Question 1

If the U.S. real exchange rate appreciates, U.S. exports to Europe
A)and European exports to the U.S. both rise.
B)and European exports to the U.S. both fall.
C)rise, and European exports to the U.S. fall.
D)fall, and European exports to the U.S. rise.

Accepted Answer

When the U.S. real exchange rate appreciates, U.S. exports become relatively more expensive for European consumers, causing a decrease in demand for U.S. goods. On the other hand, European exports to the U.S. become relatively cheaper, leading to an increase in demand for European goods. Therefore, U.S. exports to Europe fall while European exports to the U.S. rise. Therefore, option D is the correct answer.

Question 2

Suppose the real exchange rate is 5/4 of a Canadian textbook per U.S. textbook , a U.S. textbook costs $150, and a Canadian one costs 120 Canadian dollars. To the nearest penny, what is the nominal exchange rate?
A).64 Canadian dollars per U.S. dollar
B)1 Canadian dollar per U.S. dollar
C)1.56 Canadian dollars per U.S. dollar
D)None of the above is correct.

Accepted Answer

The answer of Suppose the real exchange rate is 5/4...

Question 3

If the real exchange rate for coal is 1.5, the price of coal in the U.S. is $50 per ton, and the price of coal in Britain is 20 British pounds per ton, what is the nominal exchange rate?
A)15/4
B)5/3
C)3/5
D)4/15

Accepted Answer

The answer of If the real exchange rate for coal...

Question 4

A depreciation of the U.S. real exchange rate induces U.S. consumers to buy
A)fewer domestic goods and fewer foreign goods.
B)more domestic goods and fewer foreign goods.
C)fewer domestic goods and more foreign goods.
D)more domestic goods and more foreign goods.

Accepted Answer

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

Question 5

Suppose that the real exchange rate between the United States and Kenya is defined in terms of baskets of goods. Other things the same, which of the following will increase the real exchange rate?
A)a decrease in the quantity of Kenyan currency that can be purchased with a dollar
B)a decrease in the price of U.S. baskets of goods
C)a decrease in the price in Kenyan currency of Kenyan goods.
D)None of the above is correct.

Accepted Answer

A decrease in the price in Kenyan currency of Kenyan goods means that the basket of Kenyan goods becomes cheaper in terms of Kenyan currency, leading to an increase in the purchasing power of the Kenyan currency. This would lead to an increase in the real exchange rate between the two countries.

Question 6

When the yen gets "stronger" relative to the dollar,
A)the U.S. trade deficit with Japan will rise.
B)the U.S. trade deficit with Japan will fall.
C)the U.S. trade deficit with Japan will be unchanged.
D)None of the above necessarily happens.

Accepted Answer

When the yen gets "stronger," it means that it takes fewer yen to buy one dollar. This leads to a decrease in the price of Japanese goods and an increase in the price of U.S. goods in Japan. As a result, U.S. exports to Japan increase and Japanese imports to the U.S. decrease, leading to a reduction in the U.S. trade deficit with Japan. Therefore, the correct answer is B.

Question 7

Suppose that the real exchange rate between the United States and Kenya is defined in terms of baskets of goods. Other things the same, which of the following will increase the real exchange rate (that is increase the number of baskets of Kenyan goods a basket of U.S. goods buys)?
A)an increase in the number of Kenyan shillings that can be purchased with a dollar
B)an increase in the price of U.S. baskets of goods
C)a decrease in the price in Kenyan shillings of Kenyan goods
D)All of the above are correct.

Accepted Answer

An increase in the number of Kenyan shillings per dollar, an increase in the price of U.S. goods, or a decrease in the price of Kenyan goods all increase the real exchange rate, making U.S. goods relatively more expensive compared to Kenyan goods.

Question 8

Which of the following could be a consequence of a depreciation of the U.S. real exchange rate?
A)John, a French citizen, decides that Iowa pork has become too expensive and cancels his order.
B)Nick, a U.S. citizen, decides that the trip to Nepal he's been thinking about is now made affordable by the depreciation.
C)Roberta, a U.S. citizen, decides to import fewer windshield wipers for her auto parts company.
D)All of the above are correct.

Accepted Answer

A depreciation of the U.S. real exchange rate makes U.S. goods cheaper for foreigners and foreign goods more expensive for U.S. citizens. Therefore, U.S. citizens like Roberta may import fewer goods.

Question 9

If it took as many dollars to buy goods in the United States 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 U.S. goods?
A)one
B)the number of dollars needed to buy U.S. 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 U.S. goods
D)None of the above is correct.

