Suppose a deposit in New York earns 6 percent a year and a deposit in London earns 4 percent a year. Interest rate parity holds if the
A) U.S. dollar appreciates by 2 percent a year.
B) U.S. dollar depreciates by 2 percent a year.
C) U.K. pound depreciates by 2 percent a year.
D) None of the above answers is correct because interest rate parity requires that the interest rates be the same in both countries.
B
You might also like to view...
When the economy operates below full employment, an increase in government spending must crowd out another component of GDP
Indicate whether the statement is true or false
If a monopoly is maximizing profits,
a. price will always be greater than the elasticity of demand. b. price will always equal marginal cost. c. price will always be greater than marginal cost. d. price will always equal marginal revenue.
Keynes called the money people hold in order to buy bonds, stocks, or other nonmoney financial assets the:
a. transactions demand for holding money. b. precautionary demand for holding money. c. speculative demand for holding money. d. unit of account demand for holding money.
What is an example of the substitution effect?
A. The firm expands output when production costs fall. B. The firm hires more labor when the wage falls because labor has become relatively cheaper compared to the price of other factors of production. C. Workers choose to provide more hours of labor when the wage rate decreases. D. More labor is hired as long as the marginal product of labor is positive. E. The firm expands output when production costs increase.