Principles of Economics, 7th Edition (MindTap Course List)
7th Edition
ISBN: 9781285165875
Author: N. Gregory Mankiw
Publisher: Cengage Learning
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Question
Chapter 31, Problem 6QCMC
To determine
Changes in currency value.
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Under flexible exchange rate regime, the spot exchange rate
a. Is maintained by the monetary authority's intervention to buy domestic currency
b. Increase in the demand of the domestic currency causes appreciation of the currency (the exchange rate is foreign/domestic) which in turn shifts demand to the right.
c. Increase in the demand of the domestic currency causes depreciation of the currency (the exchange rate is foreign/domestic) which in turn shifts demand to the right.
d. Increase in the demand of the domestic currency causes appreciation of the currency (the exchange rate is foreign/domestic) which in turn shifts demand to the left.
e. Increase in the demand of the domestic currency causes depreciation of the currency (the exchange rate is foreign/domestic) which in turn shifts demand to the left.
f. None of the above
20. According to the theory of uncovered interest parity, which of the following variables does not affect
Argentina's current nominal exchange rate with the U.S.?
a. Argentina's bond default risk.
b. Argentina's nominal interest rate.
c. Demand for Argentina's exports.
d. The future nominal exchange rate between the two countries.
e. None of the above: each of them affects the nominal exchange rate.
21. According to the theory of uncovered interest parity, Argentina's current nominal exchange rate with the
U.S. depends on which of the following variables?
a. The money multiplier u in Argentina.
b. Autonomous spending in the U.S.
c. The nominal interest rate in the U.S.
d. Argentina's current account balance CA.
e. None of the above.
Under a flexible exchange rate system a decrease in the vue of a domestic currency in terms of foreign currency is referred to as _____
Chapter 31 Solutions
Principles of Economics, 7th Edition (MindTap Course List)
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- Donald Company, a manufacturing company based in San Juan City, Philippines, purchased raw materials from a foreigncompany denominated in foreign currency. Which of the following is correct? A. If the foreign currency appreciates, Jonald will recognize foreign exchange loss.B. If the foreign currency appreciates, Jonald will recognize foreign exchange gain.C. If the foreign currency depreciates, Jonald will recognize foreign exchange loss. D. Any gain or loss will be deferred until the date of settlement.arrow_forward(a) Suppose that you live in Korea. Thus, the won is a domestic cur- rency, while the dollar is a foreign currency. Assume that the won interest rate is 5% and the dollar interest rate is 2%. The current exchange rate is W1,000 per dollar. Answer the following questions: a. The won is expected to depreciate against the dollar. Therefore, the expected exchange rate will be W1,030 per dollar a year later. If you are a holder of dollar deposits, what should you do? b. Experts believe that the expected exchange rate has been mis- calculated. Given the interest rates and the current exchange rate, find the expected exchange rate that satisfies the equilib- rium condition for the foreign exchange market today.arrow_forwardSuppose the average price of a Big Mac in the United States is $3.50 while in Japan the average price is 400 yen. If the market exchange rate is that 1 dollar is exchanged for 100 yen, the purchasing power parity model of exchange rate determination suggests that: a. The yen is overvalued. b. The yen is undervalued. c. The price of a Big Mac in Japan will rise. d. The dollar will depreciate against the yen.arrow_forward
- Suppose the theory of purchasing power parity (PPP) is true. If inflation is higher in Eurozone than in Australia, which of the following is TRUE? a.The nominal exchange rate, expressed in euros per Australian dollar, increases b.The nominal exchange rate, expressed in euros per Australian dollar, decreases c.The nominal exchange rate, expressed in euros per Australian dollar, does not change d.None of the other optionsarrow_forwardSuppose a country trades with three countries: Brazil (20% of trade), China (45%), and France(35%). Over the last year, the currency of this country has depreciated by 4% against theBrazilian real, appreciated by 3% against the Chinese yuan, and depreciated by 7% against theeuro. What has happened to the effective exchange rate of the country?arrow_forwardSuppose the nominal exchange rate (given as foreign currency per unit of U.S. currency as in class) rises. If purchasing power parity holds, this could mean that domestic prices __________________ or foreign prices ________________ with all else unchanged. Group of answer choices A) increased, decreased B) decreased, decreased C) increased, increased D) decreased, increasedarrow_forward
- 1.The ¥/US$ exchange rate fell from ¥240/US$ to ¥102/dollar, while the US$/£ exchange rate fell from US$2.22/£ to US$1.62/£. As a result, A.the dollar appreciated relative to the yen, but depreciated relative to the pound. B.the dollar appreciated relative to both the yen and the pound. C.the dollar depreciated relative to the yen, but appreciated relative to the pound. D.the dollar depreciated relative to both the yen and the pound. 4.A rise in the real exchange rate is called A.a real depreciation. B.a real bargain. C.a real devaluation. D.a real appreciation. 3.The idea that similar foreign and domestic goods, or baskets of goods, should have the same price when priced in terms of the same currency is called A.purchasing power parity. B.equity. C.efficiency. D.the tragedy of the commons. 4.Purchasing power parity does not hold in the short to medium run because A.exports don’t equal imports. B.exchange rates fluctuate too much. C.most business cycles are caused by shocks to…arrow_forwardThe purchasing power parity: 3. A Ford Escape SUV sells for $24,000 in the U.S. and 720,000 rubles in Russia. If purchasing- power parity holds, what is the nominal exchange rate (rubles per dollar)?arrow_forwardExchange rate (Philippine Peso/ South Korean Won) XR₂ XR₁ XR3 XR₁ FIGURE 1 Q3 Q₂ Q₁ Q4 Supply of South Korean Won Demand for South Korean Won Quantity of South Korean Won 14. Suppose the interest rate in South Korea is 11% and the interest in the Philippines is 4%. What will happen to the demand for South Korean won? a. Shift to the right b. Shift to the left c. Remain the same d. Pivot upwardsarrow_forward
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