# final answer keys - Practice Exam for final Page 1...

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Page 1 Practice Exam for final

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Page 2 QUESTIONS 1 Answer all of the following questions. Show calculations and answers for full credit. (20 pts) 1. Suppose that original exchange rate of Pesos to Dollars is US\$2=P10. For some reason, the US dollar depreciates . a) (3 pts) Which of the following new exchange rates is consistent with a depreciation of the USA dollar? (b) a. US\$ 1 = P 9 b. US\$ 4 = P 10 c. US\$ 2 = P 12 d. Can’t tell from the information given. b) (3 pts) Suppose the Mexican nominal exchange rate does not change, but prices rise faster abroad than in Mexico. What happens to the Mexican real exchange rate? (increase, decrease, or stay the same?) Decrease 2. (6 pts) Recently, the exchange rate between the euro and the dollar has changed from \$1.51 per Euro to \$1.23 per Euro. What effects do you expect on GDP and net exports in Europe and America? US Net Exports: Decrease Europe Net Exports: Increase US GDP: Decrease Europe GDP: Increase 3. (3 pts) Suppose a Big Mac sells for \$2 in the USA and for 12 Swedish Kronas (SEK) in Sweden, and the nominal exchange rate is \$1 = SEK 7. What is the real exchange rate? RER = e * P/P* = 1.167 Swedish Big Macs per U.S. Big Mac 4. (5 pts) Given the prices of the Big Mac from question 3, what should the nominal exchange rate be for purchasing power parity to hold? e=p*/p= 6 SEK per US\$
Page 3 QUESTIONS 2 Answer all of the following questions. Show calculations and answers for full credit. (20 pts) Suppose Austria and Switzerland have the same amount of resources. They can produce the following combinations of goods: Austria Switzerland

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## This note was uploaded on 10/05/2011 for the course ECON 1102 taught by Professor Someguy during the Fall '07 term at Minnesota.

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final answer keys - Practice Exam for final Page 1...

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