1.Suppose a basket of goods and services costs 1,200 pesos in Mexico and 400 dol
ID: 1214965 • Letter: 1
Question
1.Suppose a basket of goods and services costs 1,200 pesos in Mexico and 400 dollars in the United States. In this case, what is the purchasing power parity?
12 pesos per dollar
1/3 peso per dollar
3 pesos per dollar
40 pesos per dollar
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2.When the dollar depreciates against the yen, then:
U.S. imports from Japan rise.
the U.S. trade deficit rises.
Japanese exports to the U.S. rise.
U.S. exports to Japan rise.
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3.If European investors decrease their demand for U.S. dollars because European investors no longer want to invest in as many U.S. assets, then:
the equilibrium number of euros per U.S. dollar rises.
the dollar depreciates.
European consumers buy fewer U.S. goods.
U.S. consumers buy more European goods.
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4.If European investors increase their demand for dollars because they want to increase their investment in U.S. assets, then:
the equilibrium number of euros per U.S. dollar falls.
the dollar depreciates.
the balance of payments on current account rises.
the balance of payments on financial account rises.
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5.Suppose that the exchange rate between the U.S. dollar and the euro is such that one U.S. dollar is exchanged for 1.5 euros. Now assume that the rate changes to one U.S. dollar for 1.8 euros. Taking into account this change, we would say that:
the euro appreciated against the dollar.
the dollar appreciated against the euro.
the dollar depreciated against the euro.
the dollar is now worth less in terms of euros.
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6.Suppose that the purchasing power parity of the British pound against the U.S. dollar is higher than the nominal exchange rate. The implication is that:
the United States is running a current account deficit with Britain.
the United States is running a current account surplus with Britain.
the United States is running a financial account surplus with Britain.
a given market basket of goods and services does not cost the same in both countries.
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7.Suppose the British pound depreciates against the dollar, while at the same time the United States suffers higher inflation as compared to Britain. Then the ________ exchange rate between the British pound and the U.S dollar will ___________.
real; increase
real; decrease
nominal; decrease
nominal; stay constant
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Explanation / Answer
1) 1200/400=3 pesos per dollar
2)US exports to Japan would rise(This is because the dollar has become relatively cheaper now
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