Open-Economy Macroeconomics: Basic Concepts 7653
25. Other things the same, the real exchange rate between American and Chinese goods would be
higher if
a. prices of Chinese goods were higher, or the number of yuan a dollar purchased was higher.
b. prices of Chinese goods were higher, or the number of yuan a dollar purchased was lower.
c. prices of Chinese goods were lower, or the number of yuan a dollar purchased was higher.
d. prices of Chinese goods were lower, or the number of yuan a dollar purchased was lower.
26. Other things the same, the real exchange rate between American and French goods would be
lower if
a. prices of French goods were higher, or the number of euros a dollar purchased was higher.
b. prices of French goods were higher, or the number of euros a dollar purchased was lower.
c. prices of French goods were lower, or the number of euros a dollar purchased was higher.
d. prices of French goods were lower, or the number of euros a dollar purchased was lower.
7654 Open-Economy Macroeconomics: Basic Concepts
27. If a U.S. dollar purchases 4 Argentinean pesos, and a gallon of milk costs $3 in the U.S. and 6
pesos in Argentina what is the real exchange rate?
a. 2
b. 3/2
c. 2/3
d. 1/2
28. If the exchange rate is 1.25 New Zealand dollars per U.S dollar, the price of apples is $2 a pound
in the U.S. and 1 New Zealand dollar per pound in New Zealand, what is the real exchange rate?
a. 2.50
b. 2
c. 1.25
d. .75
Open-Economy Macroeconomics: Basic Concepts 7655
29. If the exchange rate is .70 euro per dollar, the price of an MP3 player in Paris is 150 euros and
the price of an MP3 player in the U.S. is $150, then what is the real exchange rate?
a. 1/.70 French MP3 players per U.S. MP3 player
b. 1 French MP3 players per U.S. MP3 player
c. .70 French MP3 players per U.S. MP3 player.
d. None of the above are correct.
30. The nominal exchange rate is 2 Barbados dollars per U.S. dollar. If the price of a good in
Barbados is 3 Barbados dollars and the price in the U.S. is 2 U.S. dollars, what is the real
exchange rate to the nearest 100th?
a. 3 Barbados goods per U.S. good
b. 1.33 Barbados goods per U.S. good
c. .75 Barbados goods per U.S. good
d. none of the above is correct
7656 Open-Economy Macroeconomics: Basic Concepts
31. Exchange rates are 100 yen per dollar, 0.8 euro per dollar, and 12 pesos per dollar. A bottle of
beer in New York costs 6 dollars, 500 yen in Tokyo, 6 euro in Munich, and 84 pesos in Cancun.
Where is the most expensive and the cheapest beer, in that order?
a. Cancun, New York
b. Munich, Tokyo
c. Tokyo, Munich
d. New York, Cancun
32. The nominal exchange rate is 4 Saudi Arabian riyals, 8 Moroccan dirham, 60 Indian rupees, or .8
euros per U.S. dollar. A fast food breakfast costs $5 in the U.S., 30 riyals in Saudi Arabia, 40
Moroccan dirham in Morocco, 250 Indian rupees in India, and 5 euros in France. According to
these numbers, where is the real exchange rate between American and foreign goods the lowest?
a. Saudi Arabia
b. Morocco
c. India
d. Britain
Open-Economy Macroeconomics: Basic Concepts 7657
33. The nominal exchange rate is .80 euros per dollar and the real exchange rate is 4/3. Which of the
following prices for a particular good are consistent with these exchange rates?
a. $4 in the U.S. and 3 euros in Italy.
b. $4 in the U.S. and 3.75 euros in Italy.
c. $5 in the U.S. and 3 euros in Italy.
d. $6 in the U.S. and 2.50 euros in Italy.
34. The exchange rate is 1.5 Bosnian markas per U.S. dollar. The price of a refrigerator in Bosnia is
1,200 markas while in the U.S. it is $1,000. The real exchange rate is
a. 9/5
b. 5/4
c. 4/5
d. None of the above are correct.
