When the exchange rate is allowed to adjust to market forces, all of the following are true except one. Which is the exception?
a. The foreign exchange market clears continually.
b. The quantities of foreign exchange demanded and supplied are equal.
c. The exchange rate will only change if the central bank alters the exchange rate.
d. The exchange rate will remain constant until a change occurs in one of the factors that affect supply or demand.
e. The forces of demand and supply determine the exchange rate.
C
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The fact that output gaps will not last indefinitely, but will be closed by rising or falling inflation is the economy's:
A. income-expenditure multiplier. B. self-correcting property. C. short-run equilibrium property. D. long-run equilibrium property.
A local government currently has a tax base of $10 billion and a tax rate of 10 percent. If the tax rate is increased to 12 percent, the tax base becomes $8.5 billion. If the goal is to maximize tax revenues the tax rate should be
A) raised above 12 percent. B) kept at 10 percent. C) raised to 12 percent. D) abolished.
Suppose TC = 10 + (0.1 ? q2). If p = 10, the firm's profit-maximizing level of output is
A) 40. B) 50. C) 60. D) 0, since the firm will shut down.
How does policy forward guidance influence the economy and inflation?
What will be an ideal response?