Question 1

If relative purchasing power between the United States and Argentina is 3.22 pesos per dollar,under which circumstances would we say that the dollar is "overvalued"?

Accepted Answer

If the actual exchange rate between the dollar and the Argentinean peso is higher than the relative purchasing power of the two currencies (in this case, above 3.22 pesos per dollar), we say that the dollar is overvalued. Therefore, B is the correct answer as 4 pesos per dollar is higher than the relative purchasing power of 3.22 pesos per dollar.

Question 2

Figure 19-1 
-Refer to Figure 19-1.Which of the following would cause the change depicted in the figure above?

Accepted Answer

The answer of Figure 19-1 
-Refer to Figure 19-1.Which of...

Question 3

If the GDP deflator in the United States is 114,and the GDP deflator in Ukraine is 142,which of the following changes would the theory of purchasing power parity predict? (The Ukrainian currency is the hryvnia. )

Accepted Answer

The answer of If the GDP deflator in the United...

Question 4

If,at the current exchange rate between the dollar and the Norwegian kroner of 5.78 kroner per dollar,the dollar is "overvalued," how do you expect demand and supply in the foreign exchange markets to respond?

Accepted Answer

The answer of If,at the current exchange rate between the...

Question 5

If the U.S.government places tariffs on imports from countries that have been accused of deliberately undervaluing their currencies,the price of these imports will ________ and the demand for the undervalued currency will ________.

Accepted Answer

When tariffs are placed on imports, the cost of these goods increases for consumers in the importing country, leading to a rise in prices. However, the demand for the exporting country's currency is likely to fall because the higher prices can reduce the volume of goods imported, thus decreasing the need to exchange for the exporting country's currency.

Question 6

If the implied exchange rate between Big Mac prices in the United States and Poland is 2.13 zlotys per dollar,but the actual exchange rate between the United States and Poland is 3.16 zlotys per dollar,which of the following would you expect to see?

Accepted Answer

The answer of If the implied exchange rate between Big...

Question 7

If the GDP deflator in the United States is 114,and the GDP deflator in Ukraine is 142,which of the following exchange rates would the theory of purchasing power parity predict in the long run? (The Ukrainian currency is the hryvnia. )

Accepted Answer

The theory of purchasing power parity (PPP) suggests that in the long run, exchange rates should adjust so that an identical basket of goods in two different countries will cost the same amount when priced in the same currency. To find the predicted exchange rate, you can use the ratio of the GDP deflators. The calculation is 142 (Ukraine's GDP deflator) / 114 (US GDP deflator) = 1.25. This means, according to PPP, 1 US dollar should exchange for 1.25 hryvnias in the long run.

Question 8

Suppose the GDP deflator in the United States is 125 and the GDP deflator in Japan is 100.Also assume the United States has trade barriers on Japanese goods in the form of quotas.What does this imply about the exchange rate of yen per dollar under the theory of purchasing power parity in the long run?

Accepted Answer

According to the theory of purchasing power parity, the exchange rate between two countries should adjust such that the purchasing power of a currency in one country equals the purchasing power of the same currency in another country. In this case, since the GDP deflator in Japan is lower than the United States, it implies that prices in Japan are lower than prices in the United States. Therefore, the yen should be able to buy more goods in Japan than in the United States. The trade barriers on Japanese goods will make Japanese goods more expensive in the United States, which will further increase the relative price of goods in the United States. This will cause the yen to depreciate against the dollar, such that the exchange rate of yen per dollar will be less than 0.8. Therefore, the correct answer is D.

Question 9

Because the value of the euro is determined by factors that affect the entire euro zone,during the recession of 2007-2009,individual countries using the euro

Accepted Answer

Countries using the euro share a common currency, and therefore cannot have individual exchange rates. This means that during the recession, they were unable to have their exchange rates depreciate to improve competitiveness and lessen the impact of the recession.

Question 10

Countries that use the euro as their currency face similar concerns as countries did during the years of the gold standard in that each are (were)

Accepted Answer

Like countries under the gold standard, eurozone countries cannot conduct monetary policy independently because they do not have control over their own currency. The European Central Bank controls monetary policy for the entire eurozone, rather than individual countries having their own central bank.

Question 11

The "Big Mac Theory of Exchange Rates" tests the accuracy of the purchasing power parity theory.In July 2015,the Economist reported that the average price of a Big Mac in the U.S.was $4.79.In Sweden,the average price of a Big Mac at that time was 43.7 kronor.What is the "implied exchange rate" between Swedish kronor and U.S.dollars?

Accepted Answer

The answer of The "Big Mac Theory of Exchange Rates"...

Question 12

If the purchasing power of the dollar is greater than the purchasing power of the euro,purchasing power parity predicts that the exchange rate will

Accepted Answer

Purchasing Power Parity (PPP) theory predicts that in the long run, exchange rates will adjust so that the purchasing power of different currencies will be equalized. This means the exchange rate should reflect the relative purchasing power across the currencies.

