Question 1

Explain Purchasing Power Parity.

Accepted Answer

PPP states that the exchange rate betwee...

Question 2

In practice

Accepted Answer

A)  changes in national price levels often tell us relatively little about exchange rate movements.
B)  changes in national price levels raise the exchange rate.
C)  changes in national price levels lower the exchange rate.
D)  changes in national price levels often tell us about exchange rate movements.
E)  changes in national price levels match identical changes in the exchange rate.

Question 3

Which of the following statements is the MOST accurate?

Accepted Answer

A)  The prices of identical commodity baskets,when converted to a single currency,are the same across countries.
B)  The prices of identical commodity baskets,when converted to a single currency,differ substantially across countries.
C)  The prices of identical commodity baskets,when converted to a single currency,do not differ substantially across countries.
D)  The prices of identical commodity baskets,when converted to a single currency,are often the same across countries.
E)  The prices of identical commodity baskets,when converted to a single currency,are the same across countries more than 50% of the time.

Question 4

An increase in the world relative demand for U.S.output causes

Accepted Answer

A)  a short-run real depreciation of the dollar against the euro.
B)  a long-run real appreciation of the dollar against the euro.
C)  a long-run real depreciation of the dollar against the euro.
D)  a short-run real appreciation of the euro against the dollar.
E)  a long-run real appreciation of the euro against the dollar.

Question 5

What effect do non-tradable goods have on PPP?

Accepted Answer

The effect is quite substantial.
In 2006...

Question 6

Interest rate differences between countries depend on

Accepted Answer

A)  differences in expected inflation,but not on expected changes in the real exchange rate.
B)  differences in expected changes in the real exchange rate,but not on expected inflation.
C)  neither differences in expected inflation,nor on expected changes in the real exchange rate.
D)  differences in expected inflation and nothing else.
E)  differences in expected inflation,and on expected changes in the real exchange rate.

Question 7

Who among the following list of people is an early 20th century economist from Yale University who wrote the book The Theory of Interest?

Accepted Answer

A)  Gustav Cassel
B)  Irving Fisher
C)  David Ricardo
D)  Paul Krugman
E)  Israel Kirzner

Question 8

Which of the following are theories meant to explain "Why price levels are lower in poorer countries"?

Accepted Answer

A)  only Bhagwati-Kravis-Lipsey
B)  only Balassa-Samuelson
C)  only Goldberg-Knetter
D)  Bhagwati-Kravis-Lipsey and Balassa-Samuelson
E)  Bhagwati-Kravis-Lipsey and Goldberg-Knetter

Question 9

Does the existence of non-tradable goods allow for deviations from Purchasing power Parity?

Accepted Answer

Yes,the existence of nontradables allows...

Question 10

Describe and explain the relationship between expected inflation rates in two countries and their interest rate differential according to the PPP theory.

Accepted Answer

Expected inflation is given by the follo...

Question 11

Floating exchange rates

Accepted Answer

A)  systematically lead to much larger but less frequent short-run deviations from the absolute PPP.
B)  systematically lead to much larger and more frequent short-run deviations from the relative PPP.
C)  systematically lead to much smaller and less frequent short-run deviations from the relative PPP.
D)  systematically lead to much smaller but more frequent short-run deviations from the relative PPP.
E)  systematically lead to much smaller and less frequent short-run deviations from the absolute PPP.

Question 12

Suppose Russia's inflation rate is 200% over one year but the inflation rate in Switzerland is only 2%.According to relative PPP,what should happen over the year to the Swiss franc's exchange rate against the Russian ruble?

Accepted Answer

(E_{ruble/franc,t} - E_{ruble/franc,t-1})/E_{ruble/franc,t-1} = 2 - 0.02 = 1.98
So...

Question 13

Describe the chain of events leading to exchange rate determination for the following cases:
(a)An increase in U.S.money supply
(d)Increase in growth rate of U.S.money supply
(c)Increase in world relative demand for U.S.products
(d)Increase in relative U.S.output supply

Accepted Answer

Chain of events leading to exchange rate...

Question 14

Which of the following statements is the MOST accurate?

Accepted Answer

A)  Relative PPP is not a reasonable approximation to the data.
B)  Relative PPP is sometimes a reasonable approximation to the data but often performs poorly.
C)  Relative PPP is sometimes a reasonable approximation to the data.
D)  PPP is sometimes a reasonable approximation to the data.
E)  PPP is sometimes a reasonable approximation to the data but usually performs poorly.

Question 15

Which one of the following statements is the MOST accurate?

Accepted Answer

A)  The purchasing power of any given country's currency will increase in countries where the prices of non-tradable goods rise.
B)  The purchasing power of any given country's currency will fall in countries where the prices of non-tradable goods fall.
C)  The purchasing power of any given country's currency will fall in countries where the prices of non-tradable goods rise.
D)  The purchasing power of any given country's currency will remain constant in countries where the prices of non-tradable goods rise.
E)  The purchasing power of any given country's currency will fall in countries where the prices of non-tradable goods remain constant.

Question 16

Under Purchasing Power Parity

Accepted Answer

A)  E$/E = PiUS/PiE.
B)  E$/E = PiE/PiUS.
C)  E$/E = PUS/PE.
D)  E$/E = PE/PES.
E)  E$/E = PiE + PiUS/PiE.

