Explain how exchange rates affect the level of aggregate economic activity and the price level. Use appropriate AS/AD diagrams to illustrate your answer.
What will be an ideal response?
A currency appreciation will shift AD inward and shift AS outward. Economists think that the AD effect is larger in magnitude than the AS effect. The net effect on the economy is lower inflation, lower real output, and higher unemployment. A currency depreciation will shift AD outward and shift AS inward. Assuming the AD effect is larger than the AS effect, the economy will experience higher inflation, higher real output, and lower unemployment.
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Which of the following is NOT true of the term premium?
A) It is zero under the expectations theory. B) It is infinite under the segmented markets theory. C) It increases as a bond's maturity increases. D) It is zero for thirty-year bonds.
Contracts are distinguished from tactical alliances by which of the following characteristics:
a. involve sequential responses b. require third-party enforcement c. raise shareholder value d. elicit diminished reactions from competitors
Which of the following statements about the minimum wage is correct?
a. An increase in the minimum wage enhances the well-being of all unskilled workers. b. An increase in the minimum wage has no effect on the well-being of middle-class families. c. Advocates of the minimum wage argue that the demand for labor is relatively inelastic. d. Critics of the minimum wage argue that it is an undesirable way of helping the poor because it is costly to the government.
The more institutional constraints that exist in a particular society,
A) the closer the institutional PPF will lie to the physical PPF. B) the farther out from the origin the institutional PPF will lie. C) the closer to the origin the institutional PPF will lie. D) the closer to the origin the institutional PPF will lie and the farther out from the origin the physical PPF will lie.