Exam 20: Macroeconomics in an Open Economy

Explain how The Economist's (2016)'Big Mac Index' is related to purchasing power parity.Does the Big Mac Index suggest that purchasing power parity exists? Explain why or why not. _ _

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Question 1

Correct Answer:

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The 'Big Mac Index' shows that purchasing power parity does not hold for Big Mac burgers around the world.For example,one cannot take the yen it costs to buy a Big Mac in Japan,convert the yen to dollars,and buy a Big Mac in Australia,and have the exact amount of money required.If you had money left over,the yen would need to appreciate against the dollar if purchasing power parity were to exist.If you did not have sufficient money to buy the Big Mac in Australia,the yen would need to depreciate against the dollar if purchasing power parity were to exist.The same result holds for the other countries in the index.The lack of parity is derived from the inability to take the cheaper Big Macs in one country and sell them in another.Another plausible explanation might also be that the preferences for Big Macs are different for Japanese consumers as compared to Australian consumers.The stronger preference in one country over another might explain the lack of parity.

Assume that a Big Mac burger costs $3.57 in Australia and 7.80 zlotys in Poland.If the exchange rate is 3 zlotys per dollar,what is the dollar cost of a Big Mac in Poland?

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Question 2

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B

All else being equal,if the rate of growth in productivity in Spain is lower than the rate of growth in productivity in Australia,the euro will

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Question 3

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A

In an open economy,expansionary fiscal policy may lead to a currency appreciation,thereby reducing net exports.

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Question 4

In an open economy,expansionary monetary policy will have the added effect of causing the

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Question 5

Australians demand Japanese yen to

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Question 6

When an Australian investor buys a bond issued in a foreign country,ceteris paribus,the

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Question 7

A 'floating exchange rate system' is one in which

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Question 8

Would we expect that purchasing power parity will hold in the long run for haircut prices between Australia and Singapore? Why or why not? _ _

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Question 9

Refer to Figure 20.2 for the following questions. Figure 20.2 -Refer to Figure 20.2.Currency speculators believe that the value of the euro will decrease relative to the dollar.Assuming ceteris paribus,how would this be represented?

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Question 10

A country that allows its exchange rate to be determined by the market,without government intervention,has a

(Multiple Choice)

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Question 11

Explain where,in Australia's balance of payments,an entry would be made for each of the following: a.a financier from Singapore buys some Australian shares b.an Australian buys some Italian shoes in Milan,Italy _ _

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Question 12

A large federal budget deficit will not lead to a current account deficit if private saving or domestic investment .

(Multiple Choice)

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Question 13

Foreign currency prices of the Australian dollar are currently determined by a managed float exchange rate system.

(True/False)

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Question 14

If Australians develop an increased preference for foreign goods,how will the exchange rate for the dollar respond in the long run,ceteris paribus?

(Multiple Choice)

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Question 15

Suppose that the current equilibrium exchange rate between the US dollar and Philippine peso is $0.20 per peso.The Philippine government pegged the peso to the US dollar at the rate of $0.25 per peso.Draw the market demand and supply curve of pesos for US dollars.Would the Philippine central bank have to buy or sell pesos to maintain the peg? Show on the diagram how many pesos would be bought and sold. _ _

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Question 16

Refer to Figure 20.2 for the following questions. Figure 20.2 -Refer to Figure 20.2.An appreciation of the dollar is represented as a movement from ________.

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Question 17

The countries that abandoned the gold standard the earliest during the Great Depression suffered the least loss of production.

(True/False)

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Question 18

If the current account balance is negative,

(Multiple Choice)

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Question 19

When imports are greater than exports,there will be a net capital outflow.

(True/False)

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Question 20

Explain how The Economist's (2016)'Big Mac Index' is related to purchasing power parity.Does the Big Mac Index suggest that purchasing power parity exists? Explain why or why not. _ _

Assume that a Big Mac burger costs $3.57 in Australia and 7.80 zlotys in Poland.If the exchange rate is 3 zlotys per dollar,what is the dollar cost of a Big Mac in Poland?

All else being equal,if the rate of growth in productivity in Spain is lower than the rate of growth in productivity in Australia,the euro will

In an open economy,expansionary fiscal policy may lead to a currency appreciation,thereby reducing net exports.

