econ423hw7

econ423hw7 - Econ 423, Summer 2009 Lauren Heller Homework...

Info iconThis preview shows pages 1–3. Sign up to view the full content.

View Full Document Right Arrow Icon
Econ 423, Summer 2009 Lauren Heller Homework #7, Due 7 - 20 - 09 Name___________________________________ MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) The starting point for understanding how exchange rates are determined is a simple idea called _________, which states that if two countries produce an identical good, the price of the good should be the same throughout the world no matter which country produces it. A) purchasing power parity B) the law of one price C) arbitrage D) Gresham's law 1) 2) The theory of purchasing power parity states that exchange rates between any two currencies will adjust to reflect changes in A) the current account balances of the two countries. B) the trade balances of the two countries. C) the price levels of the two countries. D) fiscal policies of the two countries. 2) 3) If the 2005 inflation rate in Britain is 6 percent, and the inflation rate in the U.S. is 4 percent, then the theory of purchasing power parity predicts that, during 2005, the value of the British pound in terms of U.S. dollars will A) fall by 10 percent. B) rise by 10 percent. C) rise by 2 percent. D) fall by 2 percent. E) do none of the above. 3) 4) The theory of purchasing power parity cannot fully explain exchange rate movements because A) not all goods are identical in different countries. B) monetary policy differs across countries. C) some goods are not traded between countries. D) both A and C of the above. E) both B and C of the above. 4) 5) If the demand for _________ goods decreases relative to _________ goods, the domestic currency will depreciate. A) domestic; domestic B) foreign; foreign C) domestic; foreign D) foreign; domestic 5) 6) Lower tariffs and quotas cause a country's currency to _________ in the _________ run. A) depreciate; short B) appreciate; long C) depreciate; long D) appreciate; short 6) 1
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Note: All questions are to be completed on your own, without any assistance from others. 7) If the French demand for American exports rises at the same time that U.S. productivity rises relative to French productivity, then, in the long run, A) the dollar should appreciate relative to the euro. B) the euro should appreciate relative to the dollar. C) the dollar should depreciate relative to the euro. D) it is not clear whether the euro should appreciate or depreciate relative to the dollar. 7) 8) When Bono considers the expected return on dollar deposits in terms of foreign currency, the expected return must be adjusted for A) the interest rates on foreign deposits. B) any expected appreciation or depreciation of the dollar. C) both A and B of the above.
Background image of page 2
Image of page 3
This is the end of the preview. Sign up to access the rest of the document.

Page1 / 5

econ423hw7 - Econ 423, Summer 2009 Lauren Heller Homework...

This preview shows document pages 1 - 3. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online