Question 17

In the long run

Accepted Answer

A)  exchange rates obey relative PPP when all disturbances occur in the output markets.
B)  exchange rates obey absolute PPP when all disturbances occur in the output markets.
C)  exchange rates are unlikely to obey relative PPP when all disturbances occur in the output markets.
D)  exchange rates are unlikely to obey relative PPP when all disturbances are monetary in nature.
E)  exchange rates obey absolute PPP when all disturbances are monetary in nature.

Question 18

Which of the following statements is MOST accurate?

Accepted Answer

A)  A relative expansion of U.S.output causes a long-run depreciation of the dollar against the euro,while a relative expansion of European output causes a long-run real appreciation of the dollar against the euro.
B)  A relative decline of U.S.output causes a long-run depreciation of the dollar against the euro,while a relative expansion of European output causes a long-run real appreciation of the dollar against the euro.
C)  A relative expansion of U.S.output causes a long-run appreciation of the dollar against the euro,while a relative expansion of European output causes a long-run real depreciation of the dollar against the euro.
D)  A relative expansion of U.S.output causes a long-run depreciation of the dollar against the euro,while a relative decline of European output causes a long-run real appreciation of the dollar against the euro.
E)  A relative decline of U.S.output causes a long-run depreciation of the dollar against the euro,while a relative decline of European output causes a long-run real appreciation of the dollar against the euro.

Question 19

When all variables start out at their long-run equilibrium levels,the most important determinants of long-run swings in nominal exchange rates do NOT include

Accepted Answer

A)  a shift in relative money supply levels.
B)  a shift in relative money supply growth rates.
C)  a change in relative output demand.
D)  a change in relative output supply.
E)  a change in relative inflation rates.

Question 20

Which of the following statements is the MOST accurate? In general,under the monetary approach to the exchange rate

Accepted Answer

A)  while the short-run interest rate does not depend on the absolute level of the money supply,continuing growth in the money supply eventually will affect the interest rate.
B)  while the long-run interest rate does depend on the absolute level of the money supply,continuing growth in the money supply does not affect the interest rate.
C)  while the long-run interest rate does not depend on the absolute level of the money supply,continuing growth in the money supply eventually will affect the interest rate.
D)  the long-run interest rate does not depend on the absolute level of the money supply,and thus continuing growth in the money supply will not affect the interest rate.
E)  while the short-run interest rate does not depend on the absolute level of the money supply,continuing decline in the money supply eventually will not affect the interest rate.

Exam 16: Price Levels and the Exchange Rate in the Long Run

Which one of the following statements is the MOST accurate?

Correct AnswerverifiedShow Answer

Describe and explain the relationship between expected inflation rates in two countries and their interest rate differential according to the PPP theory.

Correct AnswerverifiedExpected inflation is given by the follo...View AnswerShow Answer

Does the existence of non-tradable goods allow for deviations from Purchasing power Parity?

Correct AnswerverifiedYes,the existence of nontradables allows...View AnswerShow Answer

An increase in the world relative demand for U.S.output causes

Correct AnswerverifiedShow Answer

When all variables start out at their long-run equilibrium levels,the most important determinants of long-run swings in nominal exchange rates do NOT include

Correct AnswerverifiedShow Answer

In the long run

Correct AnswerverifiedShow Answer

In practice

Correct AnswerverifiedShow Answer

Suppose Russia's inflation rate is 200% over one year but the inflation rate in Switzerland is only 2%.According to relative PPP,what should happen over the year to the Swiss franc's exchange rate against the Russian ruble?

Correct Answerverified(Eruble/franc,t - Eruble/franc,t-1)/Eruble/franc,t-1 = 2 - 0.02 = 1.98So...View AnswerShow Answer

Describe the chain of events leading to exchange rate determination for the following cases: (a)An increase in U.S.money supply (d)Increase in growth rate of U.S.money supply (c)Increase in world relative demand for U.S.products (d)Increase in relative U.S.output supply

Correct AnswerverifiedChain of events leading to exchange rate...View AnswerShow Answer

Which of the following statements is the MOST accurate?

Correct AnswerverifiedShow Answer

Who among the following list of people is an early 20th century economist from Yale University who wrote the book The Theory of Interest?

Correct AnswerverifiedShow Answer

Under Purchasing Power Parity

Correct AnswerverifiedShow Answer

Which of the following statements is the MOST accurate? In general,under the monetary approach to the exchange rate

Correct AnswerverifiedShow Answer

Floating exchange rates

Correct AnswerverifiedShow Answer

Which of the following statements is MOST accurate?

Correct AnswerverifiedShow Answer

Which of the following statements is the MOST accurate?

Correct AnswerverifiedShow Answer

Explain Purchasing Power Parity.

Correct AnswerverifiedPPP states that the exchange rate betwee...View AnswerShow Answer

What effect do non-tradable goods have on PPP?

Correct AnswerverifiedThe effect is quite substantial.In 2006...View AnswerShow Answer

Which of the following are theories meant to explain "Why price levels are lower in poorer countries"?

Correct AnswerverifiedShow Answer

Interest rate differences between countries depend on

Correct AnswerverifiedShow Answer

Correct Answer
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Correct Answer
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Expected inflation is given by the follo...
View Answer

Correct Answer
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Yes,the existence of nontradables allows...
View Answer

Correct Answer
verified

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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(E_{ruble/franc,t} - E_{ruble/franc,t-1})/E_{ruble/franc,t-1} = 2 - 0.02 = 1.98
So...
View Answer

Correct Answer
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Chain of events leading to exchange rate...
View Answer

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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PPP states that the exchange rate betwee...
View Answer

Correct Answer
verified
The effect is quite substantial.
In 2006...
View Answer

Correct Answer
verified

Correct Answer
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