Purchasing Power Parity (PPP) theory states that Select one: O a the prices of standard commodity baskets in two countries are not related. O b. None of them. O c.as the purchasing power of a currency sharply declines (due to hyperinflation) that currency will appreciate against stable currencies. O d the exchange rate between currencies of two countries should be equal to the ratio of the countries' price levels.

Purchasing Power Parity (PPP) theory states that Select one: O a the prices of standard commodity baskets in two countries are not related. O b. None of them. O c.as the purchasing power of a currency sharply declines (due to hyperinflation) that currency will appreciate against stable currencies. O d the exchange rate between currencies of two countries should be equal to the ratio of the countries' price levels.

Principles of Economics 2e

2nd Edition

ISBN:9781947172364

Author:Steven A. Greenlaw; David Shapiro

Publisher:Steven A. Greenlaw; David Shapiro

Chapter29: Exchange Rates And International Capital Flows

Section: Chapter Questions

Problem 25CTQ: If a countrys currency is expected to appreciate in value, what would you think will be the impact...

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If a countrys currency is expected to appreciate in value, what would you think will be the impact of expected exchange rates on yields (e.g., the Interest rate paid on government bonds) in that country? Hint: Think about how expected exchange rate changes and interest rates affect a currencys demand and supply.
Does a higher rate of return in a nations economy, all other things being equal, affect the exchange rate of its currency? If so, how?
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On the foreign exchange market, an increase in a country's exchange rate O a. decreases the demand for its currency and shifts the demand curve leftward. O b. decreases the quantity demanded of its currency and leads to a movement up along the demand curve. decreases the demand for its currency and shifts the demand curve rightward. O d. increases the quantity demanded of its currency and leads to a movement down along the demand curve. O . increases the quantity demanded of its currency and leads to a movement up along the demand curve.
Which of the following statements is true of a flexible exchange rate system? O A. Market forces tend to undervalue a currency over time. O B. Market forces tend to push the exchange rate of a currency to market clearing levels over time. Market forces do not affect exchange rates between different currencies. O C. O D. Market forces tend to overvalue a currency over time. If the ratio of the dollar price of a U.S. toy to the dollar price of the same toy sold in China is greater than one, retailers in the United States should O A. should not buy the toys from both Chinese suppliers and U.S. suppliers O B. buy the toys from Chinese suppliers O C. buy the toys from both Chinese suppliers and U.S. suppliers O D. buy the toys from American suppliers Which of the following is likely to be true of the nominal and the real exchange rates in the short run and in the long run if prices in two countries do not respond to exchange rate changes? O A. The real and the nominal exchange rates between…
In Windsor, Ontario, a Big Mac from McDonald's costs C$4.17 (Canadian dollars), and across the border in Detroit it costs $3.56 (US dollars). a. Suppose the nominal US exchange rate with Canada is US$0.74 per Canadian dollar. Does purchasing power parity hold between the two countries? O Yes, it holds because the Canadian Big Mac costs less in terms of U.S. dollars. O No, it does not hold because the Canadian Big Mac costs more in terms of U.S. dollars. O No, it does not hold because the Canadian Big Mac costs less in terms of U.S. dollars. O Yes, it holds because the Canadian Big Mac costs more in terms of U.S. dollars. b. What is the exchange rate for the US if purchasing power parity holds. Instructions: Round your answer to three decimal places. US dollar per Canadian dollar $
In the foreign exchange market, an increase in the U.S. interest rate leads to in the exchange rate because the supply of dollars a fall; increases O b. no change; does not change Ос a rise; decreases O d. a rise; increases O . a fall; decreases
The supply curve for Japanese yen on the foreign-exchange market is upward-sloping when plotted against the exchange rate (measured as the Canadian dollar price of one Japanese yen) because Select one O a when the dollar appreciates, Canadian goods are cheaper in Japan, and more Canadian exports are therefore demanded, O b. when the dollar depreciates, the price of Japanese exports to Canada decreases. Oc when the dollar depreciates, Canadian goods are cheaper in Japan, and more Canadian exports are therefore demanded O d. an appreciation of the dollar will cause the yen prices of Canadian exports to fall Oe. a depreciation of the dollar will cause the yen prices of Canadian goods to rise.
Evaluate the following statement: "if lower exchange rates increase a nation's exports, the govermment should do everything in its power to anure that the exchange rate for its cumency is an low as it can possbly be This statement does nat acknowledge that lower exchange rates OA couid result in a reluctance from other countries to accept this nation's currency for payment of any goodn or services OB. could make a currency virtually worthless. O C. make a nation's imports more expensive. COD. None of the above responses are acknowledged by the statement.
Assuming that the price of a Big Mac in the United States is US$3.71 and £$2.30 in the United Kingdom (excluding taxes). If the current exchange rate is £$1.60/US$ then the pound is and will Select one: O a. overvalued; depreciate O b. remain unchanged O c. undervalued; appreciate O d. undervalued; depreciate O e. overvalued; appreciate
How will an increase in remittance flows to your country during the Christmas Season affect the market for foreign exchange? Select one: O a. Outward shift of the demand curve, real exchange rate rises and the balance of trade rises O b. Outward shift of the supply curve, real exchange rate falls and the balance of trade falls O c. Inward shift of the supply curve, real exchange rate rises and the balance of trade rises O d. Inward shift of the demand curve, real exchange rate falls and the balance of trade falls е. Inward shift of the demand curve, real exchange rate rises and the balance of trade falls
When the exchange rate between the U.S. dollar and the euro changes from 1.07 euros per dollar to 0.93 euros per dollar, then the O A. U.S. dollar has depreciated against the dollar. OB. euro has depreciated against the dollar. O C. U.S. dollar has depreciated against the euro. D. euro has depreciated against the euro. O E. U.S. dollar has appreciated against the euro.