Answer Happy

1. The trade or elasticities approach is more useful in explaining exchange rates during which time frame? A) Short run B) Medium run c) Long run D) Not useful at all 2. Which of the following is true about PPP theory? A) The theory explains that the change in the exchange rate between two currencies is proportional to the change in the ratio in the two countries' general price levels B) The theory explains that the change in the exchange rate between two currencies is greater than the change in the ratio in the two countries' general price levels c) The theory explains that the change in the exchange rate between two currencies is less than the change in the ratio in the two countries' general price levels D) The theory explains that exchange rates and price levels are unrelated 3. Which of the following states that the equilibrium exchange rate is equal to the ratio of price levels in the two nations? a) The relative theory of exchange rate determination B) The absolute purchasing-power parity theory c) The relative purchasing-power parity theory D) The absolute theory of exchange rate determination 4.If the price for a Big Mac in the US is $2.00 and the price for a Big Mac in the UK is £3, what is the absolute purchasing-power parity equilibrium exchange rate between the dollar and the Euro (using the dollar as the domestic currency)? A).667 B) 1.5 0.333 D) None of the above 5. Which of the following will cause a nation's currency to depreciate? A) Economic downturns, especially in times of depression B) An increase in its price level (inflation) c) An increase in the interest rate D) Positive economic growth
6.A nation's currency will appreciate if the nation's economy experiences which of the following? A) An increase in the price level B) Economic growth Expectations that the nation's currency will depreciate D) Increase in the domestic interest rate 7.According to the absolute PPP theory, which of the following would occur if the price level in the US increases relative to the UK, and before this increase the dollar was in exchange rate equilibrium with the sterling? A) The United States will now find imports from the UK cheaper B) The US will now demand fewer pounds CUK citizens will supply more pounds to the US D) US dollar will depreciate 8.According to the absolute PPP theory, which of the following would occur if the price level in the US decreases relative to the UK, and before this increase the dollar was in an exchange rate equilibrium with the sterling? A) The United States will import more British goods and services B> The US will now demand more pounds The UK will supply less pounds to the US DUS dollar will appreciate 9. Which of the following would occur if labor productivity in the UK increased relative to that in the US, and before this increase the dollar was in an exchange rate equilibrium with the sterling? A) The United States will now demand fewer imports By The US will now demand fewer pounds o The UK will supply more pounds to the US D. The US will now demand more pounds 10. Which of the following would occur if the interest rate in the United States fell relative to that in the UK, and before this increase the dollar was in an exchange rate equilibrium with the sterling? A) The United States will now demand fewer imports B) The United States will now demand fewer pounds The UK will supply fewer pounds to the US DThe UK will supply more pounds to the US 11. Under the trade approach to exchange rate determination, what will happen if the value of a nation's exports exceeds the value of the nation's imports? A The exchange rate will rise B) Exports rise Imports fall until trade is balanced D) The exchange rate will fall