Suppose that the the US/Mexico exchange rate is 40 pesos per dollar

Subject: Economics    / Accounting

1. Suppose that the the US/Mexico exchange rate is 40 pesos per dollar, the US price level is 102 and the Mexican price level is 120. What is the real exchange rate?

2. Continuing the previous question, suppose that next year the real exchange rate remained unchanged, the US price level rose to 110, and the the Mexican price level rose to 124. What was the percent change in the nominal exchange rate?


3. Uncovered interest parity implies that interest rates must be equal across countries. T/F

4. If the exchange rate between dollars and euros is .75, that means that .75 euros equal .75 dollars. T/F

5. A real appreciation means that domestic goods become more expensive relative to foreign goods. T/F

6. In the open economy goods market, the inclusion of exports flattens the slope of the demand for domestic goods. T/F

7. Net exports depend negatively on output. T/F

8. A real depreciation leads to an immediate improvement in the trade balance. T/F

9. A fixed exchange rate allows a country to retain control of its monetary policy. T/F

10. Suppose the U.S. government decides to sell bonds to finance deficit spending to combat a recession. Which of the following could happen as a result of the change?