The real exchange rate is:
A. the best measurement we have to get a sense of whether purchasing power parity holds or not.
B. a useful proximity of how far your dollars will go in another country.
C. difficult to calculate because it relies on very different "typical" baskets of goods.
D. All of these statements are true.
Answer: D
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When is a balance of payments account out of balance?
a. only when exports are greater than imports b. only when imports are greater than exports c. when exports are either greater or less than imports d. only when exports are greater or less than imports over a sustained period e. never
When the Federal Reserve sells government bonds to the public, it directly
a. increases the M1 money supply and increases the reserves of the commercial banking system. b. increases the M1 money supply, while reducing the reserves of the commercial banking system. c. reduces the M1 money supply, while increasing the reserves of the commercial banking system. d. reduces the M1 money supply and decreases the reserves of the commercial banking system.
If the value of the domestic currency depreciates:
a. Aggregate demand falls and aggregate supply rises. b. Aggregate demand rises and aggregate supply rises. c. Aggregate demand rises and aggregate supply falls. d. Neither aggregate demand nor aggregate supply change. e. None of the above.
A dozen eggs cost $2 in the U.S. and 12 pesos in Argentina. If the real exchange rate is 5/6, what is the nominal exchange rate? Show your work