Question Details

What does PPP predict is the 1980 exchange rate 


1. Suppose the American and Canadian economies are in equilibrium with a flexible exchange rate of 1.3 $C/$US and a common inflation rate of 5 percent. If the U.S. increases its money growth rate by two percentage points, when these economies have settled to their new mutual equilibrium the exchange rate ($C/$US) 
a) will be unchanged in both nominal and real terms 
b) will be unchanged in nominal terms but lower in real terms 
c) will be unchanged in real terms but higher in nominal terms 
d) will be unchanged in real terms but lower in nominal terms 
2. In 1975 the Canada/US exchange rate was 1.02 (i.e., 1$US bought 1.02$C). The Canadian price level rose by 52% between 1975 and 1980, while the US price level rose by 41%. What does PPP predict is the 1980 exchange rate ? 
a) below 1.00 b) between 1.00 and 1.10 129 
c) between 1.10 and 1.20 d) above 1.20 
3. If five French francs buy one dollar and fifty thousand French francs buy in France a typical bundle of goods and services that costs twenty thousand dollars to buy in the U.S., then the PPP exchange rate is 
a) 2 francs per dollar b) 2.5 francs per dollar 
c) 4 francs per dollar d) 5 francs per dollar 
4. If in the U.S. inflation is 8% but in Canada is only 3%, under a flexible exchange rate 
a) Canada's exports should be rising and imports falling 
b) Canada's exchange rate should be rising in real terms 
c) Canada's exchange rate should be steady in real terms 
d) Canada's exchange rate should be falling in nominal terms 
5. If in the U.S. inflation is 8% but in Canada is only 3%, under a flexible exchange rate 
a) Canada's nominal and real exchange rates should be rising 
b) Canada's nominal and real exchange rates should be constant 
c) Canada's nominal exchange rate should be constant and real exchange rate rising 
d) Canada's nominal exchange rate should be rising and real exchange rate constant



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