7658 Open-Economy Macroeconomics: Basic Concepts
35. In the U.S. a digital camera costs $200. The same camera in London sells for 90 pounds. If the
exchange rate were .50 pounds per dollar, then which of the following would be correct?
a. The real exchange rate is greater than 1. A person in London with $200 could exchange them
for pounds and have more than enough to buy the camera there.
b. The real exchange rate is greater than 1. A person in London with $200 could exchange them
for pounds but then wouldn’t have enough to buy the camera there.
c. The real exchange rate is less than 1. A person in London with $200 could exchange them for
pounds and have more than enough to buy the camera there.
d. The real exchange rate is less than 1. A person in London with $200 could exchange them for
pounds but then wouldn’t have enough to buy the camera.
36. The price of a basket of goods and services in the U.S. is $600. In Canada the same basket of
goods costs 700 Canadian dollars. If the nominal exchange rate were 1.2 Canadian dollars per
U.S. dollar, what would be the real exchange rate?
a. 700/600
b. 600/700
c. 700/720
d. None of the above is correct.
Open-Economy Macroeconomics: Basic Concepts 7659
37. In the United States, a three–pound can of coffee costs about $5. If the exchange rate is 0.8 euros
per dollar and a three-pound can of coffee in Belgium costs 7 euros. What is the real exchange
rate?
a. 7/4 cans of Belgian coffee per can of U.S. coffee
b. 5.6/5 cans of Belgian coffee per can of U.S. coffee
c. 5/5.6 cans of Belgian coffee per can of U.S. coffee
d. 4/7 cans of Belgian coffee per can of U.S. coffee
38. In the United States, a cup of hot chocolate costs $5. In a foreign country, the same hot chocolate
costs 6.5 units of that country’s currency. If the exchange rate were 1.3 units of foreign currency
per U.S. dollar, what is the real exchange rate?
a. 1/2 cup of that country’s hot chocolate per cup of U.S. hot chocolate
b. 1 cup of that country’s hot chocolate per cup of U.S. hot chocolate
c. 2 cups of that country’s hot chocolate per cup of U.S. hot chocolate
d. None of the above is correct.
7660 Open-Economy Macroeconomics: Basic Concepts
39. In Ireland, a pint of beer costs 3 euros. In Australia, a pint of beer costs 4 Australian dollars. If
the exchange rate is .8 euros per Australian dollar, what is the real exchange rate?
a. 4/2.4 pints of Irish beer per pint of Australian beer
b. 3/3.2 pint of Irish beer per pint of Australian beer
c. 3.2/3 pints of Irish beer per pint of Australian beer
d. 2.4/4 pints of Irish beer per pint of Australian beer
40. In France a loaf of bread costs 3 euros. In Great Britain a loaf of bread costs 4 pounds. If the
exchange rate is .9 pounds per euro, what is the real exchange rate?
a. 4/2.7 loaves of British bread per loaf of French bread
b. 3.6/3 loaves of British bread per loaf of French bread
c. 3/3.6 loaves of British bread per loaf of French bread
d. 2.7/4 loaves of British bread per loaf of French bread
Open-Economy Macroeconomics: Basic Concepts 7661
41. If a bushel of wheat costs $6.40 in the United States, costs 40 pesos in Mexico, and the nominal
exchange rate is 10 pesos per dollar, then the real exchange rate is
a. 1.60
b. 1.25
c. .625
d. None of the above is correct.
42. The nominal exchange rate is 30 Thai bhat for one U.S. dollar. A sub sandwich combo deal in the
U.S. costs $6 dollars in the U.S. and 120 bhat in Thailand. The real exchange rate is
a. 3/8
b. 2/3
c. 3/2
d. 8/3
7662 Open-Economy Macroeconomics: Basic Concepts
43. If the price of a sofa is $800 in the U.S. and 2400 pesos in Argentina, and the exchange rate is 4
pesos per dollar, what is the real exchange rate?
a. 3
b. 4/3
c. 3/4
d. None of the above is correct.
