Question 1

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...

Question 2

In France a loaf of bread costs 3 euros. In Great Britain a loaf of bread costs 4 pounds. If the exchange rate is .9 pounds per euro, what is the real exchange rate?
A) 4/2.7 loaves of British bread per loaf of French bread
B) 3.6/3 loaves of British bread per loaf of French bread
C) 3/3.6 loaves of British bread per loaf of French bread
D) 2.7/4 loaves of British bread per loaf of French bread

Accepted Answer

We need to find how many loaves of British bread we can buy with 3 euros. Using the exchange rate of .9 pounds per euro, we can convert 3 euros to 2.7 pounds (3 x .9). Then, we can divide 2.7 pounds by 4 pounds per loaf of British bread to get 0.675 loaves of British bread per loaf of French bread. Simplifying this fraction, we get 2.7/4 loaves of British bread per loaf of French bread, which is the answer choice D.

Question 3

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

To determine which price is consistent with the exchange rates, we need to calculate the real exchange rate, which is the nominal exchange rate multiplied by the ratio of foreign to domestic prices. Let P be the price of the good in the U.S. and P* be the price of the good in Italy.

Real exchange rate = (0.8 euros/1 dollar) * (P* / P) 
4/3 = (0.8) * (P* / P) 
P* = (4/3) * (P / 0.8)

Now we can try each choice to see which one satisfies this equation:

A) P = 4, P* = 3 euros 
P* = (4/3) * (4 / 0.8) = 8 euros, not consistent 
B) P = 4, P* = 3.75 euros 
P* = (4/3) * (4 / 0.8) = 8 euros, not consistent 
C) P = 5, P* = 3 euros 
P* = (4/3) * (5 / 0.8) = 10 euros, consistent 
D) P = 6, P* = 2.50 euros 
P* = (4/3) * (6 / 0.8) = 12 euros, not consistent

Therefore, the only choice consistent with the exchange rates is C: $5 in the U.S. and 3 euros in Italy.

Question 4

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 5

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...

Question 6

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 7

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 8

Suppose the real exchange rate is 1.25 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 10 Guatemalan Quetzals per dollar, what is the price of bananas in Guatemala?
A) 2.50 Quetzals per pound
B) 4.00 Quetzals per pound
C) 5.75 Quetzals per pound
D) 6.25 Quetzals per pound

Accepted Answer

The answer of Suppose the real exchange rate is 1.25...

Question 9

The nominal exchange rate is 4 Saudi Arabian riyals, 8 Moroccan dirham, 60 Indian rupees, or .8 euros per U.S. dollar. A fast food breakfast costs $5 in the U.S., 30 riyals in Saudi Arabia, 40 Moroccan dirham in Morocco, 250 Indian rupees in India, and 5 euros in France. 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

To find the real exchange rate, we need to calculate the cost of the fast food breakfast in each country in U.S. dollars (using the given nominal exchange rates):

Saudi Arabia: $7.50
Morocco: $4.80
India: $4.17
France: $6.25

Therefore, the real exchange rate is the lowest in Saudi Arabia, where the cost of the fast food breakfast is $7.50. This means that American goods are relatively more expensive in Saudi Arabia compared to the other countries.

Question 10

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 divide the price of the refrigerator in Bosnia by the price of the refrigerator in the US, and then multiply that by the exchange rate.

1200/1000 = 1.2

1.2 x 1.5 = 1.8

This means it takes 1.8 Bosnian markas to buy 1 US dollar, so the real exchange rate is 5/4 (or 1.25).

Question 11

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...

Question 12

Suppose the real exchange rate is 3/4 gallon of country A's gasoline per gallon of U.S. gasoline, a gallon of U.S. gasoline costs $3.00 U.S., and a gallon of gas in country A costs 6 units of their currency. What is the nominal exchange rate?
A) 3/8 of a unit of country A's currency per dollar.
B) 3/2 units of country A's currency per dollar.
C) 8/3 units of country A's currency per dollar.
D) None of the above is correct.

Accepted Answer

The answer of Suppose the real exchange rate is 3/4...

