MACROECONOMICS >IA<
FD Edition
ISBN: 9781260510904
Author: McConnell
Publisher: MCG
expand_more
expand_more
format_list_bulleted
Question
Chapter 21, Problem 8RQ
To determine
The impact of the floating exchange rate on official reserve and balance of payment.
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solution
Students have asked these similar questions
In Windsor, Ontario, a Big Mac from McDonald's costs C$4.17 (Canadian dollars), and across the border in Detroit it costs $3.56 (US dollars).
a. Suppose the nominal US exchange rate with Canada is US$0.74 per Canadian dollar. Does purchasing power parity hold between the two countries?
O Yes, it holds because the Canadian Big Mac costs less in terms of U.S. dollars.
O No, it does not hold because the Canadian Big Mac costs more in terms of U.S. dollars.
O No, it does not hold because the Canadian Big Mac costs less in terms of U.S. dollars.
O Yes, it holds because the Canadian Big Mac costs more in terms of U.S. dollars.
b. What is the exchange rate for the US if purchasing power parity holds.
Instructions: Round your answer to three decimal places.
US dollar per Canadian dollar
$
Which is an incorrect statement about the balance of payments accounts?
O A. Any transaction involving a flow of funds out of a country is a negative item in the country's balance of payments.
B. The balance of payments accounts consist of the current account and the financial account.
c. The financial account measures a country's trade in currently produced goods and services.
O D. Any transaction involving a flow of funds into a country is a positive item in the country's balance of payments.
Suppose that a Big Mac in the US costs $3.15 and 2.99 Bolivianos in Bolivia. The currency exchange
rate is $1 US buys 6.54 Bolivianos. According to the law of one price, the exchange rate should be
$1 US buys Bolivianos and so, over time, the US dollar should
O 0.95; appreciate
O 0.95; depreciate
9.49; appreciate
9.49; depreciate
Chapter 21 Solutions
MACROECONOMICS >IA<
Ch. 21.1 - Prob. 1QQCh. 21.1 - Prob. 2QQCh. 21.1 - Prob. 3QQCh. 21.1 - Prob. 4QQCh. 21.A - Prob. 1ADQCh. 21.A - Prob. 1ARQCh. 21.A - Prob. 1APCh. 21 - Prob. 1DQCh. 21 - Prob. 2DQCh. 21 - Prob. 3DQ
Ch. 21 - Prob. 4DQCh. 21 - Prob. 5DQCh. 21 - Prob. 6DQCh. 21 - Prob. 7DQCh. 21 - Prob. 8DQCh. 21 - Prob. 9DQCh. 21 - Prob. 10DQCh. 21 - Prob. 11DQCh. 21 - Prob. 1RQCh. 21 - Prob. 2RQCh. 21 - Prob. 3RQCh. 21 - Prob. 4RQCh. 21 - Prob. 5RQCh. 21 - Prob. 6RQCh. 21 - Prob. 7RQCh. 21 - Prob. 8RQCh. 21 - Prob. 9RQCh. 21 - Prob. 10RQCh. 21 - Prob. 1PCh. 21 - Prob. 2PCh. 21 - Prob. 3PCh. 21 - Prob. 4PCh. 21 - Prob. 5P
Knowledge Booster
Similar questions
- Which one of the following statements is the most accurate? O A. Under a dirty float exchange rate, central bank monetary tools are powerless to affect the economy's money supply or its output. O B. Under a fixed exchange rate, central bank monetary tools are powerless to affect the economy's money supply. O C. Under a flexible exchange rate, central bank monetary tools are powerless to affect the economy's money supply or its output. D. Under a fixed exchange rate, central bank monetary tools are powerless to affect the economy's money supply or its output. O E. Under a fixed exchange rate, fiscal policy tools are powerless to affect the economy's money supply or its output.arrow_forwardOn the foreign exchange market, an increase in a country's exchange rate O a. decreases the demand for its currency and shifts the demand curve leftward. O b. decreases the quantity demanded of its currency and leads to a movement up along the demand curve. decreases the demand for its currency and shifts the demand curve rightward. O d. increases the quantity demanded of its currency and leads to a movement down along the demand curve. O . increases the quantity demanded of its currency and leads to a movement up along the demand curve.arrow_forwardIf one Canadian dollar buys US$0.85, and one Euro buys US$1.20, then one Euro should buy O a. C$1.02 O b. C$1.41 O c. C$2 O d. C$1.64arrow_forward
- Assume that the U.S. interest rate is 12 percent, while the British interest rate is 15 percent. If interest rate parity exists, then: O a.U.S. investors will earn 12 percent whether they use covered interest arbitrage or invest in the United States. O b. U.S. investors will earn a higher rate of return when using covered interest arbitrage than what they would earn in the United States. O c. British investors who invest in the United Kingdom will achieve the same return as U.S. investors who invest in the United States. O d. U.S. investors will earn 15 percent whether they use covered interest arbitrage or invest in the United States.arrow_forwardCan a currency experience a nominal depreciation and a real appreciation at the same time? O A. Yes, if domestic inflation is sufficiently lower than foreign inflation O B. No, unless the nominal exchange rate decreases O C. Yes, if domestic inflation is sufficiently higher than foreign inflation O D. Noarrow_forwardIf the U.S. current-account deficit in 2021 is $965.4495 billion, a. the U.S. capital-account deficit in 2021 will be $965.4495 billion O b. the U.S. capital-account surplus in 2021 will be $965.4495 billion O c. we have no way to know, from the information contained in the question, what the U.S. capital-account will be in 2021 O d. DO NOT CHOOSE THIS ANSWER.arrow_forward
