ECONOMICS 353 (SECTION 1) L. Tesfatsion/Spring 01 EXERCISE SET 6: 5 POINTS TOTAL DUE: Tuesday, March 20, 9:30 A.M. *IMPORTANT REMINDER: LATE ASSIGNMENTS CANNOT BE ACCEPTED -- NO EXCEPTIONS* *NOTE:* Please FILL IN YOUR NAME, BIRTH DATE, AND ID (SOC SEC) No. on Side 1 of a RED bubble (answer) sheet and write "353 SECTION 1-EXERCISE SET 6" in the top margin of Side 1. Use a #2 pencil to MARK YOUR ANSWERS on Side 1 of the bubble sheet to the following five multiple choice questions: 1-1 If the U.S. exchange rate for the Thai baht changes from 5 bahts to the U.S. dollar to 10 bahts to the U.S. dollar, then A. The U.S. dollar has depreciated relative to the Thai baht. B. Thai silk will become more expensive for U.S. residents. C. Thai silk will become more expensive for Thai residents. D D. U.S. bluejeans will become more expensive for Thai residents. 2-1 According to the Law of One Price, if Malaysian coffee is 4 ringitts per pound and Slovakian coffee is 44 korunas per pound, the coffees are of equal quality, and transport costs are zero, then the exchange rate between the Malaysian ringitt and the Slovakian koruna should approximately be A. 4 ringitts per 1 koruna B B. 0.09 ringitts per 1 koruna C. 11 ringitts per 1 koruna D. l ringitt per 1 koruna 3-1 Given a world divided between HC and ROW, the Purchasing Power Parity condition in level form asserts that A. the HC nominal exchange rate will stay constant over time B. the HC real interest rate will stay constant over time C C. the HC real exchange rate will stay constant over time D. the value of HC GDP and ROW GDP will stay equal over time 4-1 Suppose the inflation rate in Sweden is 5 percent during 2000 and the inflation rate in South Korea is 3 percent during 2000. Then the Purchasing Power Parity condition predicts that, during 2000, the value of the Swedish currency (kronas) measured in terms of the South Korean currency (wons) -- i.e., the number of wons per krona -- will A A. fall by 2 percent B. rise by 2 percent C. rise by 8 percent D. fall by 8 percent 5-1 If the average nominal interest rate on bank deposit accounts in the ROW is 6 percent, and if the average nominal interest rate on HC bank deposit accounts is 9 percent, then the Interest Parity condition predicts that the HC nominal exchange rate E with respect to ROW is expected to ______________. A. appreciate by 1.5 percent B. depreciate by 1.5 percent C. appreciate by 3 percent D D. depreciate by 3 percent E. none of the above
