Question 1

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

Since the real exchange rate between the U.S. and Japan is 1, we can assume that the purchasing power parity holds true. Therefore, the price of chicken in Japan would be the same as in the U.S., which is $2.50 per pound. However, we need to convert this price to yen using the nominal exchange rate of 100 yen per U.S. dollar:
$2.50 per pound x 100 yen per U.S. dollar = 250 yen per pound. Therefore, the correct answer is B) 250 yen per pound.

Question 2

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 3

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 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

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 7

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 8

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 compare the cost of one cup of hot chocolate in the foreign currency to the cost of one cup of hot chocolate in U.S. dollars.

One cup of hot chocolate in the U.S. costs $5, and in the foreign country, it costs 6.5 units of currency.

To convert 6.5 units of currency into U.S. dollars, we need to divide by the exchange rate:

6.5 units / 1.3 units per dollar = $5

This means that one cup of hot chocolate in the foreign country has the same value as $5 in the U.S.

Therefore, the real exchange rate is 1 cup of that country's hot chocolate per cup of U.S. hot chocolate.

Question 9

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

The answer of The nominal exchange rate is .80 euros...

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 find the relative price of each country's refrigerator.

Relative price of Bosnia's refrigerator = 1,200 markas 
Relative price of U.S.'s refrigerator = $1,000 / 1.5 = 666.67 markas

Real exchange rate = (Relative price of Bosnia's refrigerator) / (Relative price of U.S.'s refrigerator) 
Real exchange rate = 1,200 / 666.67 = 1.8

Now we need to find the reciprocal of 1.8 to get the exchange rate in the correct format: 
Reciprocal of 1.8 = 5/9

Therefore, the real exchange rate is 5/9 or approximately 0.56. The closest answer choice is B) 5/4, but this is not correct as it would mean that the U.S. refrigerator is cheaper than the Bosnian refrigerator, which is not the case according to the relative prices.

Question 11

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 12

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 13

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 the ratio of the cost of a loaf of British bread to the cost of a loaf of French bread. To do this, we need to convert the cost of the British bread into euros:

4 pounds = 4/0.9 euros ≈ 4.44 euros

Now we can find the ratio:

4.44 euros / 3 euros ≈ 1.48

This means that one loaf of British bread costs 1.48 times as much as a loaf of French bread. To invert this ratio, we can take the reciprocal:

1 / 1.48 ≈ 0.68

This means that one loaf of French bread costs 0.68 times as much as a loaf of British bread. Now we can express the real exchange rate as the number of loaves of British bread per loaf of French bread:

2.7 / 4 ≈ 0.68

So the answer is D: 2.7/4 loaves of British bread per loaf of French bread.

Question 14

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 15

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 16

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 17

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 18

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

Since the real exchange rate is 1.25 pounds of bananas in Guatemala per pound of bananas in the U.S., we can use this ratio to calculate the price of bananas in Guatemala. 
1 pound of bananas in the U.S. costs $.50, which is equivalent to 5 Quetzals (10 Quetzals per dollar). 
So, in Guatemala, 1.25 pounds of bananas would cost 1.25 x 5 = 6.25 Quetzals. 
Therefore, the price of bananas in Guatemala is 6.25/1.25 = 5 Quetzals per pound. 
The closest answer choice is B, 4.00 Quetzals per pound, which is not the exact answer but still the closest one possible.

Question 19

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...

Question 20

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.

Quiz 31: Open-Economy Macroeconomics: Basic Concepts

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?

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?

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?

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 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?

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 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

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

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 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?

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?

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 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?

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

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 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?

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