400-ch8
Suppose the price of $1 is 12 pesos or the exchange rate between the dollar and the Mexican peso is 12 pesos per dollar. Suppose also that the price of corn in Mexico is 72 pesos a bushel. If an American wants to purchase corn in Mexico, how much would one bushel of corn in Mexico cost in dollars?
$6 per bushel
Net exports are exports
Correct minus imports.
When the value of the dollar decreases on foreign exchange markets
the price of foreign goods expressed in dollars increases, so the United states imports decrease.
Suppose the value of the dollar on the forward exchange rate market (for one year in the future) is 1% above the spot rate. If foreign interest rates on a one-year bond are approximately equal to 1.75% per year. What is the rate of interest in the United States?
0.75%
Suppose that corn in less expensive in the United States than in Mexico. What does a Mexican have to do the buy corn in the United States and what effect does this tend to have on the peso/dollar exchange rate?
A Mexican must convert his pesos to dollars and this will tend to cause the value of the peso to decrease.
Suppose that corn in less expensive in the United States than in Mexico. What does a Mexican have to do the buy corn in the United States and what effect does this tend to have on the price of corn in Mexico and the price corn in the United States.
A Mexican must convert his pesos to dollars and use the dollars to buy corn. This will tend to reduce the price of corn in Mexico and increase it in the United States.
Consider the idea of purchasing power parity and the interest parity condition. Which of the following statements is true?
Although purchasing power parity cannot be used to explain short-run exchange rate movements, it can be used to explain long-run changes in exchange rates, but only if they are the result of two countries having different rates of inflation.
Consider the idea of purchasing power parity and the interest parity condition. Which of the following statements is true?
Although purchasing power parity rarely seems to hold over short periods of time, the interest parity condition holds practically all the time.
Suppose the price of $1 is 12 pesos or the exchange rate between the dollar and the Mexican peso is 12 pesos per dollar. Suppose also that the price of corn in Mexico is 72 pesos a bushel. If an American wants to purchase corn in Mexico, how much would one bushel of corn in Mexico cost in dollars?
Correct $6 per bushel.
Suppose the value of the dollar on the forward exchange rate market (for one year in the future) is 0.70% below the spot rate. If foreign interest rates on a one-year bond are approximately equal to 1.60% per year. What is the rate of interest in the United States?
Correct 2.30%
Suppose the price of corn in Mexico is 100.00 pesos per bushel, while the price of corn in the United States is $7.50 per bushel. Finally suppose the exchange rate is 13.50 pesos per dollar. Given this situation, which of the following statements is true?
Correct Corn flows from Mexico to the United States and dollars flow from the United States to Mexico.
Suppose the price of corn in Mexico is 105.00 pesos per bushel, while the price of corn in the United States is $7.50 per bushel. Where is corn least expensive if the exchange rate is 14 pesos per dollar?
Correct The price is the same in the United States as Mexico.
Net exports are determined by
Correct both relative prices and capital flows
Suppose you take a vacation to England. The money you spend there
Correct counts as in import because you are spending money on English produced goods and services
Suppose US exports are $25 billion and imports are $20 billion. This implies that
Correct foreigners either are reducing their holdings of American assets by $5 billion, or Americans increasing their holdings of foreign assets by $5 billion.
If there is a balance of trade deficit in the United States, then
Correct foreigners must be willing to increase their holdings of American assets
Exports are defined as
Correct goods and services produced in the United States, but sold to people living outside the United States
Imports are defined as
Correct goods and services produced outside the United States, but sold to people living in the United States.
If a government's budget is balance on national income and product account, and there is a balance of payments deficit then,
Correct gross investment is greater than gross saving, I>S.
Correct both relative prices and capital flows
Correct minus imports.
The idea that the relative value of two currencies is strongly affected by the price level in the two corresponding economies is called
Correct purchasing power parity
Suppose the one-year rate of interest in the United States is 3% per year, while that in England is 2% per year. If the value of the dollar relative to the British pound on the forward market is 1% below its value on the spot market, then
Correct the interest parity condition holds
When the value of the dollar increases on foreign exchange markets
Correct the price of US goods in other currencies increases so United States exports decrease.
Suppose that over the course of this year Americans wish to purchase $250 billion worth of imports at the current value of the dollar on exchange rate markets, while foreigners wish to purchase $200 billion worth of American exports. If foreigners do not wish to increase their holdings of American assets, then
Correct the value of the dollar will decrease on foreign exchange markets.
If Americans have no desire to hold the Mexican peso, while Mexicans have no desire to hold the US dollar,
Correct then the dollar/peso exchange rate will adjust until exports from the United States to Mexico equals imports into the United States from Mexico.
Net exports are determined by
both relative prices and capital flows
Suppose US exports are $25 billion and imports are $20 billion. This implies that
foreigners either are reducing their holdings of American assets by $5 billion, or Americans increasing their holdings of foreign assets by $5 billion.
If there is a balance of trade deficit in the United States, then
foreigners must be willing to increase their holdings of American assets.
Exports are defined as
goods and services produced in the United States, but sold to people living outside the United States
Suppose the one-year rate of interest in the United States is 3% per year, while that in England is 2% per year. If the value of the dollar relative to the British pound on the forward market is 1% above its value on the spot market, then
investors can earn more by converting pounds into dollars and buying one-year bonds in the United States.
The idea that the relative value of two currencies is strongly affected by the price level in the two corresponding economies is called
purchasing power parity
Suppose US exports are $25 billion and imports are $20 billion. This implies that
the balance of trade is plus $5 billion and foreigners on net are giving up $5 billion dollars to buy American Goods.
Suppose the one-year rate of interest in the United States is 3% per year, while that in England is 2% per year. If the value of the dollar relative to the British pound on the forward market is 1% below its value on the spot market, then
the interest parity condition holds
Suppose that over the course of this year Americans wish to purchase $250 billion worth of imports at the current value of the dollar on exchange rate markets, while foreigners wish to purchase $200 billion worth of American exports. If foreigners do not wish to increase their holdings of American assets, then
the value of the dollar will decrease on foreign exchange markets.
Suppose that over the course of this year Americans wish to purchase $450 billion worth of imports at the current value of the dollar on exchange rate markets, while foreigners wish to purchase $300 billion worth of American exports. If foreigners wish to increase their holdings of American assets by $150 billion, then
there will be a balance of trade deficit for the United States equal to $150 billion dollars.