Suppose That a Kilogram Can of Coffee Costs About $6

question 197

Multiple Choice

Suppose that a kilogram can of coffee costs about $6 in Canada. Suppose the exchange rate is about 0.7 euro per dollar and that a kilogram can of coffee in Belgium costs about 2.1 euros. What is the real exchange rate?

• A)2.45 cans of Belgian coffee per can of Canadian coffee
• B)3/4 cans of Belgian coffee per can of Canadian coffee
• C)3/5 cans of Belgian coffee per can of Canadian coffee
• D)2 cans of Belgian coffee per can of Canadian coffee

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Definitions:

Money Supply

The total amount of monetary assets available in an economy at a specific time, including cash, bank deposits, and other liquid assets.

Expansionary Monetary Policy

A monetary policy approach used by central banks to increase the money supply and lower interest rates, aiming to stimulate economic growth.

Classical Economics

A school of thought in economics that emphasizes the importance of free markets, competition, and the self-regulating nature of economies.

Adam Smith

A Scottish economist, philosopher, and author who is considered the father of modern economics, known for his theories on free markets.