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National income accounting and currency appreciation

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1. Suppose the value of the French Franc in terms of the dollar is:
50 on October 12 , and 44 on October 17 . By how much has the Franc appreciated or depreciated against the dollar?

The value of the Franc rises against dollar by 12
The Franc has actually depreciated by 12%.
The Franc has remained constant relative to the dollar
The dollar has actually appreciated by 12%.

2. Which of the following identities is FALSE?
Y ï?½C + I + G + NX
YD = Y - TA + TR
BS ï?½ TA - TR - G
I - S ï?½ (G - TA + TR) + NX
S + TA - TR = I + G + NX

3. In calculating this year's GDP, national income accountants:

exclude the price paid for a used computer by a college student
include any increase in stock values
include an estimate for income from illegal activities
exclude the value of any repairs made on existing property
exclude pollution control equipment as nonproductive

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Solution Preview

. Suppose the value of the French Franc in terms of the dollar is:
50 on October 12 , and 44 on October 17 . By how much has the Franc appreciated or depreciated against the dollar?

The Franc has actually depreciated by 12%.

12-oct: 1 franc = 0.50 $
17-oct: 1 franc = 0.44 $
This means that a franc ...

Solution Summary

Multiple choice questions related to currency appreciation and national income accounting identities.

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1. Describe the monetary approach to exchange rates between a pair of countries, including description of the market involved and the equilibrium conditions that must hold. Why does this approach fail to fully explain exchange rate movements?

2. Explain the difference between open economy and closed economy national income accounting. what is the difference between total savings under these two approaches?

3. What is the theory of purchasing power parity? This theory has been found to fail empirically. Give three reasons, with examples or illustrations, of why this is the case.

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