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

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.

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A) Absolute PPP does not imply relative PPP.
B) Relative PPP implies absolute PPP.
C) There is no causality relation between the two.
D) Absolute PPP implies relative PPP.
E) Absolute PPP is inversely related to relative PPP.

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A) E$/E = PᶦUS/PᶦE.
B) E$/E = PᶦE/PᶦUS.
C) E$/E = PUS/PE.
D) E$/E = PE/PES.
E) E$/E = PᶦE ₊ PᶦUS/PᶦE.

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When prices are flexible, a decrease in ...

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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.

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PPP theory is a monetary approach to the...

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PPP states that the exchange rate betwee...

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A) the Philippines.
B) Russia.
C) China.
D) Malaysia.
E) the Czech Republic.

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The law of one price states that in comp...

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Expected inflation is given by the follo...

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

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A) when the domestic money supply falls, the price level would eventually fall, increasing the interest rate.
B) when the domestic money supply falls, the price level would fall right away, causing a reduction in the interest rate.
C) when the domestic money supply falls, the price level would fall right away, causing an increase in the interest rate.
D) when the domestic money supply falls, the price level would eventually fall, keeping the interest rate constant.
E) when the domestic money supply falls, the price level would fall right away, keeping the interest rate constant.

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A) The United States price level will place a relatively light weight on commodities produced and consumed in America, while the European price level will place a relatively heavy weight on commodities produced and consumed in Europe.
B) The United States price level will place a relatively light weight on commodities produced and consumed in America, and the European price level will place a relatively light weight on commodities produced and consumed in Europe.
C) The United States price level will place a relatively heavy weight on commodities produced and consumed in America, and the European price level will place a relatively heavy weight on commodities produced and consumed in Europe.
D) The United States price level will place a relatively heavy weight on commodities produced and consumed in Europe, and the European price level will place a relatively heavy weight on commodities produced and consumed in America.
E) The United States price level will place a relatively light weight on commodities produced and consumed in Europe, and the European price level will place a relatively heavy weight on commodities produced and consumed in America.

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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.

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One theory explains the difference in pr...

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The failure of these propositions in the...

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A) Departures from PPP are similar in both the short run and long run.
B) Departures from PPP are even greater in the long run than in the short run.
C) Departures from PPP are always greater in the short run than in the long run.
D) It is hard to tell whether departures from PPP are greater in the short run than in the long run.
E) Departures from PPP may often be greater in the short run than in the long run.

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