If a country's currency is "pegged" to another currency, this means
A. workers in that country use the other nation's currency in daily transactions.
B. the World Trade Organization sets the exchange rate and enforces it with trade sanctions.
C. the currency's value is determined by the supply and demand for that currency in a free currency market.
D. the government of that country is managing the exchange rate so that it stays the same.
Answer: D
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If the demand for a country's currency increases, the currency
A) appreciates. B) depreciates. C) stays the same. D) could either appreciate, depreciate, or stay the same.
Mean reversion refers to the fact that
A) small firms have higher than average returns. B) stocks that have had low returns in the past are more likely to do well in the future. C) stock returns are high during the month of January. D) stock prices fluctuate more than is justified by fundamentals.
Which of the following statements about a monopolistically competitive firm is TRUE?
A) A monopolistically competitive firm does not always equate marginal cost to marginal revenue because it uses other means to maximize profits. B) A monopolistically competitive firm maximizes profits by charging a price equal to marginal cost. C) A monopolistically competitive firm produces the quantity at the point at which the demand curve crosses the marginal cost curve. D) A monopolistically competitive firm maximizes profits when it produces the quantity at which marginal cost equals marginal revenue.
Suppose 60,000 pesos buys a basket of goods in Mexico. If, at the existing exchange rate, it costs less than 60,000 pesos to buy the same basket of goods in the United States, then purchasing power parity implies that the:
A. dollar is overvalued. B. dollar should cost more pesos. C. dollar should cost fewer pesos. D. peso is undervalued.