- How will an increase in foreign direct investment in the hotel industry affect the market for foreign exchange? Select one: O a. Outward shift of the demand curve; real exchange rate rises. O b. Inward shift of the demand curve; real exchange rate falls. c. Inward shift of the supply curve; real exchange rate rises. O d. Inward shift of the demand curve; real exchange rate rises O e. Outward shift of the supply curve; real exchange rate falls.arrow_forwardIf Canadian exports of goods and services were $37 billion, imports of goods and services were $42 billion, transfers by Canadians to foreigners were $3 billion and transfers from foreigners to Canadian citizens were $2 billion, then the current account balance would be O A. $4 billion. O B. - $6 billion. O C. $8 billion O D. $6 billion. O E. - $4 billion.arrow_forwardPurchasing power parity theory would suggest that if the Canadian price of a basket of goods is C$1,800, but the same basket in the United States is U.S.$1,300, and the actual exchange rate is C$1.30 = U.S.S1.00, then the value of the Canadian dollar should O A. depreciate by approximately 8.9 percent. O B. depreciate by approximately 6.2 percent. OC. appreciate by approximately 8.9 percent. O D. appreciate by approximately 6.2 percent. O E. remain unchanged.arrow_forward
- The economy of Singapore is experiencing high economic growth. How will this growth affect inflation and exchange rates? O a. increase in inflation and a stronger currency O b. lower inflation and a weaker currency O c. lower inflation and a stronger currency O d. increase in inflation and a weaker currencyarrow_forwardPurchasing Power Parity (PPP) theory states that Select one: O a the prices of standard commodity baskets in two countries are not related. O b. None of them. O c. as the purchasing power of a currency sharply declines (due to hyperinfiation) that currency will appreciate against stable currencies. O d the exchange rate between currencies of two countries should be equal to the ratio of the countries' price levels. 22 As of today, the spot exchange rate is C100 = $1.20, and the rate of infiation expected to prevoil for the next year in the U.S. is 2% and 3% in the eurozone. What is the one-year forward rate that should prevail? Select one: O a cL00 - S1.2379 O b S1.00 = co.8623 O c. S1.00 - €CLI883 O d e100 - S1IBB3arrow_forwardAccording to the monetary model of exchange rate, if real income increases, then the price level will and the value of the currency will O increase; decrease O increase; increase O decrease; decrease O decrease; increasearrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
Principles of Economics (12th Edition)EconomicsISBN:9780134078779Author:Karl E. Case, Ray C. Fair, Sharon E. OsterPublisher:PEARSON
Engineering Economy (17th Edition)EconomicsISBN:9780134870069Author:William G. Sullivan, Elin M. Wicks, C. Patrick KoellingPublisher:PEARSON
Principles of Economics (MindTap Course List)EconomicsISBN:9781305585126Author:N. Gregory MankiwPublisher:Cengage Learning
Managerial Economics: A Problem Solving ApproachEconomicsISBN:9781337106665Author:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike ShorPublisher:Cengage Learning
Managerial Economics & Business Strategy (Mcgraw-...EconomicsISBN:9781259290619Author:Michael Baye, Jeff PrincePublisher:McGraw-Hill Education
Principles of Economics (12th Edition)
Economics
ISBN:9780134078779
Author:Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher:PEARSON
Engineering Economy (17th Edition)
Economics
ISBN:9780134870069
Author:William G. Sullivan, Elin M. Wicks, C. Patrick Koelling
Publisher:PEARSON
Principles of Economics (MindTap Course List)
Economics
ISBN:9781305585126
Author:N. Gregory Mankiw
Publisher:Cengage Learning
Managerial Economics: A Problem Solving Approach
Economics
ISBN:9781337106665
Author:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor
Publisher:Cengage Learning
Managerial Economics & Business Strategy (Mcgraw-...
Economics
ISBN:9781259290619
Author:Michael Baye, Jeff Prince
Publisher:McGraw-Hill Education