Question

15. If the real exchange rate between the U.S. and Japan is 1, the nominal exchange rate is 100 yen per U.S. dollar and the price of copper in the U.S. is $2.50 per pound of copper, what is the price of copper in Japan?
A. 400 yen per pound of copper
B. 250 yen per pound of copper
C. 100 yen per pound of copper
D. 40 yen per pound of copper
E. 25 yen per pound of copper
16. Which of the following could be a consequence of a depreciation of the U.S. real exchange rate?
(x) Stan, a U.S. citizen, decides that his trip to Japan would be too costly and cancels his trip.
(y) Jack, an Australian citizen, decides that buying ceiling fans from the United States will now be less costly and doubles his order.
(z) Joe, a U.S. citizen, decides to import less engine parts for his auto parts company.
A. (x), (y) and (z)
B. (x) and (y) only
C. (x) and (z) only
D. (y) and (z) only
E. (x) only
17. Consider an identical basket of goods in both the U.S. and India. For a given nominal exchange rate, in which case is it certain that the U.S. real exchange rate with India decreases?
A. the price of the basket of goods rises in the U.S. and India.
B. the price of the basket of goods falls in both India and the U.S.
C. the price of the basket of goods rises in the U.S. and falls in India.
D. the price of the basket of goods falls in the U.S. and rises in India.
E. Either A or B.

Answer 1

15. If exchange rate is $1=100 yen, then $2.50 = 250 yen.

Answer: B. 250 yean per pound of copper.

16. When U.S dollar depreciates foreign goods and services become costly to the domestic citizens and domestic goods and services are less costly to the foreigners.

Answer: A. (X), (Y) and (Z).

17. When the exchange rate depreciates the domestic goods become cheaper in foreign market and foreign goods become dearer in the domestic market. When U.S dollar depreciate the U.S citizens have to pay more dollars to buy the same basket of goods from India and Indians have to pay less rupee to buy the same basket of goods from U.S.

Answer: D. the price of the basket of goods falls in the U.S and rises in India