Exam 15: Exchange Rates in the Long Run

PPP holds better for ________ countries.

If absolute PPP held,then the real exchange rate must be equal to

The domestic currency is said to be ________ if it has appreciated at a lower rate than the difference between the domestic inflation rate and the higher foreign inflation rate.

Which of the following is correct?

Explain briefly what an "overvalued" currency is. Would you change your explanation depending upon whether or not there is central bank intervention or not? Discuss.

We expect that in the long run,exchange rate movements will largely reflect inflation differentials.

In economics,what does CPI stand for?

Evidence suggests that,following some exogenous shock,exchange rates change

Deviations from PPP

If the law of one price holds for a single good,then absolute PPP measured with price indexes will also hold.

If the price of Big Mac is $3.61 in the U.S.and 3.405 € in France,and PPP holds,what is the value of the euro in dollars that is implied by The Economist magazine's Big Mac index? A)$1.060 B)$0.943 C)$1.943 D)None of the above.

Over a short-run period (i.e.,week or month),________ dominate exchange rate movements.

If the dollar appreciates against the Canadian dollar at a faster rate than the Canadian inflation rate exceeds the U.S.rate,then the U.S.dollar appears

The more homogeneous goods are,the more we expect the law of one price to hold.

The law of one price should hold well for

The only reason that exchange rates change is because overall price levels in the countries change.

PPP holds better for low-inflation countries.

Studies of PPP covering many years will be more likely to yield evidence of PPP than studies based on short-run data.

If absolute PPP holds,then relative PPP will also hold.

What are the main reasons for deviations from PPP? Give,at least,5 reasons with a short explanation.