In an open economy,expansionary monetary policy will have the added effect of causing the

Australians demand Japanese yen to

When an Australian investor buys a bond issued in a foreign country,ceteris paribus,the

A 'floating exchange rate system' is one in which

Would we expect that purchasing power parity will hold in the long run for haircut prices between Australia and Singapore? Why or why not? _ _

Refer to Figure 20.2 for the following questions. Figure 20.2 -Refer to Figure 20.2.Currency speculators believe that the value of the euro will decrease relative to the dollar.Assuming ceteris paribus,how would this be represented?

A country that allows its exchange rate to be determined by the market,without government intervention,has a

Explain where,in Australia's balance of payments,an entry would be made for each of the following: a.a financier from Singapore buys some Australian shares b.an Australian buys some Italian shoes in Milan,Italy _ _

A large federal budget deficit will not lead to a current account deficit if private saving or domestic investment .

Foreign currency prices of the Australian dollar are currently determined by a managed float exchange rate system.

If Australians develop an increased preference for foreign goods,how will the exchange rate for the dollar respond in the long run,ceteris paribus?

Refer to Figure 20.2 for the following questions. Figure 20.2 -Refer to Figure 20.2.An appreciation of the dollar is represented as a movement from ________.

The countries that abandoned the gold standard the earliest during the Great Depression suffered the least loss of production.

If the current account balance is negative,

When imports are greater than exports,there will be a net capital outflow.

Economics: Foundations and Models

Choices and Trade-Offs in the Market

Where Prices Come From: the Interaction of Demand and Supply

Elasticity: The Responsiveness of Demand and Supply

Economic Efficiency,government Price Setting and Taxes

Technology,production and Costs

Firms in Perfectly Competitive Markets

Monopoly Markets

Monopolistic Competition and Oligopoly

The Markets for Labour and Other Factors of Production

Government Intervention in the Market

Social Policy and Inequality

Gdp: Measuring Total Production, income and Economic Growth

Unemployment and Inflation

Aggregate Demand and Aggregate Supply Analysis

Money,banks and the Reserve Bank of Australia

Monetary Policy

Fiscal Policy

Comparative Advantage and the Gains From International Trade

Filters

Exam 20: Macroeconomics in an Open Economy

Assume that a Big Mac burger costs $3.57 in Australia and 7.80 zlotys in Poland.If the exchange rate is 3 zlotys per dollar,what is the dollar cost of a Big Mac in Poland?

All else being equal,if the rate of growth in productivity in Spain is lower than the rate of growth in productivity in Australia,the euro will

In an open economy,expansionary fiscal policy may lead to a currency appreciation,thereby reducing net exports.

In an open economy,expansionary monetary policy will have the added effect of causing the

Australians demand Japanese yen to

When an Australian investor buys a bond issued in a foreign country,ceteris paribus,the

A 'floating exchange rate system' is one in which

Refer to Figure 20.2 for the following questions. Figure 20.2 -Refer to Figure 20.2.Currency speculators believe that the value of the euro will decrease relative to the dollar.Assuming ceteris paribus,how would this be represented?

A country that allows its exchange rate to be determined by the market,without government intervention,has a

A large federal budget deficit will not lead to a current account deficit if private saving ________ or domestic investment ________.

Foreign currency prices of the Australian dollar are currently determined by a managed float exchange rate system.

If Australians develop an increased preference for foreign goods,how will the exchange rate for the dollar respond in the long run,ceteris paribus?

Refer to Figure 20.2 for the following questions. Figure 20.2 -Refer to Figure 20.2.An appreciation of the dollar is represented as a movement from ________.

The countries that abandoned the gold standard the earliest during the Great Depression suffered the least loss of production.

If the current account balance is negative,

When imports are greater than exports,there will be a net capital outflow.

Economics: Foundations and Models

Choices and Trade-Offs in the Market

Where Prices Come From: the Interaction of Demand and Supply

Elasticity: The Responsiveness of Demand and Supply

Economic Efficiency,government Price Setting and Taxes

Technology,production and Costs

Firms in Perfectly Competitive Markets

Monopoly Markets

Monopolistic Competition and Oligopoly

The Markets for Labour and Other Factors of Production

Government Intervention in the Market

Social Policy and Inequality

Gdp: Measuring Total Production, income and Economic Growth

Unemployment and Inflation

Aggregate Demand and Aggregate Supply Analysis

Money,banks and the Reserve Bank of Australia

Monetary Policy

Fiscal Policy

Comparative Advantage and the Gains From International Trade

Filters

A large federal budget deficit will not lead to a current account deficit if private saving or domestic investment .