What do reports that the dollar is "overvalued" mean? How will foreign exchange markets respond to this information? Support your answer graphically
What will be an ideal response?
If the dollar is "overvalued," that means that the current exchange rate (foreign currency per dollar) is greater than the relative purchasing power of the dollar. This implies that currency traders will reduce their holdings of dollars (the supply curve for dollars will shift to the right) and increase their holdings of other currencies against which the dollar is "overvalued." As the supply of dollars increases, the exchange rate will fall. The exchange rate will continue to fall until the dollar's value accurately reflects its relative purchasing power.
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If the long-run average cost curve is U-shaped, the optimal scale of production from society's viewpoint is
A) where maximum economic profit is earned by producers. B) the minimum efficient scale. C) one which guarantees economic profit. D) where firm profit is large enough to finance research and development.
Why might improvements in children's public health care services lower fertility?
What will be an ideal response?
Used car buyers will believe that a car is of good quality when the seller signals the car's high quality by offering a warranty when
A) a warranty on a lemon is costly to the seller. B) warranties are offered on all cars. C) warranties are only offered on lemons. D) a warranty on a good car is a false signal.
Using the UIP equation to determine the spot exchange rate, assume that the expected spot rate (after one year) for euros (in terms of dollars) = $1.50, the current interest rate on euro deposits is 4.5%, and the current interest rate on dollar deposits is 5.5%. Which of the following current spot rates would satisfy the equation?
a. $1.65 b. $1.50 c. $1.485 d. $1.25