Economics 151 - macroeconomics (topic 8)

The real exchange rate is the:

a)Rate at which a person can trade the currency of one country for the currency of another country.

b)Nominal interest rate minus the inflation rate.

c)Domestic price of goods.

d)Value of net exports.

e)Rate at which domestic goods are traded for foreign goods.

e)Rate at which domestic goods are traded for foreign goods.

The best measure of the purchasing power of one currency relative to another country in foreign trade is:

a)The real interest rate.

b)The nominal exchange rate.

c)The real exchange rate.

d)The nominal interest rate.

e)The real interest rate minus the nominal interest rate.

c)The real exchange rate.

If the exchange rate changes from 70 yen per NZ dollar to 60 yen per NZ dollar, then the NZ dollar has:

a)Neither appreciated nor depreciated.

b)Devalued.

c)Appreciated.

d)Revalued.

e)Depreciated.

e)Depreciated.

The "law of one price" states that:

a)A good cannot sell for a price that is lower than the lawful price ceiling.

b)A good must sell at the same price at all locations.

c)A good cannot sell for a price greater than the legal price ceiling.

d)When there is a price that is controlled by law, this will cause a disequilibrium in markets.

e)A good must sell at a fixed price by law.

b)A good must sell at the same price at all locations.

Purchasing Power Parity (PPP) states:

a)that the law of one price will only hold under certain circumstances.

b)That a unit of any given currency should be able to buy different quantities of goods in all countries.

c)That a unit of any given currency should be able to buy the same quantities of goods in all countries.

d)That the law of one price is irrelevant.

e)That the value of all currencies are the same.

c)That a unit of any given currency should be able to buy the same quantities of goods in all countries.

Suppose New Zealand apples sell for NZ$4 per kilogram, whereas Australian apples sell for AU$4.50 per kilogram. One New Zealand dollar buys 0.91 Australian dollars. Then the real exchange rate between New Zealand and Australia is:

a)0.89

b)0.81

c)1.02

d)0.50

e)1.13

b)0.81