Econ 1102 Recitation 9 Gina Pieters Recitation 9 A B C D E Large Open Economy Appreciation or Depreciation Nominal Exchange Rate and Prices Real Exchange Rate and Prices Purchasing Power Parity A Large Open Economy USA Price of Plutonium US Price of Plutonium US Canada 2 75 2 25 1 75 60 55 Tons of Plutonium 2 00 1 50 1 00 20 30 Tons of Plutonium 65 40 1 Given the information above construct the trade equilibrium in the space provided below 10 20 B Appreciation or Depreciation Originally the dollar euro exchange rate was 1 5 Now it s 1 3 Has the Euro appreciated or depreciated relative to the Dollar Originally the dollar euro exchange rate was 1 5 Now it s 1 8 Has the Euro appreciated or depreciated relative to the dollar Page 1 of 3 Econ 1102 Recitation 9 Gina Pieters C Nominal Exchange Rate and Prices 1 Suppose Coca Cola sells for 1 in the USA and the nominal exchange rate is 1 1 What is the approximate price of Coca Cola in Euros 2 Now suppose the exchange rate is 1 2 What is the approximate price of Coca Cola in Euros D Real Exchange Rate and Prices 1 Suppose that the exchange rate is 1 2 and Coca Cola sells for 1 in the USA and 4 in Europe What is the Real Exchange Rate E Purchasing Power Parity 1 What should the nominal exchange rate be for PPP to hold in the example above 2 What should the real exchange rate be for PPP to hold in the example above Additional Questions 1 Suppose Pepsi sells for 2 in the USA and the nominal exchange rate is 2 1 What is the approximate price of Pepsi in Euros 2 Now suppose the exchange rate is 1 1 What is the approximate price of Pepsi in Euros 3 Suppose that the exchange rate is 1 2 and Pepsi sells for 2 in the USA and 3 in Europe What is the Real Exchange Rate 4 What should the nominal exchange rate be for PPP to hold in the example above 5 Australia 2 50 1 50 2 New Zealand 4 23 Page 2 of 3 20 25 30 Econ 1102 Recitation 9 22 50 30 Gina Pieters 37 50 1 Given the information above construct the trade equilibrium in the space provided below Page 3 of 3
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