Question 1

Suppose that an Xbox One X costs $150 in the United States and £75 in Great Britain.Suppose the exchange rate is $US1 = £1.Does purchasing power parity suggest that the dollar should appreciate or depreciate against the pound? What will happen if consumers in Great Britain like the Xbox One X less than US consumers?
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Accepted Answer

The answer of Suppose that an Xbox One X costs...

Question 2

Adoption of the euro as both a medium of exchange and unit of account in the EU countries serves to increase competition among European firms and decrease individual countries' monetary policy options when confronted by recessions and booms.

Accepted Answer

Adoption of the euro eliminates currency exchange risks and transaction costs, making it easier for firms in different European countries to compete with each other. Additionally, being part of a monetary union limits individual countries' ability to use monetary policy (such as adjusting interest rates or printing more money) to deal with their own economic challenges, as the European Central Bank controls the eurozone's monetary policy.

Question 3

Would we expect that purchasing power parity will hold in the long run for haircut prices between Australia and Singapore? Why or why not?
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Accepted Answer

The answer of Would we expect that purchasing power parity...

Question 4

If the rate of productivity growth in Australia exceeds the rate of productivity growth in Great Britain,we would expect the Australian dollar to depreciate in value against the British pound.

Accepted Answer

If Australia's rate of productivity growth exceeds Great Britain's, this could increase Australia's competitiveness, leading to an increase in demand for the Australian dollar and appreciation in value.

Question 5

Has the adoption of the euro by many countries in the European Union enhanced economic growth in those countries?
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Accepted Answer

The answer of Has the adoption of the euro by...

Question 6

Suppose a tablet computer costs $200 in Australia and 25 000 in Japan.Suppose the exchange rate is $1 = 100 yen.According to purchasing power parity,what should happen to the exchange rate in the long run? What will be the new exchange rate?
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Accepted Answer

The answer of Suppose a tablet computer costs $200 in...

Question 7

What is a 'pegged exchange rate' and what are the advantages to a country of having a pegged exchange rate system?
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Accepted Answer

The answer of What is a 'pegged exchange rate' and...

Question 8

Fill in the values for the implied exchange rate in the various currencies per US dollar in the following table.Assume that the Big Mac burger sells for $3.06 in the United States.Explain whether the US dollar is overvalued or undervalued relative to each currency and predict what will happen in the future to each exchange rate.
 $$\begin{array} { | l | l | l | l | } 
\hline & \text { Big Mac Price } & \begin{array} { l } 
\text { Implied Exchange Rate } \
\text { (Foreign Currency per } \
\text { US dollars) }
\end{array} & \begin{array} { l } 
\text { Actual Exchange Rate } \
\text { (Foreign Currency per } \
\text { US dollars) }
\end{array} \
\hline \text { Hong Kong } & \text { 12 HKdollars } & & 7.76 \
\hline \text { Switzerland } & \text { 6.29 Swiss francs } & & 1.23 \
\hline \text { Mexico } & \text { 23.9 pesos } & &10.6 \
\hline \text { The United Kingdom } & 1.86 \text { pounds } & & 0.67 \
\hline
\end{array}$$ _____________________________________________________________________________________________
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Accepted Answer

The answer of Fill in the values for the implied...

Question 9

A 'speculative attack' is the result of investors' expectations that the future value of a currency will decline.

Accepted Answer

A speculative attack occurs when investors sell a currency based on the expectation that its value will decline in the future. This can cause a rapid fall in the currency's value and can lead to economic instability.

Question 10

In order to maintain an undervalued yuan to encourage a trade surplus,the Chinese government must buy US dollars and increase the supply of yuan.

Accepted Answer

In order to maintain an undervalued yuan, the Chinese government must increase the supply of yuan by buying US dollars, which increases demand for US dollars and puts downward pressure on the yuan's exchange rate. This helps to encourage a trade surplus by making Chinese exports cheaper and more competitive in international markets.

Question 11

According to the 'theory of purchasing power parity',if the inflation rate in the United States is greater than the inflation rate in Australia,explain what should happen to the exchange rate between the US dollar and the Australian dollar.
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Accepted Answer

The answer of According to the 'theory of purchasing power...

Question 12

The East Asian exchange rate crisis of the late 1990s resulted in a greater number of countries with pegged exchange rates.

Accepted Answer

The East Asian exchange rate crisis of the late 1990s led to a move away from pegged exchange rates and towards more flexible exchange rate systems. Countries such as Thailand, Indonesia, and South Korea had to abandon their fixed exchange rate regimes and allow their currencies to float freely.

Question 13

What is the 'theory of purchasing power parity'?
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Accepted Answer

The answer of What is the 'theory of purchasing power...

Question 14

The European Union countries that have adopted the euro still conduct independent monetary policies within their countries.

Accepted Answer

Countries that have adopted the euro share a common monetary policy set by the European Central Bank, and do not conduct independent monetary policies within their countries.

Question 15

What factors occur in the real world that prevent 'purchasing power parity' from occurring fully in the long run?
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Accepted Answer

The answer of What factors occur in the real world...

