Define the following terms and explain their importance to the study of macroeconomics:
a. exchange rate
b. depreciation
c. devaluation
d. fixed exchange rates
a. The exchange rate states the price, in terms of one currency, at which another currency can be bought.
b. A currency is said to depreciate when exchange rates change so that a unit of the currency buys fewer units of a foreign currency. If one currency depreciates, at least one other must appreciate.
c. Devaluation is the official reduction of the exchange rate of a currency. Devaluation can occur only in a fixed exchange rate system.
d. Fixed exchange rates are rates set by government decision and maintained by government policies. Fixed exchange rates are often marked by crises generated by persistent balance of payments imbalances.
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According to Figure 6.1, the average annual rate of growth of the U.S. economy in the period 1948-73 equalled ________
A) 1.8 percent B) 4.0 percent C) 39 percent D) 697 percent
Under a gold standard,
a. a nation's currency can be traded for gold at a fixed rate b. a nation's central bank or monetary authority has absolute control over its money supply c. new discoveries of gold have no effect on money supply or prices d. prices are constant (there is no inflation and no deflation) e. all international transactions are financed with gold
Alberta buys a paint sprayer and a lift for her car customizing shop. A macroeconomist would refer to these purchases as investment
a. True b. False Indicate whether the statement is true or false
Which of the following pairs of portfolios exemplifies the risk-return tradeoff?
a. For Portfolio A, the average return is 6 percent and the standard deviation is 15 percent; for Portfolio B, the average return is 6 percent and the standard deviation is 25 percent. b. For Portfolio A, the average return is 5 percent and the standard deviation is 15 percent; for Portfolio B, the average return is 8 percent and the standard deviation is 15 percent. c. For Portfolio A, the average return is 5 percent and the standard deviation is 25 percent; for Portfolio B, the average return is 8 percent and the standard deviation is 15 percent. d. For Portfolio A, the average return is 5 percent and the standard deviation is 15 percent; for Portfolio B, the average return is 8 percent and the standard deviation is 25 percent.