44. If the unit of foreign currency is the peso, in which case is the real exchange rate 1.2?
a. the U.S. price is $2, the foreign price is 5 pesos, and the exchange rate is 3 pesos per dollar.
b. the U.S. price is $3, the foreign price is 18 pesos, and the exchange rate is 5 pesos per dollar.
c. the U.S. price is $5, the foreign price 12 pesos, and the exchange rate is 2 pesos per dollar.
d. the U.S. price is $10, the foreign price is 3 pesos, and the exchange rate is 4 pesos per dollar.
Open-Economy Macroeconomics: Basic Concepts 7663
45. If the price of a good in the U.S. is $10 and the unit of foreign currency is the dinar, in which case
is the real exchange rate 5/4?
a. the foreign price is 4 dinars and the exchange rate is 1/2 dinars per dollar
b. the foreign price is 5 dinars and the exchange rate is 2.5 dinars per dollar
c. the foreign price is 4 dinars and the exchange rate is 2 dinars per dollar
d. the foreign price is 5 dinars and the exchange rate is 2/5 dinars per dollar
46. In the U.S. a candy bar costs $1. If the nominal exchange rate were 6 Chinese yuan per dollar
and the real exchange rate were 1.2, then, what would be the price of a candy bar in China?
a. 7.2 yuan
b. 6 yuan
c. 5 yuan
d. 3.6 yuan
7664 Open-Economy Macroeconomics: Basic Concepts
47. Suppose the real exchange rate is 1.25 pounds of bananas in Guatemala per pound of bananas in
the U.S. If a pound of bananas in the U.S. costs $.50, and the exchange rate is 10 Guatemalan
Quetzals per dollar, what is the price of bananas in Guatemala?
a. 2.50 Quetzals per pound
b. 4.00 Quetzals per pound
c. 5.75 Quetzals per pound
d. 6.25 Quetzals per pound
48. 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 chicken in the U.S. is $2.50 per pound, what is the price of
chicken in Japan?
a. 400 yen per pound
b. 250 yen per pound
c. 100 yen per pound
d. 40 yen per pound
Open-Economy Macroeconomics: Basic Concepts 7665
49. If the real exchange rate is 5/4 pounds of Chilean beef per pound of U.S. beef, a pound of U.S.
beef costs $2 and the nominal exchange rate is 500 Chilean pesos per dollar, then Chilean beef
costs
a. 1,250 pesos per pound.
b. 800 pesos per pound
c. 250 pesos per pound.
d. None of the above is correct.
50. Suppose the real exchange rate is 3/4 gallon of country A’s gasoline per gallon of U.S. gasoline, a
gallon of U.S. gasoline costs $3.00 U.S., and a gallon of gas in country A costs 6 units of their
currency. What is the nominal exchange rate?
a. 3/8 of a unit of country A’s currency per dollar.
b. 3/2 units of country A’s currency per dollar.
c. 8/3 units of country A’s currency per dollar.
d. None of the above is correct.
7666 Open-Economy Macroeconomics: Basic Concepts
51. Suppose the real exchange rate is 5/4 of a Canadian textbook per U.S. textbook , a U.S. textbook
costs $150, and a Canadian one costs 120 Canadian dollars. To the nearest penny, what is the
nominal exchange rate?
a. .64 Canadian dollars per U.S. dollar
b. 1 Canadian dollar per U.S. dollar
c. 1.56 Canadian dollars per U.S. dollar
d. None of the above is correct.
52. If the real exchange rate for coal is 1.5, the price of coal in the U.S. is $50 per ton, and the price
of coal in Britain is 20 British pounds per ton, what is the nominal exchange rate?
a. 15/4
b. 5/3
c. 3/5
d. 4/15
Open-Economy Macroeconomics: Basic Concepts 7667
53. Goods that cost one dollar in the U.S. cost one euro in France, the real exchange rate would be
computed as how many French goods per U.S. goods?
a. one
b. the price of the U.S. goods
c. the number of euros that can be bought with one U.S. dollar
d. None of the above is correct.
54. Good that cost one half dollar in the U.S. cost one euro in Germany, the real exchange rate would
be computed as how many German goods per U.S. goods?
a. one half
b. one half the price of the U.S. goods
c. one half the number of euros it takes to buy a U.S. dollar
d. None of the above is correct.
