RecallEasyOpenness in Goods Markets

Which of the following best defines a tariff?

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Why

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Chapter 17: not started.

ApplicationMediumExchange Rates

Holding all other factors constant, which of the following will cause the real exchange rate (\varepsilon = EP/P^{*}) to increase?

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Why

Tap an answer. The explanation will appear here, including why each wrong option is wrong.

Not quite. B is correct.

Since \varepsilon = EP/P^{*}, holding the nominal exchange rate E and domestic price level P constant, a decrease in the foreign price level P^{*} increases \varepsilon.

A: why it's wrongA decrease in E lowers the numerator of \varepsilon = EP/P^{*}, leading to a real depreciation.

B: why it's wrongIn the formula \varepsilon = EP/P^{*}, a fall in the foreign price level P^{*} decreases the denominator, increasing \varepsilon (a real appreciation).

Tap any option to see why it's right or wrong.

Not quite. B is correct.

Since \varepsilon = EP/P^{*}, holding the nominal exchange rate E and domestic price level P constant, a decrease in the foreign price level P^{*} increases \varepsilon.

A: why it's wrongA decrease in E lowers the numerator of \varepsilon = EP/P^{*}, leading to a real depreciation.

C: why it's wrongA decrease in P lowers the numerator, causing \varepsilon to fall.

Tap any option to see why it's right or wrong.

Not quite. B is correct.

Since \varepsilon = EP/P^{*}, holding the nominal exchange rate E and domestic price level P constant, a decrease in the foreign price level P^{*} increases \varepsilon.

A: why it's wrongA decrease in E lowers the numerator of \varepsilon = EP/P^{*}, leading to a real depreciation.

D: why it's wrongAn increase in P^{*} raises the denominator, causing \varepsilon to decline.

Tap any option to see why it's right or wrong.

Not quite. B is correct.

Since \varepsilon = EP/P^{*}, holding the nominal exchange rate E and domestic price level P constant, a decrease in the foreign price level P^{*} increases \varepsilon.

A: why it's wrongA decrease in E lowers the numerator of \varepsilon = EP/P^{*}, leading to a real depreciation.

undefined: why it's wrongBoth changes reduce the numerator, causing a sharp drop in \varepsilon.

Tap any option to see why it's right or wrong.

Not quite. B is correct.

Since \varepsilon = EP/P^{*}, holding the nominal exchange rate E and domestic price level P constant, a decrease in the foreign price level P^{*} increases \varepsilon.

B: why it's wrongIn the formula \varepsilon = EP/P^{*}, a fall in the foreign price level P^{*} decreases the denominator, increasing \varepsilon (a real appreciation).

Tap any option to see why it's right or wrong.

Not quite. B is correct.

Since \varepsilon = EP/P^{*}, holding the nominal exchange rate E and domestic price level P constant, a decrease in the foreign price level P^{*} increases \varepsilon.

B: why it's wrongIn the formula \varepsilon = EP/P^{*}, a fall in the foreign price level P^{*} decreases the denominator, increasing \varepsilon (a real appreciation).

C: why it's wrongA decrease in P lowers the numerator, causing \varepsilon to fall.

Tap any option to see why it's right or wrong.

Not quite. B is correct.

Since \varepsilon = EP/P^{*}, holding the nominal exchange rate E and domestic price level P constant, a decrease in the foreign price level P^{*} increases \varepsilon.

B: why it's wrongIn the formula \varepsilon = EP/P^{*}, a fall in the foreign price level P^{*} decreases the denominator, increasing \varepsilon (a real appreciation).

D: why it's wrongAn increase in P^{*} raises the denominator, causing \varepsilon to decline.

Tap any option to see why it's right or wrong.

Not quite. B is correct.

Since \varepsilon = EP/P^{*}, holding the nominal exchange rate E and domestic price level P constant, a decrease in the foreign price level P^{*} increases \varepsilon.

B: why it's wrongIn the formula \varepsilon = EP/P^{*}, a fall in the foreign price level P^{*} decreases the denominator, increasing \varepsilon (a real appreciation).

undefined: why it's wrongBoth changes reduce the numerator, causing a sharp drop in \varepsilon.

Tap any option to see why it's right or wrong.

Not quite. B is correct.

Since \varepsilon = EP/P^{*}, holding the nominal exchange rate E and domestic price level P constant, a decrease in the foreign price level P^{*} increases \varepsilon.

C: why it's wrongA decrease in P lowers the numerator, causing \varepsilon to fall.

D: why it's wrongAn increase in P^{*} raises the denominator, causing \varepsilon to decline.

Tap any option to see why it's right or wrong.

Not quite. B is correct.

Since \varepsilon = EP/P^{*}, holding the nominal exchange rate E and domestic price level P constant, a decrease in the foreign price level P^{*} increases \varepsilon.

C: why it's wrongA decrease in P lowers the numerator, causing \varepsilon to fall.

undefined: why it's wrongBoth changes reduce the numerator, causing a sharp drop in \varepsilon.

