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Unformatted text preview: Chapter 12: Open Economy Macroeconomics Review Questions S11 1 1. How do we find the real exchange rate from the nominal exchange rate? 2. Suppose a bottle of wine costs 25 euros in France and 20 dollars in the United States. If the exchange rate is 1.25 euros per dollar, what is the real exchange rate? 3. What is the logic behind the theory of purchasing-power parity? 4. Suppose that a Canadian dollar buys more gold in Australia than it buys in Burkina Faso. What does purchasing-power parity imply should happen? 5. What does purchasing-power parity imply about the real exchange rate? 6. According to purchasing-power parity, what is the relationship between changes in price levels between two countries and changes in nominal exchange rates? 7. If the nominal exchange rate is 2 euros to the dollar, and if the price of a Big Mac is $2 in Canada and 6 euros in Germany, then the real exchange rate is: a) 2/3 German Big Mac per Canadian Big Mac b) 3/2 German Big Mac per Canadian Big Mac...
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- Spring '08