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Relative Purchasing Power Parity Theory Quiz

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Relative Purchasing Power Parity Theory Quiz

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Questions and Answers

What is the purpose of calculating exchange rate indices?

To calculate the nominal effective exchange rate index

To measure the response of imported product prices to changes in exchange rates

To evaluate the relative purchasing power of different currencies (correct)

To determine the price elasticity of demand for a good

What does the real effective exchange rate index measure?

The purchasing power of a currency in terms of PPP (correct)

The nominal value of a currency

The price elasticity of demand for a good

The exchange rate pass-through of a country

What is the formula for the exchange rate index?

ER = EN × CC (correct)

ER = EN + CC

ER = EN - CC

ER = EN / CC

What is the base year for the real effective exchange rate indexes in Exhibit 6.3?

2010 Signup and view all the answers

What is exchange rate pass-through a measure of?

The response of imported and exported product prices to changes in exchange rates Signup and view all the answers

What is the own-price elasticity of demand for a good?

The percentage change in quantity of the good demanded as a result of the percentage change in the good's price Signup and view all the answers

What is the symbol for the own-price elasticity of demand for a good?

εp Signup and view all the answers

What is an important factor when determining exchange rate pass-through levels?

The price elasticity of demand for a good Signup and view all the answers

Which countries have chosen to change their objectives and choices in recent years?

Emerging market countries Signup and view all the answers

What is the source of the data for Exhibit 6.3?

Bank for International Settlements Signup and view all the answers