Accepted Answer

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

Question 10

If the number of Japanese yen a dollar buys falls, but neither country's price level changes, then the real exchange rate
A)depreciates which causes U.S. net exports to increase.
B)depreciates which causes U.S. net exports to decrease.
C)appreciates which causes U.S. net exports to increase.
D)appreciates, which causes U.S. net exports to decrease.

Accepted Answer

The answer of If the number of Japanese yen a...

Question 11

Other things the same, if the U.S. real exchange rate appreciates, U.S. net exports
A)increase and U.S. net capital outflow decreases.
B)decrease and U.S. net capital outflow increases.
C)and U.S. net capital outflow both increase.
D)and U.S. net capital outflow both decrease.

Accepted Answer

The answer of Other things the same, if the U.S....

Question 12

If the U.S. real exchange rate appreciates, U.S. exports
A)increase and U.S. imports decrease.
B)decrease and U.S. imports increase.
C)and U.S. imports both increase.
D)and U.S. imports both decrease.

Accepted Answer

An appreciation of the U.S. real exchange rate makes U.S. goods relatively more expensive for foreign buyers and foreign goods relatively cheaper for U.S. buyers. This would lead to a decrease in U.S. exports and an increase in U.S. imports.

Question 13

If US goods cost 1/5 of one dollar for every kroner Danish goods cost, the real exchange rate would be computed as how many Danish goods per U.S. goods?
A)five
B)one fifth the price of the U.S. goods
C)the amount of kroner that can be bought with 1/5 of one dollar.
D)None of the above is correct.

Accepted Answer

The answer of If US goods cost 1/5 of one...

Question 14

An appreciation of the U.S. real exchange rate induces U.S. consumers to buy
A)fewer domestic goods and fewer foreign goods.
B)more domestic goods and fewer foreign goods.
C)fewer domestic goods and more foreign goods.
D)more domestic goods and more foreign goods.

Accepted Answer

When U.S. real exchange rate appreciates, it means that the U.S. currency has become stronger relative to foreign currencies. This makes imports cheaper and exports more expensive for U.S. consumers. As a result, consumers tend to buy fewer domestic goods and more foreign goods, which is captured by choice C.

Question 15

Suppose that the nominal exchange rate is 80 yen per dollar, that the price of a basket of goods in the U.S. is $500 and the price of a basket of goods in Japan is 50,000 yen. Suppose that these values change to 100 yen per dollar, $600, and 70,000 yen. Then the real exchange rate would
A)appreciate which by itself would make U.S. net exports fall.
B)appreciate which by itself would make U.S. net exports rise.
C)depreciate which by itself would make U.S. net exports fall.
D)depreciate which by itself would make U.S. net exports rise.

Accepted Answer

The answer of Suppose that the nominal exchange rate is...

Question 16

If US goods cost one dollar for each euro German goods costs, the real exchange rate would be computed as how many German goods per U.S. goods?
A)one
B)the price of the U.S. goods
C)the amount of euros that can be bought with one U.S. dollar
D)None of the above is correct.

Accepted Answer

The answer of If US goods cost one dollar for...

Question 17

If the real exchange rate is 5/4 pounds of Chilean beef per pound of U.S. beef, a pound of U.S. beef costs $2 and the nominal exchange rate is 500 Chilean pesos per dollar, then Chilean beef costs
A)1,250 pesos per pound.
B)800 pesos per pound
C)250 pesos per pound.
D)None of the above is correct.

Accepted Answer

To use the real exchange rate, we need to compare the prices of the same good in both countries. So, we convert the price of U.S. beef to pesos using the nominal exchange rate:
$2/pound x 500 pesos/$ = 1000 pesos/pound
Then, we use the real exchange rate to find the price of Chilean beef in pesos:
(5/4) pounds Chilean beef/ 1 pound U.S. beef x (1000 pesos/pound U.S. beef) = 1250 pesos/pound Chilean beef
Therefore, the Chilean beef costs 800 pesos per pound.

Question 18

Consider an identical basket of goods in both the U.S. and India. For a given nominal exchange rate, in which case is it certain that the U.S. real exchange rate with India falls?
A)the price of the basket of goods rises in the U.S. and India.
B)the price of the basket of goods rises in the U.S. and falls in India.
C)the price of the basket of goods falls in the U.S. and rises in India.
D)the price of the basket of goods falls in both India and the U.S..

Accepted Answer

If the price of the basket of goods falls in the U.S. and rises in India, it means that the Indian goods have become relatively cheaper compared to the U.S. goods. This leads to a fall in the U.S. real exchange rate with India because now it takes fewer U.S. dollars to buy the same basket of goods in India.

