Purchasing power parity theory of the exchange rate implies

Reference no: EM13692374

1) In the past decade, the United States has been running extraordinary large foreign trade deficits. This is possible by the

A) desire of China, Japan, and other countries to keep their currencies from weakening against the dollar.

B) desire of the U.S. government to maintain budget surplus.

C) desire of China, Japan and other countries to keep their currencies from strengthening against the dollar.

D) desire of the U.S. population to save large amounts of their income.

2) The purchasing power parity theory (PPP) of the exchange rate implies that the real exchange rate between two countries

A) should rise when the foreign price level increases relative to the domestic price level.

B) should fall when the foreign price level decreases relative to the domestic price level.

C) should be constant.

D) B and C.

3) Since the early 1980s, the U.S. current account has

A) been in near-balance in every year.

B) alternated between sizable deficits and surpluses.

C) been in deficit every year.

D) been in surplus every year.

Reference no: EM13692374

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