Question 1 (1 point)
Which of the following can cause relative PPP to NOT hold in
the short run?
Question 1 options:
frictionless markets
state-sponsored monopolies
types of labor and unique skill sets than can only be found in
one area or certain areas
shipping costs
Question 2 (1 point)
If relative PPP holds, absolute PPP must hold.
Question 2 options:
True
False
Question 3 (1 point)
In 2019, the US had the highest nominal GDP in the world,
before adjusting for purchasing power. However, when adjusting for
purchasing power, China had the highest GDP in the world in 2019.
Given only these facts, what is true about the Chinese currency in
2019?
(Note: this question has nothing to do with population
size.)
Question 3 options:
Chinese currency was overvalued in 2019
absolute PPP must have held in 2019
the real exchange rate was 1 in 2019
Chinese currency was undervalued in 2019
Question 4 (1 point)
Suppose that the growth rate in the money supply in the US is
9% while real GDP grows by 6%. What will the rate of inflation in
the US be, as predicted by the monetary model? Enter your answer as
a percent, but don't include the percent sign in your answer.
Your Answer:
Question 4 options:
Answer
Question 5 (1 point)
Suppose that the depreciation of EA/B was 7% over the past
year, and prices in country A increased by 4% from this time last
year. Assuming relative PPP holds, what was the rate of inflation
in country B from this time last year? Enter your answer as a
percent but do not include the percent sign in your answer.
Your Answer:
Question 5 options:
Answer
Question 6 (1 point)
If absolute PPP holds, relative PPP must hold.
Question 6 options:
True
False
Question 7 (1 point)
Calculate the relative price qgUS/EUR of a price of designer
jeans if they cost €45 in Europe, $50 in the US, and the exchange
rate E$/€ is 1.2.
Your Answer:
Question 7 options:
Answer
Question 8 (1 point)
The evidence shows that relative PPP _____.
Question 8 options:
doesn't holds up much at all in the long run or the short
run.
holds up reasonably well in the short run, but not in the long
run.
holds up very well in the long run and the short run.
holds up reasonably well in the long run, but not in the short
run.
Question 9 (1 point)
Relative PPP says that, in the long run, _____.
Question 9 options:
the depreciation of a country A's currency relative to country
B's currency is equal to country A's inflation rate minus country
B's GDP growth rate.
the depreciation of a country A's currency relative to country
B's currency is equal to country A's inflation rate plus country
B's inflation rate.
the depreciation of a country A's currency relative to country
B's currency is equal to country A's inflation rate minus country
B's inflation rate.
the depreciation of a country A's currency relative to country
B's currency is equal to country B's inflation rate minus country
A's inflation rate.
Question 10 (1 point)
Suppose country W only produces one type of good (widgets) and
produced the same number of widgets in 2018 and 2019. All money in
country W is cold, hard cash. Suppose that, in every year, each
unit of currency was spent four times per year on average, but that
the nominal GDP of country W increased by 9% from 2018 to 2019.
This must mean that the money supply of country W increased by ____
percent from 2018 to 2019. Do not include the percent sign in your
answer
Your Answer:
Question 10 options:
Answer
Question 11 (1 point)
What is true if absolute PPP holds between the US and
Canada?
(Note that USD refers to US dollars while CAD refers to
Canadian dollars)
Question 11 options:
The nominal exchange rate of USD per CAD equals the US price
level divided by the Canadian price level, and the real exchange
rate is less than one.
The nominal exchange rate of USD per CAD equals the US price
level divided by the Canadian price level, and the real exchange
rate is greater than one.
The nominal exchange rate of USD per CAD equals the Canadian
price level divided by the US price level, and the real exchange
rate is equal to one.
The nominal exchange rate of USD per CAD equals the US price
level divided by the Canadian price level, and the real exchange
rate is equal to one.
Question 12 (1 point)
Suppose money supply growth rates and real GDP growth rates
have been chugging along in the US and Canada at 1% per year for a
long time, when suddenly, the real GDP growth rate in Canada
increases to 4%. What will happen, according to the monetary
model?
Question 12 options:
The US dollar will depreciate by 3% relative to the Canadian
dollar
The US dollar will appreciate by 3% relative to the Canadian
dollar
The US dollar will depreciate by 4% relative to the Canadian
dollar
The US dollar will appreciate by 4% relative to the Canadian
dollar
Question 13 (1 point)
If price levels in China and the US do not change, but the
exchange rate is decreased so that it takes fewer dollars to buy
one Chinese yuan than before (in other words, E$/¥ decreases), what
will happen to the real exchange rate (where US is considered the
home country)?
Question 13 options:
It falls and the US has experienced a real appreciation
It falls and the US has experienced a real depreciation
It rises and the US has experienced a real appreciation
It rises and the US has experienced a real depreciation
Question 14 (1 point)
If LOOP holds for all goods, absolute PPP must hold.
Question 14 options:
True
False
Question 15 (1 point)
Saved
If the law of one price applies to ounces of silver, then the
ratio of the price of an ounce of silver in Chicago (which is
quoted in dollars) to the price of an ounce of silver in London
(which is quoted in £) will equal ______.
(If you actually look this up on the internet, you should be
pleasantly surprised with how close it is to following LOOP. This
parenthetical comment should not affect the question, it's just an
interesting side note.)
Question 15 options:
the number of ounces per pound
the inverse exchange rate E£/$
the exchange rate E$/£
the conversion to the metric system