Purchasing power measures the value of a currency in terms of ____. a. the quality of products that one unit of money can buy b. All of the above. c. the quantity of products that one unit of money will procure d. the quantity and quality of products that one unit of money will purchase
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- 2. An American purchases a case of Jaffa Cakes which are produced in the UnitedKingdom. How do the U.S. national accounts treat the transaction?a. Net exports and GDP both decreaseb. Net exports fall and GDP does not changec. CPI and GDP both decreased. CPI increases and net exports do not change4.Paul made holidays in Istanbul in February 2021. The nominal exchange rate then was 1 GBP = 10 TRY, that is he could buy ten Turkish Lira for one Pound Sterling. In total he spent 500 GBP on the hotel, restaurants, etc. Paul enjoyed it a lot, and hence wants to repeat the very same holiday in February 2022. In the meanwhile the pound appreciated relative to the Turkish lira. In particular, now 1 GBP = 20 TRY. At the same time Turkey had 50% inflation since last year meaning that the hotels, restaurants, etc. are 50% more expensive. Assume that there was zero inflation in the UK. How much cheaper (in GBP) is the holiday this year for Paul? a. 250 GBP b. 125 GBP c. 0 GBP d. 62.5 GBPExplain and evaluate the following statements:a. The invention of money is one of the great achievements of humankind, for without it the enrichment that comes from broadening trade would have been impossible.b. Money is whatever society says it is.c. In most economies of the world, the debts of government and commercial banks are used as money. d. People often say they would like to have more money, but what they usually mean is that they would like to have more goods and services.e. When the price of everything goes up, it is not because everything is worth more but because the currency is worth less.f. Any central bank can create money; the trick is to create enough, but not too much, of it.
- 12.When the Chips Are Down The Economist magazine uses the price of a Big Mac to determine whether a currency is undervalued or overvalue. In July 2010, the price of a Big Mac was $3.73 in New York, 13.2 yuan in Beijing, and 6.50 Swiss francs in Geneva. The exchanges rates were 6.78 yuan per U.S. dollar and 1.05 Swiss francs per U.S. dollar. a. Was the yuan undervalued or overvalued relative to purchasing power parity? b. Was the Swiss franc undervalued or overvalued relative to purchasing power parity c. Do you think the price of a Big Mac in different countries provides a valid test of purchasing power parity? 13.The price level in the Eurozone is 112.4, the prize level in the United States in 109.1 and the nominal exchange rate was 80 euro cents per U.S dollar. what was the real exchange rate expressed as Eurozone real GDP per unit of U.S. read GDP? 14.The Canadian price level is 106.3 the Japanese price level is 95.4 and the real exchange rate is 103.6…If a countrys currency is expected to appreciate in value, what would you think will be the impact of expected exchange rates on yields (e.g., the Interest rate paid on government bonds) in that country? Hint: Think about how expected exchange rate changes and interest rates affect a currencys demand and supply.If a country is running a government budget surplus, why is (T - G) on the left side of the saving-investment identity?
- No written by hand solution Explain in details: 1. How can a shortage of US currency (FX) in a developing country increased import costs and reduce exportation ? 2. How can a shortage of US currency (FX) in a developing country lead to higher inflation ? 3.How can a shortage of US currency (FX) in a developing country Economic slowdown?1. Consider two countries, Acirema and Niatirb, whose currencies are the AC dollar, and the NI dollar, respectively. Year Acirema CPI Niatirb CPI Nominal R(ACD/NID) 2000 100 100 1.20 2001 106 98 1.23 2002 114 104 1.18 (a) Consider this data, and calculate the real value of the ACD relative to the NID in each of these years. (b) In real terms, which currency appreciates relative to the other? (c) Suppose that in 2023 Acirema experiences 5% inflation while Niatirb has none. Compared to 2002, which nation’s exchange rate appreciates in real terms?1._______ The total value of a nation’s exports minus thetotal value of its imports over some period of time.2._______ The ability to produce a specific product moreefficiently than any other nation.3._______ Selling and shipping raw materials or products toother nations.4._______ The ability to produce a specific product moreefficiently than any other product.5._______ All business activities that involve exchangesacross national boundaries.6._______ The total flow of money into a country minus thetotal flow of money out of that country over thesame period of time.7._______ A tax levied on a particular foreign product entering a country.8._______ A complete halt to trading with a particular nationor in a particular product.9._______ An international barter transaction.10. _______ An internationally supported bank that providesloans to developing countries to help them grow.a. countertradeb. foreign exchange controlc. multilateral development bank (MDB)d. absolute advantagee. import…
- You are considering buying a bottle of wine. Supposethat the euro appreciates by 15% with respect to theU.S. dollar. Are you more or less likely to buy a bottleof Californian wine or French wine?Compare any two of the Foreign Exchange Market (b) Discuss at least two factors that businesses should consider when deciding which one of these 3 foreign rate market options is best for their business needs?A European investor lives near one of his country’s borders. In Country A (where he lives), banks are offering an 8% interest rate and the inflation rate is 3%. Country B, on the other hand, has an inflation rate of 23%, and banks are offering 26% interest on deposits. a. What real or effective interest rate does the investor earn when investing in his own country? b. The investor believes that the currency of Country B will not change in its value relative to the value of the currency of Country A during this year. In which country would he get a larger effective interest rate? c. Suppose that he invests in a bank in Country B and that his prediction turns out to be wrong: the currency of Country B was devaluated 20% with respect to the exchange value of Country A’s currency. What effective interest rate would he obtain in this case?
