Explain how a country with a current account surplus is a ripe candidate for currency revaluation
What will be an ideal response?
If a country like Germany had a current account surplus, it would sell its currency in the foreign exchange market in order to keep it from appreciating. The German central banks would thus find themselves swamped with official reserves, and Germany would face the problem of having its money supply grow uncontrollably, a trend that would most likely drive up the domestic price levels and upset internal balance. Revaluation of the currency would thus be a viable solution to this problem.
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The water-diamond paradox discussed in the text implies that
a. water, unlike diamonds, is not subject to the law of diminishing marginal utility b. the less abundant a good, the lower is its marginal utility although its total utility may still be relatively high c. the more abundant a good, the lower is its marginal utility although its total utility may still be relatively high d. people would trade water for diamonds, a useful for a useless good e. the price of water is higher than the price of diamonds
In a market economy:
A. collective decision-making is more important than individual decision-making. B. goods and services are distributed as if by an "invisible hand" to those who can not afford them. C. profit provides an incentive to be productive. D. the distribution of wealth is equitably distributed.
In the absence of technological progress, we know with certainty that an decrease in the saving rate will cause which of the following?
A) decrease steady state consumption B) increase steady state consumption C) have no effect on steady state consumption D) decrease steady state consumption only if the decrease in saving exceeds the increase in depreciation E) decrease steady state consumption only if the decrease in saving is less than the decrease in depreciation
Suppose the price of lumber decreases. In the market for new homes, we would expect which of the following to occur?
A) the market clearing price will fall and the equilibrium quantity will rise. B) the market clearing price will rise and the equilibrium quantity will fall. C) both the market clearing price and the equilibrium quantity will fall. D) both the market clearing price and the equilibrium quantity will rise.