Macroeconomics: ch 16 Quiz

If the exchange rate is 9 Pound sterlings per U.S. dollar and a meal in London costs 225 Pound sterlings, then how many U.S. dollars does it take to buy a meal in Rio?

$25 and your purchase will increase the United Kingdom's net exports.

If a U.S. dollar purchases 4 Argentinean pesos, and a gallon of milk costs $3 in the U.S. and 6 pesos in Argentina what is the real exchange rate?

2 gallons of Argentinean milk/1 gallon of U.S. milk

Which of the following is an example of U.S. foreign direct investment?

A U.S. based restaurant chain opens new restaurants in India.

According to purchasing-power parity, which of the following necessarily equals the ratio of the foreign price level divided by the domestic price level?

The nominal exchange rate, but not the real exchange rate.

Purchasing-power parity describes the forces that determine

exchange rates in the long run.

An exchange rate policy is which the government usually allows the exchange rate to be set by the market is called a ____________.

soft peg

If the exchange rate is expressed as euros/dollar, the dollar is said to depreciate against the euro if the exchange rate

falls. Other things the same, it will cost fewer euros to buy U.S. goods.

The market in which people use one currency to buy another currency is called the _________________.

foreign exchange market

According to purchasing-power parity, when a country's central bank decreases the money supply, a unit of money

gains value both in terms of the domestic goods and services it can buy and in terms of the foreign currency it can buy.

An exchange rate policy in which the central bank sets a fixed and unchanging value for the exchange rate is call a ______________.

hard peg

Purchasing-power parity theory does not hold at all times because

many goods are not easily transported and the same goods produced in different countries may be imperfect substitutes.

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

more domestic goods and fewer foreign goods.

You hold currency from a foreign country. If that country has a lower rate of inflation than the United States, then over time the foreign currency will buy

more goods in that country and buy more dollars.

You are planning a graduation trip to Mexico. Other things the same, if the dollar appreciates relative to the peso, then the dollar buys

more pesos. Your hotel room in Mexico will require fewer dollars.

Suppose exchange rates are defined as foreign currency per dollar and foreign goods per U.S. goods. According to purchasing-power parity, if the price of a basket of goods in the United States rose from $1,500 to $2,000 and the price of the same basket of goods rose from 600 units of some other country's currency to 1,000 units of that country's currency, then the

nominal exchange rate would appreciate.

If purchasing-power parity holds, then the value of the

real exchange rate is equal to one.

When exchange rates are defined as foreign currency per dollar and foreign goods per US goods, the ability to profit by purchasing wheat in the United States and selling it in China implies that the

real exchange rate is less than 1.