# ECON 214 InQuizitive ch. 20 Liberty University Solution

According to the law of one price, identical goods sold –must sell for the same price, except for costs associated with –. Those costs reflect – and the cost of shipping. According to the law of one price, if the price of a good in one location does not match the price of the same good in a different location, sellers will increase supply in the location where the good is – until prices in both locations are equal.

An – reflects the amount of one currency required to purchase one unit of another currency. To put it simply, it is the – of foreign currency. This rate is set by – in foreign exchange markets. When a currency becomes more valuable in the market, this is called –; when a currency becomes less valuable, this is called –.

Suppose that it currently costs 17 Mexican pesos to buy one U.S. dollar. With that as the reference point, decide whether each situation corresponds to a price above or below 17 pesos/dollar.

Adding the current account balance to the capital account balance should always sum to –. This is because every transaction that transfers an asset in one direction transfers payment for the asset in the – direction. Thus, if the current account is in surplus, the capital account is in –. Currently, the United States holds a – account deficit and a – account surplus.

– exchange rates are rates fixed at a certain level through the actions of a government. – exchange rates are rates determined by natural market forces. Between 2008 and 2010, China pegged its currency to the – at a value consistently – what would have been the market-determined rate. The Chinese government did this so that Chinese goods and services would be – expensive on world markets.

In an exchange of money between U.S. dollars and Turkish lira, if the exchange rate is 0.4 dollars per lira, what is the rate in liras per dollar?

Apply the correct label to indicate the result of each event for the dollars-per-yuan exchange rate between the United States and China.

In 2015, in the United States a Big Mac cost \$4.79. Assuming purchasing power parity, what would a Big Mac have cost in Indian rupees, if the exchange rate was \$0.016 per rupee? Round to three decimal places.

A woven-leather chair costs \$570 in the United States. If the exchange rate between U.S. dollars and Mexican pesos is \$0.06 per peso, how much should the same chair cost in Mexico? Assume that purchasing power parity holds perfectly in this case.

Suppose there is a shift in the international market for Japanese cars. Order the following events to show how a shift in consumer preferences can affect exchange rates.

Shown is the capital account for 2014 for the fictional country of Balancia. Given these entries, what can we assume about the current account for the same year?

A desk costs \$195 in the United States. The same desk costs 150 British pounds. If purchasing power parity holds perfectly, what is the exchange rate in dollars per pound?

Deficit spending requires borrowing, which the U.S. government does by selling Treasury securities. When those bonds are bought by –, the result is a positive contribution to the – account balance, which implies a negative contribution to the – account balance.