ECON 3210 Lecture Notes - Lecture 15: Real Interest Rate, Capital Control, Factors Of Production
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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.
QUESTION 11
If the demand for investment loans rises, this could be the result of
the discovery of new and better roundabout methods of production. | ||
a lower rate of time preference in society. | ||
a lower interest rate. | ||
a higher interest rate. | ||
a and c |
1 points
QUESTION 12
Which of the following statements is true?
All persons have a high rate of time preference. | ||
People with a high rate of time preference are more likely to be borrowers than people with a low rate of time preference. | ||
People with a high rate of time preference are more likely to be lenders than people with a low rate of time preference. | ||
A high interest rate is the cause of a high rate of time preference. | ||
none of the above |
1 points
QUESTION 13
Which of the following statements is true?
The nominal interest rate is always higher than the real interest rate since the nominal interest rate equals the real interest rate plus the expected inflation rate. | ||
The nominal interest rate is always lower than the real interest rate since the nominal interest rate equals the real interest rate minus the expected inflation rate. | ||
The nominal interest rate can equal the real interest rate, but to do so the expected inflation rate must be zero percent. | ||
It is the nominal interest rate-not the real interest rate-that matters to borrowers. |
1 points
QUESTION 14
If there is an increase in the expected inflation rate, then,
the supply and demand for loanable funds will decrease. | ||
the supply and demand for loanable funds will increase. | ||
the supply of loanable funds will decrease, and the demand for loanable funds will increase. | ||
the supply of loanable funds will increase, and the demand for loanable funds will decrease. |
1 points
QUESTION 15
If suddenly a 4 percent inflation rate (instead of a zero percent inflation rate) is expected by both suppliers and demanders in the loanable funds market, then
the demand for loanable funds curve will shift rightward, and the supply of loanable funds curve will shift leftward. | ||
the demand for loanable funds curve will shift leftward, and the supply of loanable funds curve will shift rightward. | ||
both the demand for loanable funds curve and the supply of loanable funds curve will shift leftward. | ||
both the demand for loanable funds curve and the supply of loanable funds curve will shift rightward. |