Question 1

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?
A) 1/2 cup of that country's hot chocolate per cup of U.S.hot chocolate
B) 1 cup of that country's hot chocolate per cup of U.S.hot chocolate
C) 2 cups of that country's's hot chocolate per cup of U.S.hot chocolate
D) None of the above is correct.

Accepted Answer

To find the real exchange rate, we need to compare the price of the same item in different currencies. In this case, we can compare the cost of a cup of hot chocolate in the US ($5) to the cost in the foreign country (6.5 units of the foreign currency). We can then use the exchange rate of 1.3 units of the foreign currency per US dollar to convert both prices to the same currency.

The cost of the cup of hot chocolate in the US is $5, and the cost in the foreign currency is (6.5 units of the foreign currency / 1 dollar) x ($5 / 1.3 units of the foreign currency) = $25/13 = $1.92 (rounded to the nearest cent).

So the real exchange rate is that one cup of hot chocolate in the foreign country costs $1.92, which is less than half the price of a cup of hot chocolate in the US. Therefore, one cup of that country's hot chocolate is equivalent in value to one cup of U.S. hot chocolate. The best choice is thus B.

Question 2

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?
A) $4 in the U.S.and 3 euros in Italy.
B) $4 in the U.S.and 3.75 euros in Italy.
C) $5 in the U.S.and 3 euros in Italy.
D) $6 in the U.S.and 2.50 euros in Italy.

Accepted Answer

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

Question 3

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
A) 1.60
B) 1.25
C) .625
D) None of the above is correct.

Accepted Answer

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

Question 4

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?
A) the foreign price is 4 stones and the exchange rate is 2 stones per dollar
B) the foreign price is 5 stones and the exchange rate is 2.5 stones per dollar
C) the foreign price is 4 stones and the exchange rate is 1/2 stones per dollar
D) the foreign price is 5 stones and the exchange rate is 2/5 stones per dollar

Accepted Answer

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

Question 5

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?
A) Cancun,New York
B) New York,Tokyo
C) Tokyo,Cancun
D) Munich,New York

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 6

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
A) 9/5
B) 5/4
C) 4/5
D) None of the above are correct.

Accepted Answer

To find the real exchange rate, we need to compare the price of the refrigerator in both countries using the exchange rate. 
In Bosnia, the price is 1,200 markas. 
Using the exchange rate of 1.5 markas per dollar, we can convert this price into dollars: 
1,200 markas / 1.5 markas per dollar = $800 
So, the price of the same refrigerator in the US is $1,000, while in Bosnia, it is effectively $800. 
Now, we can compare the prices in both countries using the real exchange rate: 
Real exchange rate = (Price in Bosnia / Price in US) = $800 / $1,000 = 4/5. 
Therefore, the answer is B.

Question 7

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?
A) Saudi Arabia
B) Morocco
C) India
D) Britain

Accepted Answer

The real exchange rate is lowest in Britain, where a double latte espresso and a cinnamon biscotti costs 5 British pounds, which is equivalent to $8.33 (using the nominal exchange rate of 0.6 British pounds per U.S. dollar). This is higher than the cost in the U.S. at $6, indicating that goods are relatively more expensive in Britain.

Question 8

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?
A) 400 yen per pound
B) 250 yen per pound
C) 100 yen per pound
D) 40 yen per pound

Accepted Answer

We can use the concept of purchasing power parity (PPP) to determine the price of chicken in Japan. PPP states that the exchange rate between two countries should adjust to equalize the price of a basket of goods and services across both countries.

Using the given information, we know that the real exchange rate is 1. This means that the nominal exchange rate reflects the true value of the currencies relative to each other.

Therefore, we can set up the following equation to solve for the price of chicken in Japan (CJ):

100 yen per dollar * CJ = $2.50 per pound

Simplifying the equation:

CJ = $2.50 per pound ÷ 100 yen per dollar

CJ = $0.025 per yen

To convert this to yen per pound, we need to take the reciprocal:

1 yen ÷ $0.025 = 40 yen

Therefore, the price of chicken in Japan is 40 yen per pound. Choice (B) is the correct answer.

Question 9

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?
A) 3 Barbados goods per U.S.good
B) 1.33 Barbados goods per U.S.good
C) .75 Barbados goods per U.S.good
D) none of the above is correct

Accepted Answer

To find the real exchange rate, we need to compare the prices of a good in both countries. 
In Barbados, the price of the good is 3 Barbados dollars. 
In the US, the price of the good is 2 US dollars, which is equivalent to 4 Barbados dollars (since 1 US dollar = 2 Barbados dollars). 
Therefore, the real exchange rate is 3/4 or 0.75 Barbados goods per US good. Rounded to the nearest hundredth, the answer is 1.33 Barbados goods per U.S. good.

