Scenario: Purchasing Power Parity A car costs $30,000 in the United States and the exchange rate is $1 = £0.50. The same car costs £12,000 in Britain. For there to be purchasing power parity, the nominal exchange rate for the dollar must be: a. £0.40. b. £1.25. c. £1. d. £2. QUESTION 45 Scenario: Japan and the United States Suppose that the interest rate in the United States is 4%, in Japan it is 7%, and financial assets in the two countries are equal in risk. Assuming that loans in Japan and the United States carry equal risk, this implies that: a. the interest rate in Japan will increase further as compared to the U.S. interest rate. b. the central bank of Japan has adopted a more expansionary monetary policy. c. Japanese lenders will lend to U.S. borrowers. d. U.S. lenders will lend to borrowers in Japan.
Scenario: Purchasing Power Parity A car costs $30,000 in the United States and the exchange rate is $1 = £0.50. The same car costs £12,000 in Britain. For there to be purchasing power parity, the nominal exchange rate for the dollar must be: a. £0.40. b. £1.25. c. £1. d. £2. QUESTION 45 Scenario: Japan and the United States Suppose that the interest rate in the United States is 4%, in Japan it is 7%, and financial assets in the two countries are equal in risk. Assuming that loans in Japan and the United States carry equal risk, this implies that: a. the interest rate in Japan will increase further as compared to the U.S. interest rate. b. the central bank of Japan has adopted a more expansionary monetary policy. c. Japanese lenders will lend to U.S. borrowers. d. U.S. lenders will lend to borrowers in Japan.
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Scenario:
Purchasing Power Parity
A car costs $30,000 in the United States and the exchange rate is $1 = £0.50. The same car costs £12,000 in Britain. For there to be purchasing power parity, the nominal exchange rate for the dollar must be:a. £0.40.b. £1.25.c. £1.d. £2.
QUESTION 45
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Scenario: Japan and the United States
Suppose that the interest rate in the United States is 4%, in Japan it is 7%, and financial assets in the two countries are equal in risk. Assuming that loans in Japan and the United States carry equal risk, this implies that:a. the interest rate in Japan will increase further as compared to the U.S. interest rate.b. the central bank of Japan has adopted a more expansionarymonetary policy. c. Japanese lenders will lend to U.S. borrowers.d. U.S. lenders will lend to borrowers in Japan.
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