The basics of the ERM in the EC provided for:
A) flexible exchange rates and free capital flows.
B) fixed exchange rates based on the U.S. dollar.
C) gradual conversion to a common currency (the euro).
D) fixed exchange rates based on a weighted basket of currencies formula.
Ans: D) fixed exchange rates based on a weighted basket of currencies formula.
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A nation that has done well economically in spite of a lack of natural resources is
a. the United States. b. Japan. c. Canada. d. Australia.
If the dollar appreciates relative to the yen, we would expect:
a. that the Japanese trade surplus with the United States would increase. b. that Japanese imports from the United States would decrease c. that Japanese exports to the United States would decrease. d. both (a) and (b)
Two car dealers have lots across the street from each other. Frank decides that he is going to raise his prices. Sandra decides to drop her prices. Which of the following scenarios is one in which Frank could make money?
a. Customers assume that higher prices mean more inventory. b. Sandra’s prices are lower than Frank’s. c. Another dealer has lower prices than both Sandra and Frank. d. Customers assume that higher-priced cars must be of higher quality.
Aggregate demand decreases and real output falls but the price level remains the same. Which factor would most likely contribute to downward price inflexibility?
A. Menu costs. B. Lower interest rates. C. An increase in aggregate supply. D. The real-balances effect.