Use the following information to answer questions 5-7 The following diagram is a

Question

Use the following information to answer questions 5-7 The following diagram is a flexible exchange market for foreign currency $0.80 0 Quantity of Euros 5) Refer to the above diagram. At the equilibrium exchange rate a) $8 will buy I euro. b) 0.8 euros will buy $1. c) 1.25 euros will buy $1. d) $1 will buy 8 euros. the above diagram. Other things equal, a rightward shift of the demand curve would: 6) Refer to a) depreciate the dollar. b) appreciate the dollar c) reduce the equilibrium quantity of euros d) depreciate the euro, fer to the above diagram. Other things equal, a rightward shift of the supply curve would a) appreciate the euro, b) cause a surplus of euros. c) decrease the equilibrium quantity of euros. d) appreciate the dollar. Second: International Parity Conditions 8)states that differential rates of inflation between two countries tend to be offset over time by an equal but opposite change in the spot exchange rate. a) The Fisher Effect b) The International Fisher Effect c) Absolute Purchasing Power Parity d) Relative Purchasing Power Parity

Explanation / Answer

Question 5 : Option C is a correct option. As $ 0.80 is th price of one Euro. Similarly $1 is th price of 1.25 Euros.

Question 6 : Option A is a correct option. As the rightward shift of demand curve would increase the price of dollar for one euro. This would show depreciated value of Dollar.

Question 7 : Option D is a correct option. As the rightward shift of supply curve would decrease the price of dollar for one Euro. This would show appreciated value of Dollar.

Question 8 : Option D is a correct option. (Relative Purchasing Power Parity)

Related Questions

Navigate

• Browse (All)
• Browse U
• Subjects

---