Question 1

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 0.6 punts per Australian dollar, what is the real exchange rate?
A)0.8 pints of Irish beer per pint of Australian beer
B)0.9 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

To find the real exchange rate we need to compare the prices of the same amount of beer in different currencies.

Let's convert the price of a pint of beer in Australia to Irish punts:

6 Australian dollars * 0.6 punts per Australian dollar = 3.6 punts

Now we can compare:

4 punts in Ireland vs. 3.6 punts in Australia

To find how many Australian pints we can buy for 4 Irish punts, we can divide 4 punts by the price in Australian dollars:

4 punts / (6 Australian dollars * 0.6 punts per Australian dollar) = 0.9 pints of Australian beer per pint of Irish beer

Therefore, the real exchange rate is 0.9 pints of Irish beer per pint of Australian beer, which is choice B.

Question 2

Suppose the real exchange rate is 3/5 pounds of Chilean beef per pound of Canadian beef, a pound of Canadian beef costs $3, and the nominal exchange rate is 400 Chilean pesos per dollar. What does Chilean beef cost?
A)960 pesos per pound
B)1200 pesos per pound
C)1500 pesos per pound
D)2000 pesos per pound

Accepted Answer

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

Question 3

If the Canadian real exchange rate appreciates, which of the following 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

Which of the following 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 Canadian goods, including Alberta beef, become relatively more expensive for foreign buyers. Therefore, it is likely that French citizens will buy less of Alberta beef.

Question 5

If the exchange rate changes from 40 Thai baht per dollar to 35 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

A decrease in the exchange rate (from 40 Thai baht per dollar to 35 Thai baht per dollar) means that the dollar has depreciated. This means that it now buys fewer Thai goods than it did previously.

Question 6

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 price of one country's currency in terms of another country's currency. In this case, it would be the amount of German currency that can be bought with one unit of Canadian currency.

Question 7

Which of the following units 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 a ratio 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 8

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

Accepted Answer

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

Question 9

Suppose that a kilogram can of coffee costs about $6 in Canada. Suppose the exchange rate is about 0.7 euro per dollar and that a kilogram can of coffee in Belgium costs about 2.1 euros. What is the real exchange rate?
A)2.45 cans of Belgian coffee per can of Canadian coffee
B)3/4 cans of Belgian coffee per can of Canadian coffee
C)3/5 cans of Belgian coffee per can of Canadian coffee
D)2 cans of Belgian coffee per can of Canadian coffee

Accepted Answer

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

Question 10

In Canada, a cup of hot chocolate costs $6. In Australia, the same hot chocolate costs $6 Australian dollars. If the exchange rate is $3 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, adjusted for the exchange rate. Here, $6 CAD is equivalent to $18 AUD (since 1 CAD = 3 AUD). Therefore, 1 cup of Canadian hot chocolate can be exchanged for 3 cups of Australian hot chocolate, making the real exchange rate 2 cups of Australian hot chocolate per cup of Canadian hot chocolate.

Question 11

When the yen gets "stronger" relative to the dollar, what happens to the Canadian trade deficit with Japan?
A)The Canadian trade deficit with Japan will rise.
B)The Canadian trade deficit with Japan will fall.
C)The Canadian trade deficit with Japan will be unchanged.
D)There is insufficient information to answer this question.

Accepted Answer

When the yen gets stronger relative to the dollar, it becomes more expensive for Canadian importers to buy goods from Japan. This results in a decrease in import demand, which in turn reduces the trade deficit between Canada and Japan. Therefore, the Canadian trade deficit with Japan will fall.

Question 12

Which of the following would a depreciation of the Canadian real exchange rate induce Canadian 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 Canadian real exchange rate makes foreign goods more expensive and domestic goods cheaper, leading Canadian consumers to buy more domestic goods and fewer foreign goods.

Question 13

If the nominal exchange rate e is foreign currency per dollar, the domestic price is P, and the foreign price is P*, which of the following 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 nominal exchange rate adjusted for the relative price levels between the domestic and foreign economies. Therefore, the correct formula for the real exchange rate is e(P/P*). Option B matches this formula, and is therefore the correct answer. Option A has the right adjustment for relative prices but has reversed the domestic and foreign prices in the formula. Option C and D do not correspond to the correct formula for the real exchange rate.