Question 16

If a firm in Thailand borrows dollars from a US bank,its interest payments on the loan in Thai baht will decrease if the baht appreciates against the dollar.

Accepted Answer

When the Thai baht appreciates against the dollar, fewer baht are needed to buy the same amount of dollars, reducing the baht cost of interest payments on a dollar-denominated loan.

Question 17

Describe the four determinants of exchange rates in the long run.
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Accepted Answer

The answer of Describe the four determinants of exchange rates...

Question 18

If the rate of inflation in Australia exceeds the rate of inflation in Great Britain,we would expect the Australian dollar to depreciate in value against the British pound.

Accepted Answer

When the rate of inflation in one country is higher than another, the purchasing power of its currency declines, and its value relative to the other country's currency falls. Therefore, if Australia's inflation rate is higher than Britain's, we would expect the Australian dollar to depreciate against the British pound.

Question 19

What does it mean when one currency is 'pegged' against another currency?
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Accepted Answer

The answer of What does it mean when one currency...

Question 20

Both countries involved in an exchange rate peg must agree to the peg.

Accepted Answer

An exchange rate peg is typically unilaterally decided by one country to stabilize the exchange rate between its currency and another country's currency, without requiring formal agreement from the other country involved.

Quiz 20: Macroeconomics in an Open Economy

Adoption of the euro as both a medium of exchange and unit of account in the EU countries serves to increase competition among European firms and decrease individual countries' monetary policy options when confronted by recessions and booms.

Would we expect that purchasing power parity will hold in the long run for haircut prices between Australia and Singapore? Why or why not? _ _

If the rate of productivity growth in Australia exceeds the rate of productivity growth in Great Britain,we would expect the Australian dollar to depreciate in value against the British pound.

Has the adoption of the euro by many countries in the European Union enhanced economic growth in those countries? _ _

Suppose a tablet computer costs $200 in Australia and 25 000 in Japan.Suppose the exchange rate is $1 = 100 yen.According to purchasing power parity,what should happen to the exchange rate in the long run? What will be the new exchange rate? _ _

What is a 'pegged exchange rate' and what are the advantages to a country of having a pegged exchange rate system? _ _

A 'speculative attack' is the result of investors' expectations that the future value of a currency will decline.

In order to maintain an undervalued yuan to encourage a trade surplus,the Chinese government must buy US dollars and increase the supply of yuan.

According to the 'theory of purchasing power parity',if the inflation rate in the United States is greater than the inflation rate in Australia,explain what should happen to the exchange rate between the US dollar and the Australian dollar. _ _

The East Asian exchange rate crisis of the late 1990s resulted in a greater number of countries with pegged exchange rates.

What is the 'theory of purchasing power parity'? _ _

The European Union countries that have adopted the euro still conduct independent monetary policies within their countries.

What factors occur in the real world that prevent 'purchasing power parity' from occurring fully in the long run? _ _

If a firm in Thailand borrows dollars from a US bank,its interest payments on the loan in Thai baht will decrease if the baht appreciates against the dollar.

Describe the four determinants of exchange rates in the long run. _ _

If the rate of inflation in Australia exceeds the rate of inflation in Great Britain,we would expect the Australian dollar to depreciate in value against the British pound.

What does it mean when one currency is 'pegged' against another currency? _ _

Both countries involved in an exchange rate peg must agree to the peg.

Quiz 20: Macroeconomics in an Open Economy

Adoption of the euro as both a medium of exchange and unit of account in the EU countries serves to increase competition among European firms and decrease individual countries' monetary policy options when confronted by recessions and booms.

If the rate of productivity growth in Australia exceeds the rate of productivity growth in Great Britain,we would expect the Australian dollar to depreciate in value against the British pound.

A 'speculative attack' is the result of investors' expectations that the future value of a currency will decline.

In order to maintain an undervalued yuan to encourage a trade surplus,the Chinese government must buy US dollars and increase the supply of yuan.

The East Asian exchange rate crisis of the late 1990s resulted in a greater number of countries with pegged exchange rates.

What is the 'theory of purchasing power parity'? _____________________________________________________________________________________________ _____________________________________________________________________________________________

The European Union countries that have adopted the euro still conduct independent monetary policies within their countries.

If a firm in Thailand borrows dollars from a US bank,its interest payments on the loan in Thai baht will decrease if the baht appreciates against the dollar.

Describe the four determinants of exchange rates in the long run. _____________________________________________________________________________________________ _____________________________________________________________________________________________

If the rate of inflation in Australia exceeds the rate of inflation in Great Britain,we would expect the Australian dollar to depreciate in value against the British pound.

What does it mean when one currency is 'pegged' against another currency? _____________________________________________________________________________________________ _____________________________________________________________________________________________

Both countries involved in an exchange rate peg must agree to the peg.

What is the 'theory of purchasing power parity'? _ _

Describe the four determinants of exchange rates in the long run. _ _

What does it mean when one currency is 'pegged' against another currency? _ _