7668 Open-Economy Macroeconomics: Basic Concepts
55. Goods that cost 1/5 of one dollar in the U.S. cost one kroner in Denmark, the real exchange rate
would be computed as how many Danish goods per U.S. goods?
a. five
b. the amount of kroner that can be bought with twenty U.S. cents
c. the amount of kroner that can be bought with 5 dollars
d. None of the above is correct.
56. If it took as many dollars to buy goods in the United States as it did to buy enough currency to buy
the same goods in India, the real exchange rate would be computed as how many Indian goods
per U.S. goods?
a. one
b. the number of dollars needed to buy U.S. goods divided by the number of rupees needed to buy
Indian goods
c. the number of rupees needed to buy Indian goods divided by the number of dollars needed to
buy U.S. goods
d. None of the above is correct.
Open-Economy Macroeconomics: Basic Concepts 7669
57. Suppose that the real exchange rate between the United States and Kenya is defined in terms of
baskets of goods. Other things the same, which of the following will increase the real exchange
rate (that is increase the number of baskets of Kenyan goods a basket of U.S. goods buys)?
a. an increase in the number of Kenyan shillings that can be purchased with a dollar
b. an increase in the price of U.S. goods
c. a decrease in the price in Kenyan shillings of Kenyan goods
d. All of the above are correct.
58. Suppose that the real exchange rate between the United States and Brazil is defined in terms of
baskets of goods. Other things the same, which of the following will increase the real exchange
rate (that is increase the number of baskets of Brazilian goods a basket of U.S. goods buys)?
a. an increase in the quantity of Brazilian currency that can be purchased with a dollar
b. a decrease in the price of U.S. goods
c. an increase in the price in Brazilian currency of Brazilian goods
d. All of the above are correct.
7670 Open-Economy Macroeconomics: Basic Concepts
59. Suppose that the real exchange rate between the United States and South Korea is defined in
terms of baskets of goods. Other things the same, which of the following will increase the real
exchange rate (that is increase the number of baskets of South Korean goods a basket of U.S
goods buys)?
a. a decrease in the quantity of South Korean currency that can be purchased with a dollar
b. a decrease in the price of U.S. baskets of goods
c. a decrease in the price in South Korean currency of South Korean goods.
d. None of the above is correct.
60. Consider an identical basket of goods in both the U.S. and Taiwan. For a given nominal exchange
rate, in which case is it certain that the U.S. real exchange rate with Taiwan falls?
a. the price of the basket of goods rises in the U.S. and Taiwan.
b. the price of the basket of goods rises in the U.S. and falls in Taiwan.
c. the price of the basket of goods falls in the U.S. and rises in Taiwan.
d. the price of the basket of goods falls in both the U.S. and Taiwan.
Open-Economy Macroeconomics: Basic Concepts 7671
61. A good in the U.S. costs $20. The same good costs 150 pesos in Mexico. If the nominal
exchange rate is 10 pesos per dollar, what is the real exchange rate?
a. 4/3 so the good is more expensive in the U.S.
b. 4/3 so the good is more expensive in Mexico
c. 3/4 so the good is more expensive in the U.S.
d. 3/4 so the good is more expensive in Mexico
62. A depreciation of the U.S. real exchange rate induces U.S. consumers to buy
a. fewer domestic goods and fewer foreign goods.
b. more domestic goods and fewer foreign goods.
c. fewer domestic goods and more foreign goods.
d. more domestic goods and more foreign goods.
7672 Open-Economy Macroeconomics: Basic Concepts
63. An appreciation of the U.S. real exchange rate induces U.S. consumers to buy
a. fewer domestic goods and fewer foreign goods.
b. more domestic goods and fewer foreign goods.
c. fewer domestic goods and more foreign goods.
d. more domestic goods and more foreign goods.
64. If the U.S. real exchange rate appreciates, U.S. exports
a. increase and U.S. imports decrease.
b. decrease and U.S. imports increase.
c. and U.S. imports both increase.
d. and U.S. imports both decrease.