Question : 141) If a basket of goods costs $1000 in Canada : 1384553

 

141) If a basket of goods costs $1000 in Canada and the Canadian dollar exchange rate is $1.50 = 1 euro, then the same basket of goods in Europe should cost ________ euros.

A) 150.00

B) 666.67

C) 1000.00

D) 1500.00

E) 6666.67

142) According to the theory of purchasing power parity (PPP), the exchange rate between two country’s currencies is determined by

A) relative price levels in the two countries.

B) absolute price levels in the two countries.

C) relative quantities of gold and official reserves held by the central banks of two countries.

D) quantities of goods and services produced in the two countries.

E) quantities of goods and services traded in the two countries.

143) Which of the following provides an explanation for the failure of the theory of purchasing power parity?

1) differences in the structure of the different price indices in different countries

2) the presence of nontraded goods

3) changes in the relative prices of traded goods

A) 1 only

B) 2 only

C) 3 only

D) 2 and 3

E) 1, 2, and 3

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

144) Refer to Table 35-2. According to the theory of Purchasing Power Parity (PPP), the actual Canada-US exchange rate in 2008 should have been

A) 115/122 = 0.94.

B) 1.15, the actual exchange rate that year.

C) (122 × 115)/100 = 140.3.

D) 122, the price level in Canada that year.

E) 122/115 = 1.06.

145) Refer to Table 35-2. According to the theory of Purchasing Power Parity (PPP), the Canadian-U.S. exchange rate in 2008 was ________, meaning that the Canadian dollar was ________ relative to its PPP equilibrium value.

A) too high; overvalued

B) too low; undervalued

C) too high; undervalued

D) too low; overvalued

146) Refer to Table 35-2. According to the theory of Purchasing Power Parity (PPP), the Canadian-U.S. exchange rate in 2012 was ________, meaning that the Canadian dollar was ________ relative to its PPP equilibrium value.

A) too low; undervalued

B) too low; overvalued

C) too high; overvalued

D) too high; undervalued

147) Refer to Table 35-2. Based on the “law of one price,” the value of the “PPP exchange rate” in 2011 was

A) 131/125 = 1.048.

B) 125/131 = 0.954.

C) 1.00, the actual exchange rate that year.

D) (131 × 125)/100 = 163.75.

E) 131, the price level in Canada that year.

148) Proponents of fixed exchange rates argue that flexible exchange rates can lead to

1) greater transactions costs of trade;

2) greater uncertainty surrounding the profitability of trade;

3) imbalances in the balance of payments.

A) 1 only

B) 2 only

C) 3 only

D) 1 and 2

E) 1, 2, and 3

149) In Canada, proponents of a flexible exchange rate argue that the flexible exchange rate acts as a “shock absorber.” By this, they mean that

A) negative shocks to the Canadian economy will be fully absorbed by a depreciation of the dollar, causing net exports to rise.

B) a flexible exchange rate protects Canadian exporters from increases in the prices of their products in the rest of the world.

C) flexible exchange rates allow for more certainty with regard to the profitability of international transactions, which dampens negative effects on output and employment.

D) external shocks to the Canadian economy can be partially absorbed by fluctuations in the exchange rate, which dampen the effect of the shock on output and employment.

E) positive shocks to the Canadian economy will be fully absorbed by an appreciation of the dollar, causing net exports to fall.

150) Prior to the onset of the global financial crisis and recession in 2008, Canada was experiencing strong growth in demand for its commodities (notably from China and India) which caused a(n) ________ of its currency. Other things being equal, this change in the exchange rate, in turn, caused a(n) ________ in economic activity in Ontario and Quebec manufacturing industries.

A) appreciation; increase

B) depreciation; increase

C) depreciation; decrease

D) appreciation; decrease