1)Suppose that Australia’s price level is 140, the Euro price level is 100, and the nominal exchange rate of pounds to the dollar is Euro 0.

1)Suppose that Australia’s price level is 140, the Euro price level is 100, and the nominal exchange rate of pounds to the dollar is Euro 0.70 = $1, then the real exchange rate of Euros to the dollar is:

a)1.33. 

b) 0.75. 

c) 0.60. 

d) 0.98.

2)The large current account deficits in Australia mean that:

a) foreign countries lending more to Australia than Australia lending to them.

b) private savings have been at historically high levels.

c) foreign investors lack confidence in the strength of the Australian economy and the buying power of Australian consumers.

d) there has been little or no foreign investment in Australia.

3) In an open economy, monetary policy, in the short run, has:

a) a smaller impact on aggregate demand as compared to a closed economy.

b) the same impact on aggregate demand as compared to a closed economy.

c) a larger impact on aggregate demand as compared to a closed economy.

d) no impact on aggregated demand.

4) Assume that a Big Mac burger costs $3.57 in Australia and 7.80 zlotys in Poland. If the exchange rate is 1.8 zlotys per dollar, purchasing power parity predicts that the dollar will:

a) appreciate as the demand for dollars rises in the long run.

b) appreciate as the supply for dollars falls in the long run.

c) depreciate as the demand for dollars falls in the long run.

d) depreciate as the supply for dollars rises in the long run.

5) A country that imports a significant proportion of its consumer goods can avoid inflation by adopting a fixed exchange rate because it can avoid the price increases of ________ that occur when the value of the domestic currency ________.

a) imports; rises 

b) imports; falls 

c) exports; rises 

d) exports; falls 

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