Question :
11) The theory of PPP suggests that if one country’s : 1373811
11) 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.
12) 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
13) If the 2005 inflation rate in Canada is 4 percent, and the inflation rate in Mexico is 2 percent, then the theory of purchasing power parity predicts that, during 2005, the value of the Canadian dollar in terms of Mexican pesos will
A) rise by 6 percent.
B) rise by 2 percent.
C) fall by 6 percent.
D) fall by 2 percent.
14) Assume that the following are the predicted inflation rates in these countries for the year: 2% for the United States, 3% for Canada; 4% for Mexico, and 5% for Brazil. According to the purchasing power parity and everything else held constant, which of the following would we expect to happen?
A) The Brazilian real will depreciate against the U.S. dollar.
B) The Mexican peso will depreciate against the Brazilian real.
C) The Canadian dollar will depreciate against the Mexican peso.
D) The U.S. dollar will depreciate against the Canadian dollar.
15) According to the purchasing power parity theory, a rise in the United States price level of 5 percent, and a rise in the Mexican price level of 6 percent cause
A) the dollar to appreciate 1 percent relative to the peso.
B) the dollar to depreciate 1 percent relative to the peso.
C) the dollar to depreciate 5 percent relative to the peso.
D) the dollar to appreciate 5 percent relative to the peso.
16) Higher tariffs and quotas cause a country’s currency to ________ in the ________ run, everything else held constant.
A) depreciate; short
B) appreciate; short
C) depreciate; long
D) appreciate; long
17) Lower tariffs and quotas cause a country’s currency to ________ in the ________ run, everything else held constant.
A) depreciate; short
B) appreciate; short
C) depreciate; long
D) appreciate; long
18) Anything that increases the demand for foreign goods relative to domestic goods tends to ________ the domestic currency because domestic goods will only continue to sell well if the value of the domestic currency is ________, everything else held constant.
A) depreciate; lower
B) depreciate; higher
C) appreciate; lower
D) appreciate; higher
19) Everything else held constant, increased demand for a country’s ________ causes its currency to appreciate in the long run, while increased demand for ________ causes its currency to depreciate.
A) imports; imports
B) imports; exports
C) exports; imports
D) exports; exports
20) Everything else held constant, increased demand for a country’s exports causes its currency to ________ in the long run, while increased demand for imports causes its currency to ________.
A) appreciate; appreciate
B) appreciate; depreciate
C) depreciate; appreciate
D) depreciate; depreciate
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