Question 13

Exchange rates are 100 yen per dollar, 0.8 euro per dollar, and 12 pesos per dollar. A bottle of beer in New York costs 6 dollars, 500 yen in Tokyo, 6 euro in Munich, and 84 pesos in Cancun. Where is the most expensive and the cheapest beer, in that order?
A) Cancun, New York
B) Munich, Tokyo
C) Tokyo, Munich
D) New York, Cancun

Accepted Answer

To compare the prices of the beers, we need to convert all the prices into the same currency, which we can choose to be dollars. 
- A beer in New York costs 6 dollars. 
- A beer in Tokyo costs (500 yen / 100 yen per dollar) = 5 dollars. 
- A beer in Munich costs (6 euro / 0.8 euro per dollar) = 7.5 dollars. 
- A beer in Cancun costs (84 pesos / 12 pesos per dollar) = 7 dollars. 
Thus, the most expensive beer is in Munich and the cheapest beer is in Tokyo.

Question 14

In the United States, a three-pound can of coffee costs about $5. If the exchange rate is 0.8 euros per dollar and a three-pound can of coffee in Belgium costs 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...

Question 15

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 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 see how much 1 unit of foreign currency is worth in relation to 1 U.S. dollar. We can do this by dividing the cost of the foreign hot chocolate (6.5 units) by its cost in U.S. dollars ($5):

6.5 units / $5 = 1.3 units per U.S. dollar

This means that 1 U.S. dollar is worth 1.3 units of the foreign currency. Therefore, the real exchange rate is 1 cup of the foreign hot chocolate per cup of U.S. hot chocolate.

Question 16

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

To find the price of chicken in Japan, we need to use the real exchange rate and convert the U.S. price to yen.

1 U.S. dollar = 100 yen

Therefore, $2.50 = 250 yen

Now, using the real exchange rate of 1, we can say that 1 U.S. dollar is equal to 1 Japanese yen.

So, the price of chicken in Japan would also be 250 yen per pound.

Therefore, the best choice is B.

Question 17

If the price of a sofa is $800 in the U.S. and 2400 pesos in Argentina, and the exchange rate is 4 pesos per dollar, what is the real exchange rate?
A) 3
B) 4/3
C) 3/4
D) None of the above is correct.

Accepted Answer

The answer of If the price of a sofa is...

Question 18

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

If a pound of U.S. beef costs $2, then it costs 2 * 500 = 1000 Chilean pesos. 
The real exchange rate is 5/4 pounds of Chilean beef per pound of U.S. beef, so one pound of Chilean beef costs (4/5) * 1000 = 800 Chilean pesos. 
Therefore, the answer is B, 800 pesos per pound.

Question 19

If the price of a good in the U.S. is $10 and the unit of foreign currency is the dinar, in which case is the real exchange rate 5/4?
A) the foreign price is 4 dinars and the exchange rate is 1/2 dinars per dollar
B) the foreign price is 5 dinars and the exchange rate is 2.5 dinars per dollar
C) the foreign price is 4 dinars and the exchange rate is 2 dinars per dollar
D) the foreign price is 5 dinars and the exchange rate is 2/5 dinars per dollar

Accepted Answer

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

Question 20

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...

Quiz 13: Open-Economy Macroeconomics: Basic Concepts

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?

In France a loaf of bread costs 3 euros. In Great Britain a loaf of bread costs 4 pounds. If the exchange rate is .9 pounds per euro, 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?

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

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

Suppose the real exchange rate is 1.25 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 10 Guatemalan Quetzals per dollar, what is the price of bananas in Guatemala?

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

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?

Suppose the real exchange rate is 3/4 gallon of country A's gasoline per gallon of U.S. gasoline, a gallon of U.S. gasoline costs $3.00 U.S., and a gallon of gas in country A costs 6 units of their currency. What is the nominal exchange rate?

Exchange rates are 100 yen per dollar, 0.8 euro per dollar, and 12 pesos per dollar. A bottle of beer in New York costs 6 dollars, 500 yen in Tokyo, 6 euro in Munich, and 84 pesos in Cancun. Where is the most expensive and the cheapest beer, in that order?

In the United States, a three-pound can of coffee costs about $5. If the exchange rate is 0.8 euros per dollar and a three-pound can of coffee in Belgium costs 7 euros. What is the real exchange rate?

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?

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?

If the price of a sofa is $800 in the U.S. and 2400 pesos in Argentina, and the exchange rate is 4 pesos per dollar, what is the real exchange rate?

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

If the price of a good in the U.S. is $10 and the unit of foreign currency is the dinar, in which case is the real exchange rate 5/4?

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?