Lec_26_real_exchange

Lec_26_real_exchange - Important events March 16-18 Monday...

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

View Full Document Right Arrow Icon
1 Important events March 16-18 Monday, March 16: 11:00 a.m. - 1:00 p.m.-- Office hours for TA Cynthia Wu in Sequoyah 234 7:30 p.m.-- TA Aaron Schroeder on Jeopardy Tournament of Champions on NBC TV Tuesday, March 17: 9:00 a.m. - 11:00 a.m.-- Office hours for TA Jaime Thomas in Sequoyah 238 1:30 - 3:20 p.m.-- Office hours for Professor Hamilton in Sequoyah 231 Wednesday, March 18: 8:00 - 11:00 a.m.-- Final exam 25% chapters 7 and 9-12 75% chapters 13-15 and 27 Chapter 27. Exchange Rates and the Open Economy A. Nominal exchange rates B. Real exchange rates U.S. consumer price index: U.S. Bureau of Labor Statistics calculates how much it would cost in January 2009 to purchase a “basket” of items that cost $100.00 in 1983 Swiss consumer price index: Swiss Federal Statistical Office performs similar calculations To compare price of Big Mac between U.S. and Switzerland, we said we would calculate 6.5 francs 0.86 dollars 3.54dollars Big Mac in Switzerland franc Big Mac in U.S. 1.58Big Mac in U.S. Big Mac in Switzerland × ÷ = to conclude that a Big Mac costs 58% more in Switzerland compared to the U.S. price in Switzerland exchange rate relative price price in U.S. × = price in Switzerland exchange rate relative price price in U.S. × = If relative price is less than one, it means a Big Mac costs less in Switzerland than in the U.S. If relative price is greater than one, it means a Big Mac costs more in Switzerland than in the U.S. To compare price of gasoline between U.S. and Switzerland, we would calculate 4.93 francs 1.91dollars 0.86dollars gal gas in Switzerland gal gas in U.S. franc 2.21gal gas in U.S. gal gas in Switzerland ÷ × = to conclude that gasoline costs more than twice as much in Switzerland compared to the U.S. price in Switzerland exchange rate relative price price in U.S. × =
Image of page 1

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

View Full Document Right Arrow Icon
2 To compare the overall cost of living between U.S. and Switzerland, we would calculate cost of market basket in Switzerland (in francs) cost of market basket in U.S. (in dollars) exchange rate (in dollars per franc) × that is, we would calculate Swiss CPI exchange rate ($/franc) real exchange rate U.S. CPI × = When the real exchange rate is greater than one, it means things are more expensive in Switzerland When the real exchange rate is less than one, it means things are more expensive in the U.S.
Image of page 2
Image of page 3
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

What students are saying

  • Left Quote Icon

    As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

    Student Picture

    Kiran Temple University Fox School of Business ‘17, Course Hero Intern

  • Left Quote Icon

    I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

    Student Picture

    Dana University of Pennsylvania ‘17, Course Hero Intern

  • Left Quote Icon

    The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

    Student Picture

    Jill Tulane University ‘16, Course Hero Intern