Microeconomics
21st Edition
ISBN: 9781259915727
Author: Campbell R. McConnell, Stanley L. Brue, Sean Masaki Flynn Dr.
Publisher: McGraw-Hill Education
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Question
Chapter 27, Problem 3RQ
To determine
The exchange rate changes.
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In Ireland, a pint of beer costs 2.2 Irish pounds. In Australia, a point of beer costs 4 Australian dollars.
If the nominal exchange rate is 2 Australian dollars per Irish pound, what is the real exchange rate
from the Irish perspective?
O 0.91
O 1.1
3.64
O 4.4
Purchasing power parity theory would suggest that if the Canadian price of a basket of goods is C$1,800, but the same basket in the United States is U.S.$1,300,
and the actual exchange rate is C$1.30 = U.S.S1.00, then the value of the Canadian dollar should
O A. depreciate by approximately 8.9 percent.
O B. depreciate by approximately 6.2 percent.
OC. appreciate by approximately 8.9 percent.
O D. appreciate by approximately 6.2 percent.
O E. remain unchanged.
Say that in Miami, in Coral Gables, a big mac cost $4.25 and a large fries cost $2.50. In Japan, the total cost of a big mac and
large fries is 81 Yen. The according to purchasing power parity, the exchange rate that equalizes purchasing power of this
basket of goods is
8.5
О 12
O 6.5
O 10
Chapter 27 Solutions
Microeconomics
Ch. 27.1 - Prob. 1QQCh. 27.1 - Prob. 2QQCh. 27.1 - Prob. 3QQCh. 27.1 - Prob. 4QQCh. 27.A - Prob. 1ADQCh. 27.A - Prob. 1ARQCh. 27.A - Prob. 1APCh. 27 - Prob. 1DQCh. 27 - Prob. 2DQCh. 27 - Prob. 3DQ
Ch. 27 - Prob. 4DQCh. 27 - Prob. 5DQCh. 27 - Prob. 6DQCh. 27 - Prob. 7DQCh. 27 - Prob. 8DQCh. 27 - Prob. 9DQCh. 27 - Prob. 10DQCh. 27 - Prob. 11DQCh. 27 - Prob. 1RQCh. 27 - Prob. 2RQCh. 27 - Prob. 3RQCh. 27 - Prob. 4RQCh. 27 - Prob. 5RQCh. 27 - Prob. 6RQCh. 27 - Prob. 7RQCh. 27 - Prob. 8RQCh. 27 - Prob. 9RQCh. 27 - Prob. 10RQCh. 27 - Prob. 1PCh. 27 - Prob. 2PCh. 27 - Prob. 3PCh. 27 - Prob. 4PCh. 27 - Prob. 5P
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- 8. Suppose that last year, the nominal exchange rate between the Japanese yen and the British pound was ¥150.0 per £1.0, one unit of Japanese output cost ¥1300, and one unit of British output cost £8.0.a. What was the real exchange rate between the U.K. and Japan last year, expressed as the cost of British output (i.e. – the quantity of Japanese output that exchanges for 1 unit of British output)? In which country were goods more expensive last year?arrow_forwardSuppose the Australian dollar floats against the US dollar and the demand for Australian dollars in the foreign exchange market is given by Q = 100 - 50E where Q denotes the quantity of AUD and E denotes the nominal exchange rate expressed in USD per AUD. The supply of Australian dollars is given by Q = 20 + 50E. What is the equilibrium nominal exchange rate? O 0.80 O 1.00 O 1.20 O 1.50arrow_forwardSuppose a basket of goods costs $100 in the U.S. and €80 in Spain. If the exchange rate is $1.50 per euro, then the real exchange rate, in terms of U.S. baskets per Spanish basket, is O 0.8 O 0.9 O 1.1 O 1.2arrow_forward
- 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 $arrow_forwardAssuming 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. overvalued; appreciate e. undervalued; depreciate Next page pagearrow_forward11. Suppose that the nominal exchange rate between the euro and the British pound was €0.80 per £1.0 last year, one unit of German output cost €4.0 last year, and one unit of British output cost £6.0 last year. a. What was last year's real exchange rate between the U.K. and Germany, expressed as the cost of British output (i.e. - the quantity of German output that exchanges for 1 unit of British output)? In which country were goods more expensive last year? b. Suppose that between last year and this year the British pound depreciated by 25% against the euro (a 25% decrease in the number of euros required to buy 1 pound). If the price of goods in the U.K and Germany are unchanged from last year, what is this year's new real exchange rate? In which country are goods more expensive this year? Now suppose, instead, that between last year and this year, the pound depreciated by 25% against the euro and Germany experienced a 40% decrease in its price level (a 40% decrease in the number of…arrow_forward
- A Canadian traveling to the United States converts $100 Canadian into 80 U.S. dollars. One month later he does the same thing and receives only 86 U.S. dollars. There are no transactions costs. The Canadian-U.S. exchange rate has and the Canadian dollar has relative to the U.S. dollar. O A. fallen; appreciated O B. increased; appreciated O C. not changed; remained stationary O D. fallen; depreciated O E. increased; depreciatedarrow_forwardConsider the exchange rate between U.S. Dollar and Mexican Peso: USD/MXN. If the supply curve for USD shifted from 100+en to 104+en bln dollars per week and the demand curve shifted from 140-en to 142-en bln dollars per week, then the exchange rate changed by _____ percentarrow_forwardA Canadian traveling to the United States converts $100 Canadian into 80 U.S. dollars. One month later he does the same thing and receives only 86 U.S. dollars. There are no transactions costs. The Canadian-U.S. exchange rate has and the Canadian dollar has relative to the U.S. dollar. O A. fallen; appreciated O B. increased; appreciated O C. not changed; remained stationary OD. fallen; depreciated O E. increased; depreciatedarrow_forward
- According to the balance-of-payments, positive net exports mean that the country has ... O greater investment than saving. a greater number of industries with absolute advantage. O greater saving than investment. O a smaller number of industries with comparative advantage. O a greater number of industries with comparative advantage. O a smaller number of industries with absolute advantage.arrow_forward27 Suppose that the current Canadian dollar (CAD) to U.S. dollar exchange rate is $0.85 CAD = $1 U.S. and that the U.S. dollar price of an Apple iPhone is $300. What is the Canadian dollar price of an iPhone? 2$ CAD Next, suppose that the CAD to U.S. dollar exchange rate moves to $0.96 CAD = $1 U.S. What is the new Canadian dollar price of an iPhone? 2$ CAD Other things equal, would you expect Canada to import more or fewer iPhones at the new exchange rate? V (Click to select) More Fewerarrow_forwardSuppose that the current Canadian dollar (CAD) to U.S. dollar exchange rate is $0.85 CAD = $1 US and that the U.S. dollar price of an Apple iPhone is $300. What is the Canadian dollar price of an iPhone? Next, suppose that the CAD to U.S. dollar exchange rate moves to $0.96 CAD = $1 US. What is the new Canadian dollar price of an iPhone? Other things equal, would you expect Canada to import more or fewer iPhones at the new exchange rate?arrow_forward
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