A rise in the real exchange rate is called a a real

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9. A rise in the real exchange rate is called (a) a real depreciation. (b) a real appreciation. (c) a real bargain. (d) a real devaluation. Answer: B Level of difficulty: 1 Section: 13.1 10. If the real exchange rate rises by 2%, domestic inflation is 3%, and foreign inflation is 1%, what is the percent change in the nominal exchange rate? 11. If the nominal exchange rate rises by 5%, domestic inflation is 2%, and foreign inflation is 3%, what is the percent change in the real exchange rate? 12. If all countries produce the same good (or the same set of goods) and goods are freely traded among countries, so that the real exchange rate equals one, then the relationship between domestic and foreign prices and the nominal exchange rate is
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Chapter 13 Exchange Rates, Business Cycles, and Macroeconomic Policy in the Open Economy 203 13. The idea that similar foreign and domestic goods, or baskets of goods, should have the same price when priced in terms of the same currency is called (a) equity. (b) purchasing power parity. (c) efficiency. (d) the tragedy of the commons. Answer: B Level of difficulty: 1 Section: 13.1 14. Purchasing power parity means that 15. Empirical evidence shows that in the short run, purchasing power parity _____, and in the long run, purchasing power parity _____. 16. Purchasing power parity does not hold in the short to medium run because
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204 Abel/Bernanke • Macroeconomics, Fifth Edition 17. Purchasing power parity does not hold in the short to medium run because (a) exports don’t equal imports. (b) exchange rates fluctuate too much. (c) some goods aren’t internationally traded. (d) most business cycles are caused by shocks to aggregate demand. Answer: C Level of difficulty: 1 Section: 13.1
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