Suppose purchasing power parity holds if the price

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18. Suppose purchasing power parity holds. If the price level in the United States is 100 dollar per good and the price level in Japan is 250 yen per good, then the nominal exchange rate is _____ yen per dollar. (a) 0.25 (b) 0.4 (c) 2.5 (d) 4.0 Answer: C Level of difficulty: 2 Section: 13.1 19. Relative purchasing power parity occurs when 20. When the rate of appreciation of the nominal exchange rate equals the foreign inflation rate minus the domestic inflation rate, we say there is 21. When the dollar rises relative to other currencies,
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Chapter 13 Exchange Rates, Business Cycles, and Macroeconomic Policy in the Open Economy 205 22. Suppose the euro/yen exchange rate falls while the dollar/yen exchange rate rises. What happens to the price of goods imported into Japan? (a) European goods become more expensive while U.S. goods become cheaper. (b) European goods become cheaper while U.S. goods become more expensive. (c) Both European and U.S. goods become more expensive. (d) Both European and U.S. goods become cheaper. Answer: A Level of difficulty: 2 Section: 13.1 23. A depreciation of the dollar causes 24. When the euro falls in value relative to other currencies, then 25. Suppose the dollar/euro exchange rate falls. Then
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