Exam 14: Exchange Rates and Their Determination: A Basic Model

Purchasing power parity holds better in the long run than in the short run.

Suppose that U.S. incomes are increasing and everything else has remained constant then:

If the domestic supply of goods and services is rising at a faster rate than the domestic demand for goods and services then the real exchange rate would tend to depreciate.

Which of the following would tend to be associated with an appreciating currency?

In general, countries that grow more slowly will tend to have currencies that:

Approximately ____ of U.S. GDP is composed of nontradable goods.

If the dollar appreciates against the Euro, this change will be favorable to U.S. importers of European wine.

If a basket of goods and services costing $100 in the U.S. costs 20,000 yen in Japan, then the purchasing power parity exchange rate is _____ per dollar.

The equilibrium exchange rate tends to change frequently, why does this occur?

As the Euro/dollar exchange rate decreases:

Why are prices on average lower in poorer countries?

If a dollar exchanged for 1 British pound a year ago and exchanges for 1.5 pounds today, the dollar has appreciated by:

The equilibrium exchange rate is where the quantity demanded of foreign exchange is less than the quantity supplied of foreign exchange.

A decreased demand for foreign exchange will often result in a depreciation of the currency.

As the Mexican peso appreciates, exports from Mexico become_____ and imports into Poland become _____.

Suppose that Japanese income is falling and everything else has remained constant then:

A relatively low level of inflation will tend to cause the exchange rate to depreciate.

If absolute purchasing power parity holds, then:

Why does the demand for foreign exchange slope downwards and to the right? What factors would cause this curve to shift?

In general, countries that grow faster will tend to have currencies that: