1.Which of the following is the correct expression for the real exchange rate? M
ID: 1214966 • Letter: 1
Question
1.Which of the following is the correct expression for the real exchange rate?
Mexican pesos per dollar × (U.S. price level/Mexican price level)
Mexican pesos per dollar/Mexican price level
Mexican pesos per dollar U.S. price level
Pesos per dollar × (Mexican price level/U.S. price level)
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2.Depreciation of the U.S. dollar against the Canadian dollar would
affect the financial account between the countries, but not the current account.
cause U.S.-made goods to become relatively more expensive in Canada.
increase the volume of U.S.-made goods exported to Canada.
decrease the volume of U.S.-made goods exported to Canada.
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3.If the dollar appreciates against the euro:
then the euro will also appreciate against the dollar.
it will take fewer dollars to buy a given amount of euros.
it will take fewer euros to buy a given amount of dollars.
European-made goods will become relatively more expensive in the United States.
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4.As you are traveling to Europe, the exchange rate of euros to the U.S. dollar falls from 1.5 euros to the dollar to 1.2 euros to the dollar. The result is that now:
traveling has become more expensive in Europe.
traveling has become less expensive in Europe.
traveling in Europe is not affected by the change in the exchange rate.
traveling has become more expensive in the United States.
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5.Which of the following is TRUE at the equilibrium exchange rate?
The sum of the current account and the financial account is equal to zero.
The balance of payments on current account is zero.
The balance of payments on financial account is zero.
The nominal exchange rate is equal to purchasing power parity.
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6.An appreciation of the Mexican peso against the U.S. dollar would mean that:
U.S. tourists will now find it relatively more expensive to travel in Mexico.
U.S. tourists will now find it relatively less expensive to travel in Mexico.
the foreign exchange market is now out of equilibrium.
the volume of Mexican-made goods imported into the United States will increase.
Explanation / Answer
1.REAL EXCHNGE RATE= NOMINAL EXCHNGE RATE * (Pd/Pf)
Pesos per dollar × (Mexican price level/U.S. price level)
2.Depreciation of the U.S. dollar against the Canadian dollar would
affect the financial account between the countries, but not the current account.
decrease the volume of U.S.-made goods exported to Canada.
3.If the dollar appreciates against the euro:
it will take fewer dollars to buy a given amount of euros.
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