Question 13

Figure 19-1 
-Refer to Figure 19-1.Which of the following would cause the change depicted in the figure above?

Accepted Answer

The answer of Figure 19-1 
-Refer to Figure 19-1.Which of...

Question 14

A Big Mac costs $4.00 in the United States and 9.00 reals in Brazil.If the exchange rate is 2 reals per dollar,purchasing power parity predicts that

Accepted Answer

The answer of A Big Mac costs $4.00 in the...

Question 15

If the average productivity of American firms is rising more quickly than the average productivity of Indian firms,which of the following would you expect to see? (India's currency is the rupee. )

Accepted Answer

If American firms are becoming more productive compared to Indian firms, it is likely that American firms can produce goods at a lower cost and sell them at a lower price. This will make American products more attractive to consumers than Indian products, which may lead to a decrease in the quantity demanded of Indian products relative to American products. This could result in a decrease in the value of the rupee relative to the dollar, but there is no guarantee of this happening. The prices of Indian products could also decrease, but this is not necessarily the most likely scenario. Finally, an increase in the quantity demanded of Indian products relative to American products is unlikely if American firms are more productive.

Question 16

Figure 19-2 
-Refer to Figure 19-2.Which of the following would cause the change depicted in the figure above?

Accepted Answer

The answer of Figure 19-2 
-Refer to Figure 19-2.Which of...

Question 17

If inflation in Russia is higher than it is in the United States,

Accepted Answer

If inflation is higher in Russia than in the United States, the purchasing power of the ruble decreases relative to the dollar, making the dollar more valuable in the long run.

Question 18

How will the exchange rate (foreign currency per dollar)respond to an increase in the relative rate of productivity growth in the United States in the long run?

Accepted Answer

An increase in the relative rate of productivity growth in the United States will increase the demand for dollars in the long run, as there will be a higher demand for U.S. goods and services due to their increased productivity. This increased demand for dollars will cause the exchange rate to rise, as more foreign currency will be needed to purchase a single dollar.

Question 19

Which of the following explains why purchasing power parity does not completely explain long-run fluctuations in exchange rates?

Accepted Answer

Purchasing power parity assumes that goods are free to move across international borders and that they are identical, but not all goods are traded internationally. This means that variations in the production of non-traded goods and services can affect exchange rates.

Question 20

Figure 19-1 
-Refer to Figure 19-1.Which of the following would cause the change depicted in the figure above?

Accepted Answer

The change depicted in the figure (an outward shift in the demand curve for euros) is caused by an increase in the relative price level of goods produced in the EU, which is captured by choice D. The other choices are not related to changes in relative prices and hence would not cause the depicted change.

Quiz 19: The International Financial System

If relative purchasing power between the United States and Argentina is 3.22 pesos per dollar,under which circumstances would we say that the dollar is "overvalued"?

Figure 19-1 -Refer to Figure 19-1.Which of the following would cause the change depicted in the figure above?

If the GDP deflator in the United States is 114,and the GDP deflator in Ukraine is 142,which of the following changes would the theory of purchasing power parity predict? (The Ukrainian currency is the hryvnia. )

If,at the current exchange rate between the dollar and the Norwegian kroner of 5.78 kroner per dollar,the dollar is "overvalued," how do you expect demand and supply in the foreign exchange markets to respond?

If the U.S.government places tariffs on imports from countries that have been accused of deliberately undervaluing their currencies,the price of these imports will and the demand for the undervalued currency will .

If the implied exchange rate between Big Mac prices in the United States and Poland is 2.13 zlotys per dollar,but the actual exchange rate between the United States and Poland is 3.16 zlotys per dollar,which of the following would you expect to see?

If the GDP deflator in the United States is 114,and the GDP deflator in Ukraine is 142,which of the following exchange rates would the theory of purchasing power parity predict in the long run? (The Ukrainian currency is the hryvnia. )

Because the value of the euro is determined by factors that affect the entire euro zone,during the recession of 2007-2009,individual countries using the euro

Countries that use the euro as their currency face similar concerns as countries did during the years of the gold standard in that each are (were)

If the purchasing power of the dollar is greater than the purchasing power of the euro,purchasing power parity predicts that the exchange rate will

Figure 19-1 -Refer to Figure 19-1.Which of the following would cause the change depicted in the figure above?

A Big Mac costs $4.00 in the United States and 9.00 reals in Brazil.If the exchange rate is 2 reals per dollar,purchasing power parity predicts that

If the average productivity of American firms is rising more quickly than the average productivity of Indian firms,which of the following would you expect to see? (India's currency is the rupee. )

Figure 19-2 -Refer to Figure 19-2.Which of the following would cause the change depicted in the figure above?

If inflation in Russia is higher than it is in the United States,

How will the exchange rate (foreign currency per dollar) respond to an increase in the relative rate of productivity growth in the United States in the long run?

Which of the following explains why purchasing power parity does not completely explain long-run fluctuations in exchange rates?

Figure 19-1 -Refer to Figure 19-1.Which of the following would cause the change depicted in the figure above?