Question 14

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 $1.50 U.S., and a gallon of Canadian gas costs $3.90 Canadian. What is the nominal exchange rate?
A)0.385 Canadian dollars per U.S. dollar
B)0.65 Canadian dollars per U.S. dollar
C)1.10 Canadian dollars per U.S. dollar
D)1.30 Canadian dollars per U.S. dollar

Accepted Answer

The real exchange rate is given as 1/2, meaning 1 gallon of U.S. gasoline can be exchanged for 1/2 gallon of Canadian gasoline. The nominal exchange rate can be calculated using the formula: Real Exchange Rate = (Nominal Exchange Rate * Price of U.S. Good) / Price of Canadian Good. Solving for the nominal exchange rate gives: 1/2 = (Nominal Exchange Rate * $1.50) / $3.90, which simplifies to Nominal Exchange Rate = 1.30 Canadian dollars per U.S. dollar.

Question 15

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

The real exchange rate can be calculated by dividing the price of the same good in two different countries. In this case, the price of wheat in Canada is $5 and in Mexico it is 50 pesos. To compare these prices, we need to convert one currency to the other using the nominal exchange rate.

$5 in Canadian dollars is equivalent to 5/30 = 1/6 of a dollar or 8.33 pesos in Mexican currency.

So the real exchange rate is:

50 pesos / 8.33 pesos = 6

This means that it takes 6 times as many pesos to buy a bushel of wheat in Mexico as it does to buy one in Canada. Therefore, the best choice is C) 3.

Question 16

If it took as many dollars to buy goods in Canada 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 Canadian goods?
A)one
B)the number of dollars needed to buy Canadian 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 Canadian goods
D)a number equal to the nominal exchange rate

Accepted Answer

If it takes the same amount of dollars to buy goods in both countries, the real exchange rate is one, meaning one Indian good per Canadian good.

Question 17

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 of the following best explain 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 buy 400 drachmas for a dollar, and in 2000, you could buy only 350 drachmas for the same dollar, it means that the value of the drachma increased relative to the dollar. Therefore, the dollar depreciated. A weaker dollar makes imports more expensive and exports less expensive, leading to an increase in the trade balance. Hence, the correct option is D.

Question 18

If the Canadian real exchange rate appreciates, which of the following 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 for foreign buyers, leading to a decrease in exports. Conversely, foreign goods become cheaper for Canadian buyers, leading to an increase in imports.

Question 19

If the exchange rate changes from 0.35 Kuwaiti dinar per dollar to 0.30 Kuwaiti dinar 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 changes from 0.35 Kuwaiti dinar per dollar to 0.30 Kuwaiti dinar per dollar, it means that the dollar has depreciated because it now buys fewer Kuwaiti dinars. Therefore, the answer is D, which states that the dollar has depreciated and so buys fewer Kuwaiti goods.

Question 20

Which of the following would an appreciation of the Canadian real exchange rate induce Canadian 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

An appreciation of the Canadian real exchange rate would make foreign goods relatively cheaper compared to domestic goods, therefore Canadian consumers would be induced to buy more foreign goods and fewer domestic goods.

Quiz 12: Open-Economy Macroeconomics: Basic Concepts

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 0.6 punts per Australian dollar, what is the real exchange rate?

Suppose the real exchange rate is 3/5 pounds of Chilean beef per pound of Canadian beef, a pound of Canadian beef costs $3, and the nominal exchange rate is 400 Chilean pesos per dollar. What does Chilean beef cost?

If the Canadian real exchange rate appreciates, which of the following most likely happen?

Which of the following 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 the exchange rate changes from 40 Thai baht per dollar to 35 Thai baht per dollar, what has happened to the dollar?

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?

Which of the following units of measurement would be appropriate for a real exchange rate?

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

Suppose that a kilogram can of coffee costs about $6 in Canada. Suppose the exchange rate is about 0.7 euro per dollar and that a kilogram can of coffee in Belgium costs about 2.1 euros. 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 $3 Australian dollars per Canadian dollar, what is the real exchange rate?

When the yen gets "stronger" relative to the dollar, what happens to the Canadian trade deficit with Japan?

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

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

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 $1.50 U.S., and a gallon of Canadian gas costs $3.90 Canadian. What is the nominal exchange rate?

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?

If it took as many dollars to buy goods in Canada 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 Canadian goods?

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 of the following best explain the changes that could have taken place between 1999 and 2000?

If the Canadian real exchange rate appreciates, which of the following most likely happen?

If the exchange rate changes from 0.35 Kuwaiti dinar per dollar to 0.30 Kuwaiti dinar per dollar, what has happened to the dollar?

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