Question 1

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

The answer of If the Canadian real exchange rate appreciates,...

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

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 0.8 punts per Australian dollar, what is the real exchange rate?
A) 0.53 pints of Irish beer per pint of Australian beer
B) 0.8 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

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

Question 4

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 would make foreign goods relatively less expensive compared to domestic goods, which would encourage Canadian consumers to buy more foreign goods and fewer domestic goods.

Question 5

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 statement best explains 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 drachmas for a dollar, and in 2000 you could only purchase 350 drachmas for a dollar, this means that the value of the drachma went up relative to the dollar. In other words, the dollar depreciated against the drachma. This would make Greek goods more expensive for American consumers, which would decrease the trade balance (i.e. increase the trade deficit). Therefore, the best answer is D: The dollar depreciated, increasing the trade balance.

Question 6

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 7

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 8

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...

Question 9

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

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

Question 10

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 $0.45 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) 0.45 U.S. dollars per Canadian dollar
C) 0.69 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 compare the prices of gasoline in both countries in their respective currencies. 
1 litre of U.S. gasoline costs $0.45 U.S. which is equivalent to $0.45/1.30 = $0.3462 Canadian dollars. 
From the given real exchange rate, we know that 1 litre of Canadian gasoline is equivalent to 2 litres of U.S. gasoline. Therefore, 1 litre of Canadian gasoline costs 2 x $0.45 = $0.90 U.S. dollars, which is equivalent to $0.90/1.30 = $0.6923 Canadian dollars. 
Thus, the nominal exchange rate is 0.6923/0.45 = 1.54. However, we need to invert this rate to get U.S. dollars per Canadian dollar, which gives us 1/1.54 = 0.64935 or approximately 0.69 U.S. dollars per Canadian dollar. Choice C is the closest answer.

Question 11

If it took as many dollars to buy goods in Canada as it did to buy enough currency to buy the same goods in Kenya, the real exchange rate would be computed as how many Kenyan goods per Canadian goods?
A) one
B) the number of dollars needed to buy Canadian goods divided by the number of shillings needed to buy Kenyan goods
C) the number of shillings needed to buy Kenyan 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 12

If the Canadian dollar gets weaker relative to the Japanese yen, what 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

The answer of If the Canadian dollar gets weaker relative...

Question 13

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 is defined as the relative price of domestic and foreign goods, taking into account the exchange rate. Therefore, the formula for the real exchange rate is e(P/P*), which represents the amount of foreign goods that can be purchased with a unit of domestic currency.

Question 14

What 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 more valuable relative to other currencies, such as the euro. This makes Alberta beef more expensive for French citizens in euro terms, which would likely lead to a decrease in the quantity of Alberta beef demanded by French citizens.

Question 15

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 prices of goods in two different currencies. In this scenario, we need to compare the prices of Canadian and German goods. If they cost the same in their respective currencies, then the real exchange rate would be the amount of German currency that can be bought with one unit of Canadian currency. Therefore, the answer is choice C.

Question 16

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 find the real exchange rate, we need to compare the prices of the same good in two different countries using the formula:
Real Exchange Rate = (Nominal Exchange Rate x Domestic Price) / Foreign Price

In this case, the domestic country is Canada and the foreign country is Mexico.
Domestic Price = $5
Foreign Price = 50 pesos
Nominal Exchange Rate = 30 pesos per dollar

Real Exchange Rate = (30 pesos/dollar x $5) / 50 pesos = 3

Therefore, the real exchange rate is 3, which means that the Canadian dollar can buy three times as much wheat in Mexico as it can in Canada. Therefore, the correct answer is C.

Question 17

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

Question 18

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 19

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 answer of Which unit of measurement would be appropriate...

Question 20

If the exchange rate changes from 0.35 ? HYPERLINK "http://en.wikipedia.org/wiki/Saudi_riyal" ?Saudi riyal? per dollar to 0.30 ? HYPERLINK "http://en.wikipedia.org/wiki/Saudi_riyal" ?Saudi riyal? 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

When the exchange rate of Saudi riyal to dollar decreases, it means that the dollar has depreciated and it can now buy fewer Saudi riyals. This will make Kuwaiti goods more expensive and the dollar will be able to buy fewer Kuwaiti goods. Therefore, choice D is the correct answer.

Quiz 12: Open-Economy Macroeconomics: Basic Concepts

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

If the Canadian real exchange rate appreciates, what 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 0.8 punts per Australian dollar, what is the real exchange rate?

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

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 statement best explains the changes that could have taken place between 1999 and 2000?

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

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

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?

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) ?

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 $0.45 U.S., and a litre of Canadian gas costs $1.30 Canadian. What is the nominal 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 Kenya, the real exchange rate would be computed as how many Kenyan goods per Canadian goods?

If the Canadian dollar gets weaker relative to the Japanese yen, what might happen?

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 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 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 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?

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?

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?

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

If the exchange rate changes from 0.35 ? HYPERLINK "http://en.wikipedia.org/wiki/Saudi_riyal" ?Saudi riyal? per dollar to 0.30 ? HYPERLINK "http://en.wikipedia.org/wiki/Saudi_riyal" ?Saudi riyal? per dollar, what has happened to the dollar?