The purchasing power parity theory predicts that changes in the relative price levels of two countries will affect the exchange rate in such a way that
A) one unit of a nation's currency will buy more foreign goods than it did before the change in the relative price levels.
B) one unit of a nation's currency will buy fewer foreign goods than it did before the change in the relative price levels.
C) one unit of a nation's currency will continue to buy the same amount of foreign goods as it did before the change in the relative price levels.
D) the percentage of depreciation in one currency equals the percentage of appreciation in the other currency.
C
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The utility function captures
A) how consumers interact. B) how an individual consumer ranks consumption bundles. C) how output is produced from labor and capital inputs. D) how happy a consumer is about a given consumption bundle.
When fiscal policy makers wish to reduce aggregate demand, they could enact:
A. contractionary fiscal policy. B. expansionary fiscal policy. C. contractionary monetary policy. D. expansionary monetary policy.
If a firm finds that the wage rate (W) is less than the value of marginal product (VMP), then to maximize its profit the firm should hire
A) less labor, which will increase the VMP. B) more labor, which will decrease the VMP. C) no more or less labor, because profits are greatest when W < VMP. D) more labor, because hiring more labor will increase both W and VMP until they are equal.
The demand curve for a luxury good is upward sloping
Indicate whether the statement is true or false