MANKIW: PRINCIPLES OF MACROECONOMICS
8th Edition
ISBN: 9781337801782
Author: Mankiw
Publisher: CENGAGE L
expand_more
expand_more
format_list_bulleted
Question
Chapter 18, Problem 9PA
(a):
To determine
The exchange rate between country Ect and country Wik.
(b):
To determine
The exchange rate between country Ect and country Wik after inflation.
(c):
To determine
Nominal interest rate.
(d):
To determine
Changes in exchange rate.
Expert Solution & Answer
Trending nowThis is a popular solution!
Students have asked these similar questions
According to the theory of purchasing power parity, if inflation in the rest of the world is higher than inflation in Brazil, Brazil's currency
would tend to appreciate.
O True
O False
A can of soda costs $1.25 in the United States and 25 pesos in Mexico.
What is the pesos-dollar exchange rate(meaured in pesos per dollar) if
purchasing-power parity holds? If a monetary expansion caused all prices
in mexico to double, so that soda rose to 50 pesos, what would happen
to the peso-dollar exchnage rate?
17. Problems and Applications Q9
Purchasing-power parity holds between the nations of Ectenia and Wiknam, where the only commodity is Spam.
In 2020, a can of Spam cost 4 dollars in Ectenia and 24 pesos in Wiknam.
The exchange rate between Ectenian dollars and Wiknamian pesos was
Over the next 35 years, inflation is expected to be 2 percent per year in Ectenia and 4 percent per year in Wiknam. If this inflation comes to pass,
what will happen over this period to the price of Spam and the exchange rate?
Over this period, the price of Spam in Ectenia will double
and the price of Spam in Wiknam will quadruple
70 from the chapter "The Basic Tools of Finance.") The exchange rate between the two countries will double
Wiknam will likely have a higher nominal interest rate.
6 pesos per dollar.
I
Which of the following statements explains the flaw in your friend's logic?
A friend of yours suggests a get-rich-quick scheme: borrow from the nation with the lower nominal interest rate, invest in the…
Chapter 18 Solutions
MANKIW: PRINCIPLES OF MACROECONOMICS
Knowledge Booster
Similar questions
- Pls help with this homworkarrow_forwardCurrently, one Canadian dollar (CAD) is 19 Dirham (the official currency of Maroc). In Canada, you can buy a Big Mac for 6 CAD. If the price of a Big Mac is 125 Dirham in Maroc, which of the following is true according the the theory of Purchasing Power Parity? Relative to the Canadian dollar, the Dirham is currently overvalued. We expect the Dirham to appreciate. O Relative to the Canadian dollar, the Dirham is currently undervalued. We expect the Dirham to depreciate. None of the answers is correct. Relative to the Canadian dollar, the Dirham is currently overvalued. We expect the Dirham to depreciate. Relative to the Canadian dollar, the Dirham is currently undervalued. We expect the Dirham to appreciate.arrow_forwardIn 1990, the price level for the United States was 100, the price level for Pugelovia was also 100, and in the foreign exchange market one Pugelovian pnut (pronounced “p’noot”) was equal to $1. In 2013, the U.S. price level had risen to 260, and the Pugelovian price level had risen to 390. a. According to PPP, what should the dollar–pnut exchange rate be in 2013? b. If the actual dollar–pnut exchange rate is $1/pnut in 2013, is the pnut overvalued or undervalued relative to PPP?arrow_forward
- Which of the following will most likely cause a nation's currency to appreciate on the foreign exchange market? a. A decrease in domestic interest rates O b. An increase in foreign interest rates c. Stable domestic prices while the nation's trading partners are experiencing 10 percent inflation O d. Domestic inflation of 10 percent while the nation's trading partners are experiencing stable pricesarrow_forwardnumber 2 pleasearrow_forwardPresently, the dollar is worth 140 Japanese yen in the spot market. The interest rate in Japan on 90-day government securities is 4 percent; it is 8 percent in the United States. a. If the interest-rate parity theorem holds, what is the implied 90-day forward exchange rate in yen per dollar? b. What would be implied if the U.S. interest rate were 6 percent?arrow_forward
