Question

19. Consider the following Solow-Swan model in which output per capita is given by y-Aks, the total factor productivity parameter is 2, the savings rate is 50%, the depreciation rate is 20% and the population growth rate is 5%. The steady state value of the output per capita, y, for this economy is: 1 a. b. 4 c. 8 d. 16 20. Which of following best describes when purchasing power parity does and does not hold? a. A country with higher inflation is more likely to have its exchange rate depreciate in the short run than the long run b. A country with higher inflation is more likely to have its exchange rate appreciate in the short run than the long run c. A country with higher inflation is more likely to have its exchange rate depreciate in the long run than the short run d. A country with higher inflation is more likely to have its exchange rate appreciate in the long run than the short run 21. If the Reserve Bank reports that it is less concerned about inflation and more concerned about an impending recession in Australia, what is likely to happen in the foreign exchange market? Supply of Australian dollars will fall and demand for Australian dollars will fall Supply of Australian dollars will rise and demand for Australian dollars will fall Supply of Australian dollars will rise and demand for Australian dollars will a. b. C. rise d. Supply of Australian dollars will rise and demand for Australian dollars will rise 22. If the Australian dollar -Japanese Yen exchange rate is given by $A 1 80 Yen and the Mexican Peso -Australian dollar exchange rate is given by 1 Peso $A 0.1. What is the Japanese Yen- Mexican Peso exchange rate? a. 0.125 Yen 1 Peso b. 0.125 Pesos 1 Yen c. 1 Peso 800 Yen d. 1 Yen 800 Pesos

Answer 1

20) option C is correct.

The theory of purchasing power parity (ppp) states that the ratio of price levels between two countries is equal to their exchange rate.

As,PPP does not affect exchanges rates in the short term.PPP does have a long term impact on exchange rates because long term economic trends help determine inflation, and therefore change exchange rates.

22). Option B is correct

As,$1A=80yen and 1 peso =$A 0.1

Then, 10 peso = $A1

By Comparing, 10 peso = 80 yen

So,divided by 80 on both sides

Now,we get 0.125peso = 1 yen