Tap any option to see why it's right or wrong.

Not quite. B is correct.

Since \varepsilon = EP/P^{*}, holding the nominal exchange rate E and domestic price level P constant, a decrease in the foreign price level P^{*} increases \varepsilon.

D: why it's wrongAn increase in P^{*} raises the denominator, causing \varepsilon to decline.

undefined: why it's wrongBoth changes reduce the numerator, causing a sharp drop in \varepsilon.

Tap any option to see why it's right or wrong.

Your progress

Chapter 17: not started.

AnalysisHardExchange Rates

Suppose that over the past decade, U.S. inflation was lower than inflation in Mexico, and during this same period, the U.S. dollar depreciated nominally against the Mexican peso. Based on this information, the real exchange rate of the U.S. dollar relative to the Mexican peso:

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Why

Tap an answer. The explanation will appear here, including why each wrong option is wrong.

Not quite. B is correct.

The bilateral real exchange rate is \varepsilon = EP_{US}/P_{Mex}. A nominal depreciation of the dollar means E fell, and lower U.S. inflation means P_{US}/P_{Mex} fell. Since both components decreased, \varepsilon unambiguously decreased (a real depreciation).

A: why it's wrongBoth the nominal exchange rate and relative price ratio changed in the same direction, so the real rate cannot remain unchanged.

Tap any option to see why it's right or wrong.

Not quite. B is correct.

A: why it's wrongBoth the nominal exchange rate and relative price ratio changed in the same direction, so the real rate cannot remain unchanged.

B: why it's wrongThe real exchange rate is \varepsilon = EP_{US}/P_{Mex}. Since the dollar depreciated nominally, E decreased. Since U.S. inflation was lower than Mexican inflation, P_{US}/P_{Mex} also decreased. With both factors falling, \varepsilon must decrease.

Tap any option to see why it's right or wrong.

Not quite. B is correct.

A: why it's wrongBoth the nominal exchange rate and relative price ratio changed in the same direction, so the real rate cannot remain unchanged.

C: why it's wrongBoth terms in \varepsilon = E(P_{US}/P_{Mex}) decreased, which cannot result in an increase in \varepsilon.

Tap any option to see why it's right or wrong.

Not quite. B is correct.

A: why it's wrongBoth the nominal exchange rate and relative price ratio changed in the same direction, so the real rate cannot remain unchanged.

D: why it's wrongThe rate unambiguously decreased because both components moved downward.

Tap any option to see why it's right or wrong.

Not quite. B is correct.

A: why it's wrongBoth the nominal exchange rate and relative price ratio changed in the same direction, so the real rate cannot remain unchanged.

undefined: why it's wrongThe real exchange rate depends on prices and the nominal exchange rate, not trade volume weights for a single bilateral pair.

Tap any option to see why it's right or wrong.

Not quite. B is correct.

Tap any option to see why it's right or wrong.

Not quite. B is correct.

C: why it's wrongBoth terms in \varepsilon = E(P_{US}/P_{Mex}) decreased, which cannot result in an increase in \varepsilon.

Tap any option to see why it's right or wrong.

Not quite. B is correct.

D: why it's wrongThe rate unambiguously decreased because both components moved downward.

Tap any option to see why it's right or wrong.

Not quite. B is correct.

undefined: why it's wrongThe real exchange rate depends on prices and the nominal exchange rate, not trade volume weights for a single bilateral pair.

Tap any option to see why it's right or wrong.

Not quite. B is correct.

C: why it's wrongBoth terms in \varepsilon = E(P_{US}/P_{Mex}) decreased, which cannot result in an increase in \varepsilon.

Tap any option to see why it's right or wrong.

Not quite. B is correct.

C: why it's wrongBoth terms in \varepsilon = E(P_{US}/P_{Mex}) decreased, which cannot result in an increase in \varepsilon.

D: why it's wrongThe rate unambiguously decreased because both components moved downward.

Tap any option to see why it's right or wrong.

Not quite. B is correct.

C: why it's wrongBoth terms in \varepsilon = E(P_{US}/P_{Mex}) decreased, which cannot result in an increase in \varepsilon.

undefined: why it's wrongThe real exchange rate depends on prices and the nominal exchange rate, not trade volume weights for a single bilateral pair.

Tap any option to see why it's right or wrong.

Not quite. B is correct.

D: why it's wrongThe rate unambiguously decreased because both components moved downward.

Tap any option to see why it's right or wrong.

Not quite. B is correct.

D: why it's wrongThe rate unambiguously decreased because both components moved downward.

undefined: why it's wrongThe real exchange rate depends on prices and the nominal exchange rate, not trade volume weights for a single bilateral pair.

Tap any option to see why it's right or wrong.

Not quite. B is correct.

undefined: why it's wrongThe real exchange rate depends on prices and the nominal exchange rate, not trade volume weights for a single bilateral pair.

Tap any option to see why it's right or wrong.

Your progress

Chapter 17: not started.