- please do this for the country China.arrow_forwardIn some cases, governments will intervene in the currency markets to incresae or decrease the value of the country's currency. Which of the following is an example of direct intervention in foreign exchange markets? A. The European Central Bank lowers interest rates to increase the value of the euro. B. The Japanese government purchasing JPY with USD to increase the value of the Japanese yen. C. China imposing barriers on imports from Europe. D. The U.S. lowers interest rates to decrease the value of the U.S. dollar.arrow_forward1 Suppose that two countries, Indonesia and Vietnam, produce coffee. The currency unit used in Indonesia is the Rupiah (IDR). The currency unit used in Vietnam is the Dong (VND). In Vietnam, coffee sells for 4,500 dong (VND) per pound. The exchange rate is 1.57 VND per 1 IDR, EVND/IDR = 1.57. 2 If the law of one price holds, what is the price of coffee in Indonesia, measured in Rupiah (assume we are talking about the same type of coffee)? Please round your answer to the nearest whole number. Assume the price of coffee in Indonesia is actually 3000 IDR per pound. Compute the relative price of coffee in Indonesia versus Vietnam (round your answer to 2 decimal places). Where will coffee traders buy coffee? Where will they sell coffee in this case? How will these transactions affect the price of coffee in Vietnam? In Indonesia?arrow_forward
- A can of Coke costs $0.75 in the U.S. and 12 pesos in Mexico: What is the dollar-peso exchange rate if purchasing power parity holds If a monetary expansion caused all prices in Mexico to double, so that the soda rose to 24 pesos, what would happen to the dollar-peso exchange ratearrow_forwardSuppose a country trades with three countries: Brazil (20% of trade), China (45%), and France(35%). Over the last year, the currency of this country has depreciated by 4% against theBrazilian real, appreciated by 3% against the Chinese yuan, and depreciated by 7% against theeuro. What has happened to the effective exchange rate of the country?arrow_forwardThe following table shows the nominal and real exchange rates for two countries and two years (OECD, 2020a,b). The column names are the country codes (not the currency codes) and the exchange rates are expressed as the amount of the currency per unit of US dollar. Year 1979 1984 i. DNK: O Increased ii. ISL: DNK O Increased 5.2610 10.3566 Decreased Remained unchanged Decreased Nominal a. Indicate whether the cost of goods in each country has increased, decreased, or remained unchanged, relative to the cost of goods in the United states between 1979 and 1984. Remained unchanged ISL 3.5260 31.6937 DNK 0.6621 1.1781 Real ISL 0.8612 1.3433arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
Exploring EconomicsEconomicsISBN:9781544336329Author:Robert L. SextonPublisher:SAGE Publications, Inc
Managerial Economics: A Problem Solving ApproachEconomicsISBN:9781337106665Author:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike ShorPublisher:Cengage Learning
Managerial Economics: Applications, Strategies an...EconomicsISBN:9781305506381Author:James R. McGuigan, R. Charles Moyer, Frederick H.deB. HarrisPublisher:Cengage Learning
Economics (MindTap Course List)EconomicsISBN:9781337617383Author:Roger A. ArnoldPublisher:Cengage Learning
Exploring Economics
Economics
ISBN:9781544336329
Author:Robert L. Sexton
Publisher:SAGE Publications, Inc
Managerial Economics: A Problem Solving Approach
Economics
ISBN:9781337106665
Author:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor
Publisher:Cengage Learning
Managerial Economics: Applications, Strategies an...
Economics
ISBN:9781305506381
Author:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris
Publisher:Cengage Learning
Economics (MindTap Course List)
Economics
ISBN:9781337617383
Author:Roger A. Arnold
Publisher:Cengage Learning