Unit 8 hw

According to purchasing-power parity, inflation in the U.S. causes the dollar to

depreciate relative to currencies of countries that have lower inflation rates.

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?

2.7/4 loaves of British bread per loaf of French bread

According to purchasing-power parity, if the Federal Reserve increased the money supply

U.S. prices would rise and the nominal exchange rate would fall.

If the number of Japanese yen a dollar buys falls, but neither country's price level changes, then the real exchange rate

depreciates which causes U.S. net exports to increase.

A depreciation of the U.S. real exchange rate induces U.S. consumers to buy

more domestic goods and fewer foreign goods.

If the exchange rate is .60 British pounds = $1, a bottle of ale that costs 3 pounds costs

$5.

According to purchasing-power parity, if a basket of goods costs $100 in the U.S. and the same basket costs 800 pesos in Argentina, then what is the nominal exchange rate?

8 pesos per dollar

A U.S. firm opens a factory that produces power tools in Korea.

This increases U.S. net capital outflow and decreases Korean net capital outflow.

A U.S. firm buys sardines from Morocco and pays for them with U.S. dollars. Other things the same, U.S. net exports

decrease, and U.S. net capital outflow decreases.

If purchasing-power parity holds, a dollar will buy

enough foreign currency to buy as many goods as it does in the United States.

A Texas ranch sells beef to a U.S. company that sells it to a grocery chain in Japan. These sales

increase both U.S. exports and U.S. net exports.

You are the CEO of a U.S. firm considering building a factory in Chile. If the dollar appreciates relative to the Chilean peso, then other things the same

it takes fewer dollars to build the factory. By itself building the factory increases U.S. net capital outflow.

If over the next few years inflation is higher in Mexico than in the U.S., then according to purchasing-power parity which of the following should rise?

the U.S. nominal exchange rate but not the U.S. real exchange rate

If you are vacationing in France and the dollar depreciates relative to the euro, then

the dollar buys fewer euros. It will take more dollars to buy a good that costs 50 euros.