Question

4.Suppose that the exchange rate between the euro and US dollar is 0.92 euro/dollar. The price index in the United States is 112 and the price index in Europe is 205. What is the real exchange rate between euros and dollars?
Question 4 options:
0.50
1.83
1.68
0.55
0.92

5.Suppose that the exchange rate between the euro and US dollar is 0.92 euro/dollar. What is the exchange rate expressed in dollars/euro?
Options:
0.92
0.73
1.02
1.80
1.09

Question 6 (1 point) In 2015, the exchange rate between the Great British pound and the US dollar was 1.59 dollars/pound. In 2020, it was 1.25 dollars/pound. Relative to each other, between 2015 and 2020
Question 6 options:
both currencies appreciated
both currencies depreciated
the pound depreciated and the dollar appreciated
the pound appreciated and the dollar depreciated

Question 7 Which of the following is not a reason that purchasing power parity can be violated?
options: Some goods are not easily traded internationally
Some goods have different costs of production in different countries
Some goods are imperfect substitutes

Answer 1

Q-1 ::ANSWER :: (C) 1.68

Real Exchange Rate = Nominal Exchange Rate * Price Level In Domestic/Price Level In Foreign

= 0.92 *205/112

= 0.92 * 1.83

= 1.68

Q-2 :: ANSWER :: (D) 1.09

Exchange Rate = 0.92 Euro = $1

So, Euro = 1/0.92

= 1.09 (Rounded)

So, 1 Euro = 1.09 Dollar

Q-3 :: (D) The Pound Depreciated And Dollar Appreciated

=> Explaination ::

In 2015 The Price Of 1 Pound Is 1.59 Dollar And The Price In 2020 1 Pound is 1.25 Dollar So We See That Price Of Dollar In Pound Depreciate Because The Dollar Price Is Appreciate It Means Pound In US Become Cheaper And Dollar In Britain Become Valuable. So U.S Import From Britain Increase And Britain Export To US increase.

Q-4 ::ANSWER :: (B) Some goods have different costs of production in different countries

=> Explanation ::

Purchasing Power Parity Is Refers To The Exchange Rate Between Two Curruncies At Equilibrium At Which Both Countries Exchange Goods And Services. It Provide The Detail Of Marketing Condition Of Both Of The Countries

Some goods have different costs of production in different countries Have No Violate Purchasing Power Parity Because its Price Is Equilibriate By The Country Use Of tariffs And Other Factor