11.Suppose the cost of a market basket of goods in Hong Kong is 1,245 Hong Kong dollars, while the cost of the same market basket in Philippines is 6,500 Philippine peso. Calculate the Philippine peso/ Hong Kong dollar exchange rate if purchasing power parity holds between the two.

Select one:

a.

0.19

b.

4.82

c.

0.81

d.

5.22

e.

4.32

13 Compute the domestic spending of a nation given: total exports = $6,500 million, total imports = $8,500 million, and gross domestic product (GDP) = $12,500 million.

Select one:

a.

$10,500 million

b.

$12,500 million

c.

$15,000 million

d.

$2,000 million

e.

$14,500 million

14. Worldwide data on unemployment and inflation rates for 2009 revealed that:

Select one:

a.

unemployment rates in most countries across the world were below 3 percent.

b.

unemployment rate in the U.S. more than doubled the normal unemployment rate.

c.

inflation rates in most countries across the world exceeded 6 percent.

d.

India experienced the lowest rate of inflation in the world during this year.

e.

Indonesia was the only country which experienced deflation during this year.

15. Identify the correct statement about purchasing power parity.

Select one:

a.

It is often expressed as the relationship between the exchange rate and the price indices.

b.

It holds when the spot exchange rate is equal to the ratio of the inflation rates.

c.

It holds when the ratio of the market basket of goods between the two countries is equal to 1.

d.

It assumes that different taxes are applied in different states and different countries.

e.

It is also called the law of one price.

16. According to the national income identity, when a country experiences a trade deficit:

Select one:

a.

investment spending exceeds domestic spending by an equal amount.

b.

GDP exceeds domestic spending by an equal amount.

c.

consumption spending exceeds GDP by an equal amount.

d.

domestic spending exceeds GDP by an equal amount.

e.

GDP exceeds investment spending by an equal amount.