Assume that the interest parity condition holds. Also assume that the U.S. interest rate is 6% while the U.K. interest rate is 8%. Given this information, financial markets expect the pound to
A) depreciate by 14%.
B) depreciate by 2%.
C) appreciate by 2%.
D) appreciate by 6%.
E) appreciate by 14%.
B
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Microeconomics, as opposed to macroeconomics, includes the study of what determines the
A) unemployment rate in the United States. B) profitability of the airline industry. C) size of the federal deficit. D) rise or fall of the inflation rate.
An earthquake destroys a good portion of the capital stock. How would you expect this to affect the capital—labor ratio in the long run? There would be
A) a rightward movement along the saving-per-worker curve and an increase in the capital—labor ratio. B) no change in the long-run capital—labor ratio. C) a downward shift in the saving-per-worker curve and a decrease in the capital—labor ratio. D) a leftward movement along the saving-per-worker curve and a decrease in the capital—labor ratio.
When an economy experiences deflation, investment will:
A. decrease, because businesses will not take out loans that will increase in value over time. B. increase, because businesses will take out loans that will increase in value. C. decrease, because businesses will spend cash instead of borrowing it. D. increase, because businesses will spend cash instead of borrowing it.
The net value to the federal government of the bonds currently held in the Social Security Trust Fund is
a. approximately $1 trillion. b. now approaching $2 trillion. c. greater than $2.5 trillion. d. zero, because the federal government is both the payee and recipient of the interest and principal represented by these bonds.