Suppose a Dell computer that sells for $2,000 in the U.S. is exported to Canada, where it sells for 2,500 Canadian dollars. Further assume that 1.5 Canadian dollars trade for one U.S. dollar in the foreign exchange market. According to the purchasing power parity theory and the price data for this computer, is the Canadian dollar more likely undervalued, properly valued, or overvalued relative to
the U.S. dollar?
a. Undervalued
b. Properly valued
c. Overvalued
d. Cannot be determined from the information given
a
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The gap in GDP between the United States and Europe can be explained by the fact that
A) income taxes are higher in the United States. B) prices are higher in the United States. C) equilibrium employment is higher in Europe. D) the Okun Gap is larger in the United States. E) U.S. labor is more productive than European labor.
What impact would the Fed's raising the interest rate have on any inflationary pressure in the economy?
A) An increase in interest rates decreases the money demand, which could slow increases in the price level. B) An increase in interest rates decreases the exchange rate, which causes net exports to rise, generating inflation. C) An increase in interest rates increases real GDP, which creates inflation in an economy. D) An increase in interest rates increases the money supply, which could cause the price level to increase.
Using the standard 45° line diagram, how does a decrease in net exports effect the expenditure schedule?
A. It increases the slope of the expenditure schedule. B. It decreases the slope of the expenditure schedule. C. It shifts the expenditure schedule upward. D. It shifts the expenditure schedule downward.
To be a natural monopoly, a firm must
a. control an essential natural resource input. b. be very large. c. have a continuously falling average cost curve as output rises. d. have falling average costs over a substantial range of total market demand.