Question 19

Suppose that the real exchange rate between the United States and Vietnam is defined in terms of baskets of goods. Other things the same, which of the following will increase the real exchange rate (that is increase the number of baskets of Vietnamese goods a basket of U.S. goods buys)?
A)an increase in the quantity of Vietnamese currency that can be purchased with a dollar
B)an increase in the price of U.S. baskets of goods
C)a decrease in the price in Vietnamese currency of Vietnamese goods
D)All of the above are correct.

Accepted Answer

An increase in the quantity of Vietnamese currency that can be purchased with a dollar will increase the real exchange rate because it will make Vietnamese goods cheaper relative to U.S. goods. An increase in the price of U.S. baskets of goods will also increase the real exchange rate because it will make U.S. goods more expensive relative to Vietnamese goods. A decrease in the price in Vietnamese currency of Vietnamese goods will also increase the real exchange rate because it will make Vietnamese goods cheaper relative to U.S. goods.

Question 20

Suppose the real exchange rate is 1/2 gallon of Canadian gasoline per gallon of U.S. gasoline, a gallon of U.S. gasoline costs $5.00 U.S., and a gallon of Canadian gas costs 8 Canadian dollars. What is the nominal exchange rate?
A).80 Canadian dollars per U.S. dollar
B)1.25 Canadian dollars per U.S. dollar
C)1.60 Canadian dollars per U.S. dollar
D)None of the above is correct.

Accepted Answer

The nominal exchange rate is the price of one currency in terms of another currency. In this case, the nominal exchange rate is the price of one Canadian dollar in terms of U.S. dollars. To find the nominal exchange rate, we divide the price of a gallon of Canadian gas by the price of a gallon of U.S. gas.8 Canadian dollars / 5.00 U.S. dollars = 1.60 Canadian dollars per U.S. dollar

Quiz 18: Open-Economy Macroeconomic Models

If the U.S. real exchange rate appreciates, U.S. exports to Europe

Suppose the real exchange rate is 5/4 of a Canadian textbook per U.S. textbook , a U.S. textbook costs $150, and a Canadian one costs 120 Canadian dollars. To the nearest penny, what is the nominal exchange rate?

If the real exchange rate for coal is 1.5, the price of coal in the U.S. is $50 per ton, and the price of coal in Britain is 20 British pounds per ton, what is the nominal exchange rate?

A depreciation of the U.S. real exchange rate induces U.S. consumers to buy

Suppose that the real exchange rate between the United States and Kenya is defined in terms of baskets of goods. Other things the same, which of the following will increase the real exchange rate?

When the yen gets "stronger" relative to the dollar,

Suppose that the real exchange rate between the United States and Kenya is defined in terms of baskets of goods. Other things the same, which of the following will increase the real exchange rate (that is increase the number of baskets of Kenyan goods a basket of U.S. goods buys) ?

Which of the following could be a consequence of a depreciation of the U.S. real exchange rate?

If it took as many dollars to buy goods in the United States 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 U.S. goods?

If the number of Japanese yen a dollar buys falls, but neither country's price level changes, then the real exchange rate

Other things the same, if the U.S. real exchange rate appreciates, U.S. net exports

If the U.S. real exchange rate appreciates, U.S. exports

If US goods cost 1/5 of one dollar for every kroner Danish goods cost, the real exchange rate would be computed as how many Danish goods per U.S. goods?

An appreciation of the U.S. real exchange rate induces U.S. consumers to buy

Suppose that the nominal exchange rate is 80 yen per dollar, that the price of a basket of goods in the U.S. is $500 and the price of a basket of goods in Japan is 50,000 yen. Suppose that these values change to 100 yen per dollar, $600, and 70,000 yen. Then the real exchange rate would

If US goods cost one dollar for each euro German goods costs, the real exchange rate would be computed as how many German goods per U.S. goods?

If the real exchange rate is 5/4 pounds of Chilean beef per pound of U.S. beef, a pound of U.S. beef costs $2 and the nominal exchange rate is 500 Chilean pesos per dollar, then Chilean beef costs

Consider an identical basket of goods in both the U.S. and India. For a given nominal exchange rate, in which case is it certain that the U.S. real exchange rate with India falls?

Suppose that the real exchange rate between the United States and Vietnam is defined in terms of baskets of goods. Other things the same, which of the following will increase the real exchange rate (that is increase the number of baskets of Vietnamese goods a basket of U.S. goods buys) ?

Suppose the real exchange rate is 1/2 gallon of Canadian gasoline per gallon of U.S. gasoline, a gallon of U.S. gasoline costs $5.00 U.S., and a gallon of Canadian gas costs 8 Canadian dollars. What is the nominal exchange rate?