice C.

Question 10

If the exchange rate changes from 40 Thai baht per dollar to 25 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

The dollar has depreciated and so buys fewer Thai goods. This is because now it takes more dollars to buy the same amount of Thai baht. The exchange rate has decreased from 40 baht per dollar to 25 baht per dollar, which means the dollar is worth less in relation to the Thai baht.

Question 11

Which unit 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 real exchange rate is typically expressed as the relative price of goods between two countries, such as the amount of one country's goods that can be exchanged for another's, making option C appropriate.

Question 12

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

Accepted Answer

The real exchange rate in this scenario would be one Honduran good per Canadian good, as it costs the same amount of dollars to buy goods in both countries.

Question 13

Which statement best describes the consequences that could occur if the Canadian real exchange rate appreciates relative to the euro?
A) Canadian exports to Europe and European exports to Canada both rise.
B) Canadian exports to Europe and European exports to Canada both fall.
C) Canadian exports to Europe rise, and European exports to Canada fall.
D) Canadian exports to Europe fall, and European exports to Canada rise.

Accepted Answer

When the Canadian real exchange rate appreciates relative to the euro, Canadian goods become more expensive for Europeans, leading to a decrease in Canadian exports to Europe. Conversely, European goods become cheaper for Canadians, increasing European exports to Canada.

Question 14

If the nominal exchange rate e is foreign currency per dollar, the domestic price is P, and the foreign price is P*, what 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 measures the relative price of domestic and foreign goods and services, taking into account the exchange rate and inflation. It is calculated by multiplying the nominal exchange rate by the ratio of foreign price to domestic price (P*/P). Therefore, the formula for the real exchange rate is e(P*/P).

Question 15

What 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 relative to domestic goods, leading Canadian consumers to buy more domestic goods and fewer foreign goods.

Question 16

Suppose that a kilogram can of coffee costs about $16 in Canada. Suppose the exchange rate is 0.7 euro per dollar and that a kilogram can of coffee in Belgium costs about 5.6 euros. What is the real exchange rate?
A) 3/4 cans of Belgian coffee per can of Canadian coffee
B) 2 cans of Belgian coffee per can of Canadian coffee
C) 2.45 cans of Belgian coffee per can of Canadian coffee
D) 3.5 cans of Belgian coffee per can of Canadian coffee

Accepted Answer

The answer of Suppose that a kilogram can of coffee...

Question 17

Suppose that in 2015 you could purchase about 6 Egyptian pounds for a dollar. In 2019, you could purchase about 13 Egyptian pounds for a dollar. Which statement best explains the changes that could have taken place between 2015 and 2019?
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

The dollar appreciated because you could get more Egyptian pounds for a dollar in 2019 compared to 2015. This could increase the trade balance by making imports cheaper and exports more expensive in terms of foreign currencies.

Question 18

If the exchange rate changes from 57 Indian rupee per dollar to 53 Indian rupee per dollar, what has happened to the dollar?
A) It has appreciated and so buys more Indian goods.
B) It has appreciated and so buys fewer Indian goods.
C) It has depreciated and so buys more Indian goods.
D) It has depreciated and so buys fewer Indian goods.

Accepted Answer

When the exchange rate changes from 57 Indian rupee per dollar to 53 Indian rupee per dollar, it means that the dollar has depreciated as it now buys fewer Indian goods.

Question 19

In Ireland, a pint of beer costs 5 euros. In Australia, a pint of beer costs 6 Australian dollars. If the exchange rate is 0.6 euros per Australian dollar, what is the real exchange rate?
A) 0.5 pints of Irish beer per pint of Australian beer
B) 0.72 pints of Irish beer per pint of Australian beer
C) 1.39 pints of Irish beer per pint of Australian beer
D) 2 pints of Irish beer per pint of Australian beer

Accepted Answer

To find the real exchange rate, we need to convert the price of an Australian pint of beer into euros.

1 Australian dollar is equivalent to 0.6 euros

So, a pint of beer in Australia costs:

6 Australian dollars * 0.6 euros/Australian dollar = 3.6 euros

Now we can compare the prices of a pint of beer in Ireland and Australia on the same currency basis.

Since a pint of beer in Ireland costs 5 euros and a pint of beer in Australia costs 3.6 euros, the real exchange rate is:

5 euros / 3.6 euros = 1.39

This means that you can get 1.39 pints of Irish beer for the price of 1 pint of Australian beer. Therefore, the correct answer is B.

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 500 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) 2500 pesos per kilogram

Accepted Answer

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

Quiz 12: Open-Economy Macroeconomics: Basic Concepts

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 $1.20 Canadian. What is the nominal exchange rate?

If the Canadian real exchange rate appreciates, what will most likely happen?

If the Canadian real exchange rate appreciates, what will most likely happen?

Suppose that a bushel of wheat costs $5 in Canada and costs 40 pesos in Mexico. If the nominal exchange rate is 20 pesos per dollar, what is the real exchange rate?

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

In Canada, a cup of hot chocolate costs $6. In Australia, the same hot chocolate costs 6 Australian dollars. If the exchange rate is $2 Australian dollars per Canadian dollar, what is the real exchange rate?

If the Canadian dollar gets weaker relative to the Chinese yuan, what might happen?

What 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?

If the exchange rate changes from 40 Thai baht per dollar to 25 Thai baht per dollar, what has happened to the dollar?

Which unit of measurement would be appropriate for a real exchange rate?

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

Which statement best describes the consequences that could occur if the Canadian real exchange rate appreciates relative to the euro?

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

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

Suppose that a kilogram can of coffee costs about $16 in Canada. Suppose the exchange rate is 0.7 euro per dollar and that a kilogram can of coffee in Belgium costs about 5.6 euros. What is the real exchange rate?

Suppose that in 2015 you could purchase about 6 Egyptian pounds for a dollar. In 2019, you could purchase about 13 Egyptian pounds for a dollar. Which statement best explains the changes that could have taken place between 2015 and 2019?

If the exchange rate changes from 57 Indian rupee per dollar to 53 Indian rupee per dollar, what has happened to the dollar?

In Ireland, a pint of beer costs 5 euros. In Australia, a pint of beer costs 6 Australian dollars. If the exchange rate is 0.6 euros per Australian dollar, what is the real exchange rate?

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 500 Chilean pesos per dollar. What does Chilean beef cost?