A widget costs 1000 in the US and CAD1200 in Canada The current exchange rate

A widget costs 1000 in the us and cad1200 in canada

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79. A widget costs $1000 in the US and CAD$1200 in Canada. The current exchange rate is 1USD=1.09CAD. Given purchasing power parity, the Canadian dollar would_______to equilibrate pricesa. Appreciateb. Depreciatec. Not changed. None of the aboveANSWER: bTOPICS: Section 5: Purchasing Power Parity80. The purchasing power parity predicts that if the price level in the US falls relative to Mexico,
81. Russian RublesBecause of sanctions over their involvement in Ukraine in 2014, the Bank of Russia has raised its benchmark interest rate from 8% to 9.5%. What affect does this have on the exchange rate for the Russian Rubble versus the Euro?ANSWER: This would make investing in Russia more attractive. To the extent that they can, Europeans would seek toinvest more in Russia. Of course, the sanctions attempt to limit these additional investments but they may notbe perfectly enforced. This means converting more Euros for Rubbles and driving up the price of Rubbles.Likewise, this makes borrowing in Russia more expensive.82. European VacationAfter staying around 1.35 US dollars per Euro for years, the exchange rate fell below 1.25 US dollars to a euro during thesummer of 2014. What affect does this have on tourism in Europe?ANSWER: The demand for European vacations by Americans will increase because it takes fewer dollars to convert intoa given number of euros. Likewise, Europeans considering coming to the US now have to convert moreeuros into dollars if they wish to visit the US. Some will opt to stay in Europe instead. Both effects increasethe demand for hotels in Europe during holidays. Since supply of hotels is relatively fixed, this increases thehotel rates expressed in euros.83. US ExportsAfter staying around 1.35 US dollars per Euro for years, the exchange rate fell below 1.25 US dollars to a euro during thesummer of 2014. What affect does this have US exports to Europe?ANSWER: The demand for American goods by Europeans will fall because it takes more euros to convert into a givennumber of dollars to make a purchase. Likewise, Americans considering European goods now have toconvert less dollars into euros to make purchases there. Both effects decrease US exports.

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