Question 10

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?
A) 700/600
B) 600/700
C) 700/720
D) None of the above is correct.

Accepted Answer

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

Question 11

If the unit of foreign currency is the peso,in which case is the real exchange rate 1.2?
A) the U.S.price is $2,the foreign price is 5 pesos,and the exchange rate is 3 pesos per dollar.
B) the U.S.price is $3,the foreign price is 18 pesos,and the exchange rate is 5 pesos per dollar.
C) the U.S.price is $5,the foreign price 12 pesos,and the exchange rate is 2 pesos per dollar.
D) the U.S.price is $10,the foreign price is 3 pesos,and the exchange rate is 4 pesos per dollar.

Accepted Answer

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

Question 12

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?
A) 4/2.4 pints of Irish beer per pint of Australian beer
B) 3/3.2 pint of Irish beer per pint of Australian beer
C) 3.2/3 pints of Irish beer per pint of Australian beer
D) 2.4/4 pints of Irish beer per pint of Australian beer

Accepted Answer

The answer of In Ireland,a pint of beer costs 3...

Question 13

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?
A) 3
B) 4/3
C) 3/4
D) 1/3

Accepted Answer

To find the real exchange rate, we need to compare the cost of the same item in both countries. Let's use the gallon of milk as our example.

In the US, a gallon of milk costs $2.
In Argentina, a gallon of milk costs 6 pesos.
To compare the prices, we need to convert pesos to dollars using the exchange rate:
6 pesos = 6/4 dollars = $1.50

So, in terms of US dollars, a gallon of milk in Argentina is $1.50.
To find the real exchange rate, we divide the cost in Argentina by the cost in the US:
Real exchange rate = $1.50 / $2 = 0.75

Simplifying the fraction, we get:
Real exchange rate = 3/4

Therefore, the answer is B, 4/3.

Question 14

Other things the same,the real exchange rate between American and Mexican goods would be lower if
A) prices of Mexican goods were higher,or the number of pesos a dollar purchased was higher.
B) prices of Mexican goods were higher,or the number of pesos a dollar purchased was lower.
C) prices of Mexican goods were lower,or the number of pesos a dollar purchased was higher.
D) prices of Mexican goods were lower,or the number of pesos a dollar purchased was lower.

Accepted Answer

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

Question 15

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?
A) The real exchange rate is greater than 1.A person in London with $200 could exchange them for pounds and have more than enough to buy the camera there.
B) The real exchange rate is greater than 1.A person in London with $200 could exchange them for pounds but then wouldn't have enough to buy the camera there.
C) The real exchange rate is less than 1.A person in London with $200 could exchange them for pounds and have more than enough to buy the camera there.
D) The real exchange rate is less than 1.A person in London with $200 could exchange them for pounds but then wouldn't have enough to buy the camera.

Accepted Answer

The answer of In the U.S.a digital camera costs $200.The...

Question 16

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?
A) 1/.70 French MP3 players per U.S.MP3 player
B) 1 French MP3 players per U.S.MP3 player
C) .70 French MP3 players per U.S.MP3 player.
D) None of the above are correct.

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 both countries. In this case, we can use the prices of MP3 players to compare the value of the currencies. Since the price of an MP3 player is the same in both countries ($150), but it costs 150 euros in Paris, we can conclude that 1 euro is worth $1 (or .70 euros = $1). Therefore, the real exchange rate is .70 French MP3 players per U.S. MP3 player.

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?
A) 7/4 cans of Belgian coffee per can of U.S.coffee
B) 5.6/5 cans of Belgian coffee per can of U.S.coffee
C) 5/5.6 cans of Belgian coffee per can of U.S.coffee
D) 4/7 cans of Belgian coffee per can of U.S.coffee

Accepted Answer

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

Question 18

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
A) 3/8
B) 2/3
C) 3/2
D) 8/3

Accepted Answer

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

Question 19

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?
A) 3.20 Quetzals per pound
B) 4.00 Quetzals per pound
C) 5.00 Quetzals per pound
D) 6.40 Quetzals per pound

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 20

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?
A) 7.2 yuan
B) 6 yuan
C) 5 yuan
D) 3.6 yuan

Accepted Answer

The answer of In the U.S.a candy bar costs $1.If...

Quiz 31: Open-Economy Macroeconomic Models

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?

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?

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

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?

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?

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

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?

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?

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?

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

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?

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?

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

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?

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?

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?

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

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?

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?