Question

TRUE FALSE. If false CORRECT the wrong word/words

1. If the price level in Japan is 2, the price level in the U.S. is 1. Defining e as Yen to buy one dollar, then the nominal exchange rate (e) holding the purchasing power parity is 1

2. A nominal appreciation of the Japanese yen (against all currencies) indicates that

the number of units of foreign currency that one can obtain with one yen has increased

3. If the exchange rate between the pound and the dollar is currently 1.50 dollars per pound, and is expected to be 1.35 in one year, then the rate of expected appreciation of the pound is 10 percent

4. If there is an increase in foreign interest rates versus the domestic ones, this will increase the surplus in the financial account (or decrease its deficit). It will also appreciate the domestic currency in the very short run.

5. If the exchange rate is fix and there is free capital mobility, an expectation of future devaluation of the domestic currency will result in a shift to the right of the foreign currency supply function (increase) and a decrease in the exchange rate (domestic currency per unit of foreign one). The Central Bank should the increase interest rates to stop that tendency and maintain e constant

6. If the US price level is 100, and the foreign one is 150, Which is will be the nominal e in the long term?

7. If the Federal Reserve increases interest rates, this will cause an appreciation of the Dollar in the very short run.

8. If the Federal Reserve increases interest rates, this will cause a revaluation of the Dollar in the very short run.

9. The currencies of countries with a continuous deficit in their current account balance should expect an appreciation of their currency in the long term

10. According to the theory of purchasing power parity, countries that have relatively high inflation (with respect to other economies) tend to have currencies that depreciate in the long term

Answer 1

Ans:1 False - If the price level in Japan is 2, the price level in the U.S. is 1. Defining e as Yen to buy one dollar, then the nominal exchange rate (e) holding the purchasing power parity is 2.

Ans:2 True

Ans:3 False-  If the exchange rate between the pound and the dollar is currently 1.50 dollars per pound, and is expected to be 1.35 in one year, then the rate of expected depreciation of the pound is 11 percent.

Ans:4 True

Ans:5 False- If the exchange rate is fix and there is free capital mobility, an expectation of future devaluation of the domestic currency will result in a shift to the right of the foreign currency supply function (increase) and an increase in the exchange rate (domestic currency per unit of foreign one). The Central Bank should increase interest rates to stop that tendency and maintain e constant

Ans:6 incomplete question

Ans:7 True

Ans:8 True

Ans:9 False- The currencies of countries with a continuous deficit in their current account balance should expect depreciation of their currency in the long term

Ans:10 True