ECO100Y5 Chapter Notes - Chapter 19: Canadian Dollar, Nominal Interest Rate, Intermediate Good
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1.Purchasing power parity implies that
a. the real exchange rate is equal to 1.
b. the law of one price does not hold.
c. inflation rates are equal across countries.
d. the real exchange rate is equal to 0.
e. if the domestic country has low prices, then the domestic currency will depreciate until foreign citizens can buy the same amount of goods as domestic citizens.
2.Which of the following is a prediction from the PPP model of exchange rates?
A. An increase in the US money supply leads to an appreciation of the dollar in the long run.
B. An increase in US production leads to a depreciation of the dollar.
C. An increase in US production will lead to a proportional increase in the inflation rate.
D, An increase in the US money supply leads to a depreciation of the dollar in the long run.
E.An increase in the US interest rates leads to a fall in prices.
3.Relative purchasing power parity predicts that
A.the difference between the inflation rates in the two countries should equal the ratio of the interest rates in the two countries.
B. the difference between the inflation rates in two countries should equal the per cent change in the exchange rate.
C.inflation rates should be equal across countries.
D.the real exchange rate should equal one.
E.relative price levels in the two countries should be equal when expressed in the same currency.
4.Which of the following is NOT a valid explanation for the failure of purchasing power parity?
a. Differences in monetary policies across countries
b. Lack of competition
c. Transportation costs
d. Trade barriers
5.If P represents (the level of) domestic prices, P* represents (the level of) foreign prices and E represents the exchange rate as units of domestic currency per units of foreign currency, then the real exchange rate equals
a. EP/P* |
b. P*/EP |
C. E/PP* |
d. EP*/P |
e. P/P* |
6.The difference between nominal and real interest rates is that
A.Nominal interest rates are measured in terms of a country's output, while real interest rates are measured in monetary terms
B.Nominal interest rates are measured in monetary terms, while real interest rates are measured in terms of a country's output
C.Nominal interest rates can fluctuate, while real interest rates always remain fixed
D.Real interest rates can fluctuate, while nominal interest rates always remain fixed
E.Real interest rates are the same in every country, while nominal interest rates are different for every country
7.Which of the following is predicted to cause the value (or price or cost) of U.S. goods to appreciate relative to the value (or price or cost) of foreign goods in the long run?
a. An increase in the growth rate of U.S. GNP. b. A decrease in the growth rate of U.S. GNP.
c. A decline in the growth rate of the U.S. money supply.
d. An increase in the price of petroleum that reduces world demand for American cars. e. An appreciation of the dollar.
The table below lists annual consumer price index and inflation rates for a country over the period 2005-2010. Assume the year 2005 is used as the base year.
Year | Consumer Price Index | Inflation Rate |
2005 | 100 | |
2006 | 115 | B |
2007 | 125 | C |
2008 | 140 | D |
2009 | A | 10% |
2010 | 160 | E |
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120 | |||
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The price index was 170 in the first year, 180 in the second year, and 195 in the third year. The inflation rate was about
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0.1 points
QUESTION 17
The price index was 150 in the first year, 142.5 in the second year, and 138.2 in the third year. The economy experienced
5.0 percent deflation between the first and second years, and 3.0 percent deflation between the second and third years. | ||
7.5 percent deflation between the first and second years, and 4.3 percent deflation between the second and third years. | ||
5.3 percent inflation between the first and second years, and 4.1 percent inflation between the second and third years. | ||
7.5 percent inflation between the first and second years, and 4.3 percent inflation between the second and third years |
0.1 points
QUESTION 18
Which of the following statements is correct about the relationship between the nominal interest rate and the real interest rate?
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0.1 points
QUESTION 19
If the nominal interest rate is 6 percent and the rate of inflation is 2 percent, then the real interest rate is
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0.1 points
QUESTION 20
If the nominal interest rate is 7 percent and the real interest rate is -2.5 percent, then the inflation rate is
9.5 percent. | |||
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. From 2009 to 2010, the CPI for education increased from 279.3 to 281.8. What was the inflation rate for education between 2009 and 2010?
0.9% | |||
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If the consumer price index changes from 125 in September to 150 in October, what is the rate of inflation?
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9.1% |
. Suppose a basket of goods and services has been selected to calculate the CPI and 2014 has been selected as the base year. In 2013, the basketâs cost was $80; in 2014, the basketâs cost was $86; and in 2015, the basketâs cost was $90. The value of the CPI in 2015 was
104.6 and the inflation rate was 4.6%. | |||
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Suppose a basket of goods and services has been selected to calculate the CPI. In 2002, the basketâs cost was $80; in 2008, the basketâs cost was $92; and in 2010, the basketâs cost was $108. The base year must be
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2008 | |||
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Suppose a basket of goods and services has been selected to calculate the CPI and 2012 has been chosen as the base year. In 2012, the basketâs cost was $80.00; in 2013, the basketâs cost was $84; and in 2014, the basketâs cost was $87.60. The value of the CPI was
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Which of the following is correct?
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The inflation rate is defined as the
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Economists use the term inflation to describe a situation in which
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