Question Details

What meaning would be attached to a statement that a currency is undervalued by this PPP measure 



1. "The record has not been good. Our past experience with exchange rate depreciation has been that all too often it has led, not to a sustained improvement in our competitiveness, but to ....." Complete this clipping. 
a) a rise in our unemployment b) a fall in our prices and wages 
c) no change in our competitiveness d) a deterioration in our competitiveness 
2. "Why has he argued for a stable dollar and a zero inflation? Aren't these inconsistent goals?" These goals are 
a) consistent because a stable dollar means zero inflation 125 
b) consistent because PPP says that when we have zero inflation our exchange rate will be unchanging 
c) inconsistent because our exchange rate should fall continuously if our prices don't increase by as much as those of our trading partners 
d) inconsistent because PPP says that our exchange rate continually changes unless our trading partners have an identical inflation rate 
3. "While acknowledging that a weaker dollar initially favors exports, he said this advantage will only last as long as ......" Complete this clipping. 
a) the exchange rate remains lower 
b) exporters continue to market their products aggressively 
c) our inflation does not fall below that of our trading partners 
d) our prices do not rise to offset the advantage of the lower exchange rate 
4. "The PPP exchange rate between two currencies is in equilibrium when it leaves a typical consumer bundle costing the same in each country. Comparing actual exchange rates with PPPs is one indication of whether a currency is under- or over-valued." What meaning would be attached to a statement that a currency is undervalued by this PPP measure? 
a) that country must have a lower cost of living 
b) that country must have a higher cost of living 
c) that country must have a balance of payments deficit 
d) that country must have a balance of payments surplus



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