According to the theory of purchasingpower parity, in a country with lowinflation,a. nominal exchange rate will depreciate inresponse to its relatively low rate ofinflationb. real exchange rate will adjust in responseto inflation differentials.c. nominal exchange rate will adjust inresponse to inflation differentials so that thevalue of the real exchange rate is alwaysone.d. has no effect on the nominal or realexchange rate what so ever.

Purchasing power parity holds that the value of a good will remain same in different countries for…

Answered: According to the theory of purchasing…

Principles of Economics (MindTap Course List)

8th Edition

ISBN:9781305585126

Author:N. Gregory Mankiw

Publisher:N. Gregory Mankiw

Chapter31: Open-Economy Macroeconomics: Basic Concepts

Section: Chapter Questions

Problem 4CQQ

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If foreign investors buy more U.S. stocks and bonds, how would that show up in the current account balance?
Imagine that the economy of Germany finds itself in the following situation: the government budget has a surplus of 1 of Germanys GDP; private savings is 20 of GDP; and physical investment is 18 of GDP. Based on the national saving and investment identity, what is the current account balance? If the government budget surplus falls to zero, how will this affect the current account balance?
E1 The higher the value of e, the ______________(More or less) units of foreign currency a dollar buys. When a nominal exchange rate goes up, we say the domestic currency is _________(appreciating or depreciating) against the foreign currency. When a nominal exchange rate goes down, we say that the domestic currency is _________(depreciating or appreciating) against the foreign currency.
A case study in the chapter analyzed purchasingpower parity for several countries using the pricc ofBig Macs. Here arc data for a few more countries: a. For each country, compute the predicted exchangerate of the local currency per U.S. dollar. (Recallthat the U.S. price o( a Big Mac was $4.93.)b. According to purchasing-power parity, what is thepredicted exchange rate between the Hungarianforint and the Canadian dollar? What is the actualexchange rate?c. How well docs the theory of purchasing-powerparity explain exchange rates?
Pls help with this homwork
The benefits of adopting a flexible exchange rate is that, a.in response to shocks to the demand for Australian exports, the value of the currency would adjust to moderate these effectsb. changes in the interest rate will have no effect on the exchange rate that is determined in the foreign exchange market c.the exchange rate can be more volatile d. an economy will be able to well predict the prices of exports and imports Why A is the correct answer? What is meant by a flexible exchange rate?
If the U.S. interest rate rises, the exchange rate value of the dollar ________ and net exports ________. a. rises; increase b. rises; decrease c. falls; increase d. falls; decrease
Suppose that Americans decide to increase theirsaving.a. If the elasticity of U.S. net capital outflow withrespect to the real interest rate is very high, willthis increase in private saving have a large orsmall effect on U.S. domestic investment?b. If the elasticity of U.S. exports with respect to thereal exchange rate is very low, will this increase inprivate saving have a large or small effect on theU.S. real exchange rate?
i need answer urgent
The theory of purchasing-power parity says thathigher inflation in a nation causes the nation’scurrency to _________, leaving the _________exchange rate unchanged.a. appreciate; nominalb. appreciate; realc. depreciate; nominald. depreciate; real
Using th equilibri of the money market and the purchasing power parity What ha if the GDP of the home country (H) decreases? а. The money supply goes up O b. The money supply goes down The exchange rate (EH/F) goes up The exchange rate (EH/F) goes down None of the above е.
In the Mundell-Flemming model with floating exchange rates, explain whathappens to aggregate income, the exchange rate and the trade balance whentaxes are reduced. Contrast what would happen if exchange rates were fixedrather than floating?

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