the economics of money, banking, and financial markets

573 #

© 2014 Pearson Canada Inc.#

8. 
   

   If the real exchange rate between Canada and Japan is ____, then it is cheaper to buy
   goods in Japan than in Canada.
   A) greater than 1.0
   B) greater than 0.5
   C) less than 0.5
   D) less than 1.0
   Answer: A
   Diff: 2 Type: MC Page Ref: 474
   Skill: Recall
   Objective List: 19.2 Identify the factors that lead to changes in the exchange rate in the long run

   
   


9. 
   

   According to PPP, the real exchange rate between two countries will always equal ____.
   A) 0.0
   B) 0.5
   C) 1.0
   D) 1.5
   Answer: C
   Diff: 1 Type: MC Page Ref: 474
   Skill: Recall
   Objective List: 19.2 Identify the factors that lead to changes in the exchange rate in the long run

   
   


10. 
    

    The theory of PPP suggests that if one country's price level rises relative to another's, its
    currency should ____.
    A) depreciate in the long run
    B) appreciate in the long run
    C) depreciate in the short run
    D) appreciate in the short run
    Answer: A
    Diff: 1 Type: MC Page Ref: 474
    Skill: Recall
    Objective List: 19.2 Identify the factors that lead to changes in the exchange rate in the long run

    
    


11. 
    

    In the long run, a rise in a country's price level (relative to the foreign price level) causes its
    currency to ____, while a fall in the country's relative price level causes its currency to
    ____.
    A) appreciate; appreciate
    B) appreciate; depreciate
    C) depreciate; appreciate
    D) depreciate; depreciate
    Answer: C
    Diff: 1 Type: MC Page Ref: 475
    Skill: Recall
    Objective List: 19.2 Identify the factors that lead to changes in the exchange rate in the long run